The fall and rise of bandwidth trading

11 March 2014 | Guy Matthews

With the bandwidth trading market showing signs of revival, does any of the current crop of players look to have the right formula? Guy Matthews investigates.

Can a market for the online, real-time trading of network capacity ever work? Will such an ethereal substance ever be considered a true commodity, to be bought and sold on an open exchange like frozen orange juice or Brent Crude?

These questions are pertinent for anybody who remembers the unsuccessful attempts to trade bandwidth in the late 1990s and early 2000s. Now a stab is being had at resurrecting the phenomenon, and many are following avidly to see if it will work.

Of the players that comprise the still-nascent market, the furthest along the line in execution is Epsilon. The London and Singapore-based wholesale carrier first announced the idea of Epsilon Capacity Exchange (eCX) in May 2012, opening for business in November of that year as a capacity trading tool for SDH and Ethernet bandwidth services.

The eCX system is based around a portal that incorporates a real-time inventory of routes, a pricing and trading engine, a capacity booking and reservation function and features that enable sales and procurement processes.

The principle, says Epsilon CEO Andreas Hipp, is a marketplace where carriers sell under-utilised capacity to a global base of buyers. Infrastructure owners, he explains, can use eCX as an added channel to reach a wider market, without having to commit additional resources to make those sales. Buyers can go on the portal in search of short-term capacity fixes, perhaps in the instance of one-off events or outages in their own network, or simply to augment the capacity they already control.

“It’s taken off quite well so far, with around 100 companies registered to use it and about 30 searches a week, or 120 a month,” says Hipp, a man versed in the history of bandwidth trading, having worked for Enron prior to its 2001 demise.

He says he first pondered the idea of a new-look trading platform in 2007, reasoning that with Epsilon’s existing Global Network Exchange (GNX) and its 500-or-so connected operators, he had the physical delivery mechanism already in place. All that he needed to do was automate the processes and take up the position of independent broker and matchmaker.

The basic rationale for reviving bandwidth trading, believes Hipp, speaks for itself in a market where margins are tissue-thin.

“Everyone these days is suffering from huge price declines and asking how they can differentiate their product,” he says. “But how do you add true value on a point-to-point network on a well-served route, say from Europe to the US? You can offer a little bit less latency, that’s about it. Otherwise, it’s more of the same. I strongly believe that the only way to counter price erosion is to simplify the transaction process.”

Different models
One of the nearest rivals to Epsilon at this stage of the market’s evolution is Australian company Mobsource, which operates an exchange called Marketplace. Mobsource is the brainchild of former Telstra, BT and Cable & Wireless executive Carl Gough, who says his objective is to help carriers and Ethernet providers turn excess bandwidth capacity on routes across the world into revenue.

Mobsource positions itself as providing “network-platform-as-a-service”, acting in its own words “as an abstraction layer between buyers and sellers, enabling bandwidth transactions to occur in real time between connected parties”.

The reasoning is that with the majority of world’s capacity unlit, carriers and cable operators might welcome a mechanism that helps them to find buyers for their excess inventory, before falling prices render it less and less valuable. Mobsource says that carriers can now convert that spare capacity into revenue at a much lower overhead than through the normal sales channels.

There are a number of other players, at present on the periphery of the bandwidth trading market. Some are branding their activities as something quite different, perhaps concerned about potential association with the failed bandwidth market of the early 2000s.

“Global Capacity, while not involved in bandwidth trading, is a marketplace of networks delivering ubiquitous network connectivity solutions via our One Marketplace platform,” explains Mary Stanhope, Global Capacity’s VP of product and marketing. “One Marketplace eliminates the complexity and inefficiency of the network market by combining an interconnected, physical network aggregation platform with a cloud application that automates the design, pricing, delivery and maintenance of network solutions. The actual bandwidth trading market, though, isn’t one that Global Capacity participates in.”

More different models
London-based RTX, on the other hand, while not presently active as a bandwidth trader, is openly eyeing up a probable launch onto the scene over the next year or two.

Set up in 2007 as Routetrader, the company rebranded as RTX in summer 2013. Historically it has functioned as an exchange for pre and post-paid voice traffic, but aspires to become a full global clearing house for voice, data and messaging services, says managing director Neil Kitcher, formerly of MFS Communications, WorldCom, Verizon, Global Crossing and numerous other names from past and present.

The competitive edge Kitcher believes RTX brings to the market is offering members a robust and secure cash and credit platform, via the company’s association with AAA-rated international financial institutions.

