editorialThey all laughedFormerly, when I wanted to start a conversation with a market analyst or a Wall Street financier, I'd ask them about "bandwidth futures"-the notion that bandwidth eventually would become a commodity ripe for speculative investment. The question would usually elicit a smile and a "who knows, maybe someday" shrug of the shoulders.Then Enron Communications announced last May that it was opening its own bandwidth commodity exchange. Of course, various Internet-based brokers were offering minutes here and there all over the world, but this was the first time a carrier had set up shop for such trading. The advantages of commodity-based bandwidth exchange are numerous. Reduced to the essentials, the ideal commodity market would enable end users and carriers to find the bandwidth they needed, where they wanted it, for only as long as they required it. Prices would be kept low by market forces. Of course, bandwidth providers that can keep costs low stand to flourish in this kind of environment-and since Enron touts its network, which runs Internet protocol directly over fiber, as the most cost-effective in the industry, you can understand why the company might be interested in hastening the advent of commodity-style markets. This last factor did not escape the attention of market research firm Current Analysis, which panned Enron's initiative when it was first announced. While the company's view of the announcement took into account some potential technological drawbacks with Enron's approach, the analyst who offered the Current Analysis opinion put the main objective rather succinctly: "Why should a bandwidth provider push for this type of solution now?" Bandwidth offerings, particularly from more established carriers such as AT&T and MCI WorldCom, still provide high margins and can be differentiated by quality of service, brand-name recognition, and other factors, the analyst argued. In other words, bandwidth wasn't yet enough of a commodity to be traded like one, and most carriers would postpone the creation of such a market state for as long as possible. This certainly made sense to me, so it was with some surprise that I read the recent announcement that Global Crossing had signed on to Enron's market strategy. Of course, as the ever-vigilant Current Analysis immediately pointed out, Global Crossing runs an architecture similar to Enron's and might also see an advantage to hastening a commodity environment. Two carriers don't make such a market, Current Analysis says; when the "big boys" climb on board, then you might have something. I can't say I expect the new Enron market strategy will force a significant switch to commodity pricing in the near future. But it does underscore the notion that this is indeed the direction that the bandwidth market is heading. If nothing else, what Enron has done is demonstrate that it understands where the users of bandwidth want to go-and now that a carrier is willing to head in that direction, the pressure will mount on everyone in this industry to begin offering shorter leases and more flexible offerings, at the very least. Commodity sales may not be the rule in the very near future, but commodity-like rules may be demanded of bandwidth providers quite soon. Stephen Hardy Editorial Director & Associate Publisher |