The word "bandwidth" has recently been used to describe any telecom goods that have been sold as "unbranded" products on an exchange or through private transactions. This article focuses essentially on TDM clear channels (as opposed to voice minutes, colocation space, etc.), which is, in our minds, the product that is most appropriate to quickly become a commodity. The reasons for this are relatively simple. They include a large growth potential (the number of voice minutes you could potentially use in the world is limited), as well as a relative ease of defining and measuring Quality of Service (QoS).

The Forces Driving this Market

The telecom world has historically been characterized by long provisioning times (from 45 to even 90 days sometimes), often leading to contract renegotiations at the time of connection because of a change in needs or the perception of a market price change. The developing bandwidth market brings the following benefits to its participants:

Benefits to buyers:

• One interconnection point, which gives them access to all participants connected at the same place, without having to worry about possible delays in network interconnection.

• Ability to quickly and anonymously expand geographic coverage, without being subject to price manipulation from major dominant carriers

• Lower search and transaction cost

• Monitoring and enforcement of QoS.

Benefits to sellers:

• Enables one to temporarily sell excess capacity without cannibalizing their more lucrative ‘branded’ products. The quick provisioning times allow carriers to sell shorter-term contracts and recover the capacity at the end of the contract if they need it for some of their preferred customers

• Creates an alternative (cheaper) sales channel that enables carriers to transact with counterparts they might not even know existed in the ‘old world’, essentially because of the increasing number of participants in the market

• Fewer contract negotiations, therefore fewer inventories and more revenue

The Working

The model is relatively simple. Buyers and sellers all interconnect in one physical location ("pooling point", "delivery hub" are words that are now used interchangeably by the industry to describe such interconnection points), usually located in some colocation facility or carrier hotel. The participants basically occupy a port on a digital cross-connect. Buyers and sellers post offers to buy and sell capacity on an online trading system such as the one operated by RateXchange, where market participants will be able to lift offers. In order to execute a transaction, the cross-connect will establish a connection between the buyer’s network and the seller’s network for the agreed-upon capacity.

QoS will be monitored and reported to the interested parties to ensure that the terms of the contract are respected.