editorial

Will online trading go offline?

This month's cover story looks at the future of bandwidth trading, both near term and over the horizon. Near term, the online bandwidth exchanges have already proven their viability. In the more distant future (although perhaps not as distant as first appeared), the creation of commodity trading in the bandwidth market promises the same efficiencies currently enjoyed in fields such as energy. The question these two visions of the future pose now is whether they are mutually exclusive. In other words, once you have commodity trading of bandwidth, will the need for the current online brokerages cease to exist?

I believe the mere existence of these online exchanges in the current marketplace indicates that their run is by no means over. On the face of things, there seems little reason why the online reverse auction services these sites provide should have any participants. After all, we're told bandwidth demand continues to skyrocket, and the current frenzy of infrastructure development can barely keep pace. With the world beating a path to the doors of the carriers with bandwidth for sale or lease, why should these carriers bother to auction off their wares at discount rates?

Reality, of course, is frequently different from what we're told. With dense wavelength-division multiplexing offering ever-increasing bandwidth on the same fiber, the potential for dormant capacity lurks in every network. This factor becomes even more significant when we realize that each new generation of equipment brings the per-bit cost of bandwidth down to new lows-leaving networks built on older equipment suddenly obsolete from the point of price competitiveness. What's an older carrier to do? Dump bandwidth via online exchanges or other avenues as quickly as possible, perhaps.

As I once heard an observer say in reference to the online brokerages, a sale is a sale is a sale. As long as they can offer discounts anonymously-and therefore keep their "normal" contract-bound customers from squawking-why shouldn't carriers explore other avenues of reaching the market?

The advent of companies such as LightTrade that have an eye on providing the pooling points for a commodities-type market should certainly give the online brokerages some pause. Still, with Band-X and RateXchange establishing switching centers of their own, there's no reason why they couldn't expand this aspect of their business to create their own pooling points. Even without this evolution, I believe that carriers will always want an alternative route to the market. Who knows-bandwidth commodity speculators may soon bid beside carriers in a reverse online auction in the not-too- distant future.

Stephen Hardy
Editorial Director &
Associate Publisher