“With RTX’s anonymous trading exchange platform, trading can take place between major and smaller wholesale operators worldwide,” he says. “Our global one-stop-shop and clearing house is a cost-effective solution for all buyers and sellers of telecommunications services. Members can easily manage their day-to-day operations, and are therefore able to take advantage of reduced costs, improved quality and the ability to reach new markets at a minimum cost. What’s important is that we do the banking bit too.”

He says customers already use the platform as a private label service, which he calls helpful for trading with customers who might be deemed high risk or high maintenance. Through RTX, the seller gains stress-free global routing via a single VoIP interconnect.

He sees the roadmap stretching beyond voice as far as full-on bandwidth trading, with the role of SMS exchange platform as an intermediary stage.

“SMS will be a first data move for us,” he says. “We’ll also be moving to a least-cost routing model in 2014 for IP services.”

The timing is right for bandwidth trading to re-emerge as a market, he believes, with technology now available to support platforms that was not available to the Band-Xs and Enrons.

“We can take a supplier on to our exchange and they can access all of our 5,000 members,” he says. “We let people interrogate the commercials too. This sort of openness is possible now. Everyone has seen cloud services working, and that has made them less protective of their own backyard.”

He also thinks the levelling out of pricing has made an open exchange seem less scary.

“To date, carriers have tended to be a bit fearful of eroding prices,” he points out.

SDN impact
Another UK-based company is also attempting to lead the way in the bandwidth exchange market. Allegro Networks released a UK-wide bandwidth exchange platform in September 2013, which leverages software that can provision physical infrastructure in an instant manner.

“We have built a software tool that has allowed us to change the way wholesale circuits can be sold, which is the key differentiator between us and our competitors,” says the company CTO Andy Davidson.

The software, which was designed in-house, incorporates elements of software-defined networking (SDN) into the company’s platform.

“The wonderful thing about SDN right now is it can be anything you want it to be. We use software to provision and make our equipment do changes, and so it is a possible application of SDN,” says Davidson.

As part of its SNAP platform, Allegro Networks customers have instant access to pricing and can deploy circuits in a matter of minutes.

“Customers can hit deploy and the circuit is rolled out automatically,” Davidson says. “We sit there in the middle and provide a circuit between two parties. And if they are on net with us, that’s all in less than 5 minutes.”

The company can presently provision a circuit between approximately 30 data centres in the UK, but is said to be working on a number of partnership projects that will increase the reach of its network. Eventually, the goal is to expand internationally.

Feedback from users has so far been “incredible”, according to Davidson, who believes that the platform is tipping the scales in favour of interconnection. Furthermore, the company is very carefully positioning itself as an interconnection enabler.

“Our customers are all service providers. We work exclusively with organisations that have an ASN number and therefore can operate in the wholesale market. The reason we do that is so that we don’t compete with our customers for end user business,” says Davidson.

The bigger picture
The operation of a successful bandwidth trading platform requires full visibility of traffic flows, usage, capacity and demand for all participants. Given the dynamic nature of capacity and usage, operators will reasonably expect a close-to-real-time view of all relevant metrics in order that they might ensure profitability, as well as the quality of service their own customers will demand.

Aditya Kumar, director of product management with Guavus, a consultancy that provides business analytics to a number of carriers and service providers, believes this is likely to necessitate the deployment of a Big Data analytics engine that can process the petabytes of data needed to deliver operational intelligence.

“The problem with the current bandwidth trading model is that providers do not always have the operational intelligence to really understand their supply and demand levels,” he believes. “There is often a degree of guesswork involved, which creates a number of risks. Bandwidth is dynamically changing according to usage, so predicting how much you have available for sale, determining the price and controlling quality is impossible without near-to-real-time visibility of traffic flows and operational costs and availability.”

He nonetheless anticipates that bandwidth trading will boom, with a resulting impact on the wider telecoms market.

“It has the potential to open the market up for smaller operators to create niche point-to-point services,” he suggests. “Additionally, having the ability to purchase bandwidth through an exchange, rather than having to make up-front investments in capacity, will allow providers to test new markets and services at lower risk.”

Maybe the only real hurdle faced by bandwidth trading is one of perception. Does the failure of earlier iterations of the idea lend a fatal flaw to the revived bandwidth trading model? If so, perhaps it just requires a new term to redefine the market. Perhaps we will soon be referring to it as data exchanging, or capacity swaps?

A full interview with Epsilon's Andreas Hipp and an examination of the collapse of Enron and the bandwidth trading market can be found in our
Innovation Business Briefing.