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6 ANALYSIS
6.1 Reasons for Bandwidth Trading
Failure
As a summary it can be said that the following ef-
fects contributed to the collapse of the BW trading
market:
The decline in the Bandwidth prices induced a glut
(i.e. supply exceeding demand) in the bandwidth and
made it a product of very low liquidity. This all,
made it hard to be considered and treated like trad-
able commodity.
In addition, the collapse of Enron Corp. in fall 2001,
made all other utility companies take out themselves
from the bandwidth trading market.
The bad economical situation made it worse and
induced little credit worthy buyers and sellers, carri-
ers expected a price saving of 15% to 20% before
going to broker, other reluctant carriers also feared
to loose by selling the excess capacity at bargain
prices. Another important reason were the long term
bandwidth contracts that service providers were
stuck to and the very long time to close a contract -
usually 60-90 days and more.
Also, technical incompatibilities between network
operators were a major problem due to the nonexis-
tent unified set of quality of service standards.
Finally, telecommunication companies didn‘t use
risk management tools analyzing their exposure to
risks and determining how to best handle such expo-
sure This made them blind to the risks of such a
volatile market with huge price movements.
6.2 Improvements Expected by
ASON
Looking a little bit deeper into the matter it becomes
clear that the introduction of ASON/ASTN (respec-
tively GMPLS) techniques will change a lot the eco-
nomic basis of bandwidth reselling:
Automatic signaling will allow short term contracts
since the transaction cost become very small. Also,
the time to close a contract will be reduced heavily.
The much shorter time frames reduce the financial
risks the trading companies are exposed to.
Standardized Service Level Agreements (SLA) will
allow bandwidth to be treated like a commodity
complying to sets of unified quality standards: It will
be more interchangeable between different operators
making it possible to buy bandwidth through future
contracts. This will greatly increase the liquidity of
bandwidth (i.e. the ability to be converted into cash
quickly and without any price discount
). The conse-
quence is a more transparent market in which cur-
rent trade
and quote information is readily available
to the public
and the price of bandwidth is subject to
supply and demand. Finally, common standardized
interfaces will also assure technical compatibilities
between network operators.
7 SUMMARY
Although almost all bandwidth traders stopped their
activities at the moment, brokerage firms are emerg-
ing. They work as intermediaries between buyers
and sellers. Waiting for the market and bandwidth
prices to stabilize, it is only a matter of a few years
that capacity trading will catch up again and this
time not only energy traders will be involved but all
telecom companies will want to be part too, and the
control plane technologies like GMPLS and
ASON/ASTN will definitely be key players in the
technology behind this huge market.
To analyze the Bandwidth Trading business idea, a
market study and analysis is necessary. The Band-
width market evolution during the past few years
gives us an indication on how transaction of capacity
would be like in the future.
This enables new services, giving the opportunity to
consider new business ideas, such as service on de-
mand, dynamic bandwidth provision, and a virtual
bandwidth market place. In the future, the virtual
market places will enable selling and leasing of
bandwidth making room for bandwidth brokerage in
the telecommunication industry.
REFERENCES
Kirstädter A., Iselt A., Schupke D., Prinz R., Edmaier B.,
“Cost Structures of Transport Networks”, ITG VDE
NetWorkshop 2003, Gladbeck, Germany, Sept. 29,
2003.
Glasner J.: Enron: A Bandwidth Bloodbath,
November 2001.
Josh Long: Brokers Regroup after Traders Call it Quits,
Trading Desk, March 2002.
Josh Long: Energy Merchants cease Bandwidth Trading,
Trading Desk, February 2002
THE ROLE OF ASON AND GMPLS FOR THE BANDWIDTH TRADING MARKET - Bandwidth Brokerage under the
influence of novel control plane technologies
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