Like eBay for Bandwidth

Of course your marketing operation is vital to the ISP business, but if you had an opportunity to get a database to do some selling for you, you would at the very least look into the possibility.

by Jim Thompson [May 23, 2006]

Taking a page from the successful auction format of eBay, Last Mile Connections (LMC) has hit on a way to meet bandwidth demands, eliminate the headaches of finding a carrier provider, and save the buyer money. The trick centers on a reverse auction which matches bandwidth demand with service offerings from carrier network providers.

The process is simple. An ISP, or anyone needing significant bandwidth, registers on the LMC website as a buyer. After a short process of verifying that the buyer is legitimate, the stage is set for the auction.

After the buyer sets a reserve price for the needed bandwidth, the criteria (which includes the requested price, bandwidth, route path, termination location, etc.) is filtered through LMC's database of potential suppliers to identify carrier members capable of serving the designated buildings or locations and meet the other terms of the deal. Interested carrier network providers then submit bids until the reserve price is met or beat.

"The bidders know the reserve price and they compete to get as close as possible to the target amount," said James Martino, CEO of Last Mile Connections. "In many cases, the final price is considerably lower than the target set by the buyer. The seller knows he has a guarantee of new business if the reserve can be met. In the end, everyone benefits."

It is so simple that one has to wonder why no one thought of it before now. Users report that the transaction was quick, simple, transparent and, best of all, a great way to save money.

"We were paying about $2,000 a month for a point-to-point T-1 from Weehawken, New Jersey to Boca Raton, Florida from Qwest Communications," said Phil Davies, infrastructure manager of Viewtrade in New Jersey. "LMC got us the same line for only $750 a month—a savings of $15,000 a year."

Joe Hilt, sales and marketing representative at Keyspan Communications in Islandia, New York noted that his company saved up to 20 percent "by using LMC over other vendors on new circuits."

Last mile access is expensive
According to Martino, one of the biggest financial challenges for ISPs—and the target of LMC's marketing strategy—is the high cost of last mile access. This segment, which runs from telephone trunk lines into buildings and onto the desks of workers, has, in the past, been nearly the exclusive domain of Regional Bell Operating Companies (RBOCs).

Martino said that since they emerged in the 1990s, Competitive Local Exchange Carriers (CLECs) have learned the hard way about the high cost of accessing this significant segment of a link. At attempt by CLECs to build their own last mile connections was little more than a good idea for lack of a database containing information about which CLEC had access to which buildings. In many cases, this lacking element resulted in deep cuts into potential profits. In some cases, it was the first step on the road to bankruptcy.

Martino added that "most of the large carriers tend to congregate in a handful of telco hotels." Connecting within those hotels is easy. Making the connection to the end-user in office buildings is the challenge.

He points to New York city where, he says, the commercial community has about 850 buildings but even the largest of those players is built into only about 350 of them. "The buyer who wants to save money by switching to another provider faces some major hurdles. They have to find out who is in which building and how they are connected to that building . Then they have to negotiate a price, order the service, get a contract in place, and set up the billing procedure. It can be very difficult."

It can also be frustrating, time-consuming, and costly. Most take the easy way out and buy from the major ILEC or local phone company, justifying the higher cost by saying it is 'only temporary.' But such temporary solutions can result in thousands of dollars in additional expenses.

No one wants to admit that they are paying too much for a service or product. "No one buys a car then walks into the office the next day and says 'wow, I got ripped off!'" quipped Martino, who added that selling a new approach to purchasing bandwidth is LMC's greatest challenge.

"What we have been able to demonstrate is that the pricing we can procure is often 20-25 percent below what mid-size and larger carriers are getting on their own even when they are using volume discounts and long term agreements. There is nothing like the power—the psychological power—that goes into a reverse auction."

Matchmaker, matchmaker
LMC does not sell bandwidth. They facilitate the deals via an auction process. When the trade is completed, LMC purchases the required bandwidth from the seller and transfers it to the buyer. All costs are paid by the seller. The buyer pays only the negotiated price for the bandwidth with no 'ups or extras.'

To make connecting even easier , LMC also owns 12 colocation facilities in seven markets (Atlanta, Chicago, Dallas, Los Angeles, Miami, New York, and Washington D.C.). The company's main facility is 60 Hudson in New York City. "When you connect through one of our physical locations as a buyer, the day you plug into our capacity manager you are physically connected to over 850 buildings," noted Martino.

But using their facilities is not a requirement of using their service. Once you purchase the bandwidth, you can have it brought into any facility you choose. If you do elect to locate in one of their buildings, pricing is reasonable, Martino claimed.

"For example, if someone wants DS-3 hub access, the cost is about $1,000 to $1,200," said Martino. "If they want to put in equipment, we have a special on colo racks which are running at $400 per rack in each of our locations (with the exception of New York City where the cost is about $1,000)."

Currently, LMC has "over 300 registered members" on their online auction exchange of which about 65 percent of them are active in any given month. This includes those who may be buying, selling, quoting or bidding on services. Auctions are conducted whenever there is an interested and qualified buyer. According to Martino, their goal is to complete the auction within 24-hours of the request.

Everyone loves a deal, but there are times when a buyer wants a ridiculously low price for their bandwidth. In such cases, Martino says, the company must educate the customer about typical costs for circuits, strategy, and show them the Bell tariff for similar services, all in the hopes of getting the potential buyer to enter a more reasonable reserve price.

LMC will post any price, no matter how low. But they advise clients that if it is too low, the result will likely be a 'no bid' situation since the seller may believe that the buyer is simply fishing for price and not truly serious about making a purchase.

For the seller, it means a new client who is already pre-qualified and may be located in a building where a physical footprint is already in place. Profit margins are maximized because minimal new capital is needed for construction and there is no need to farm out any part of the job to the local RBOC for a portion of the route. LMC also provides sellers with standardized contracts and a guarantee of payment.

Signup for buyers or sellers on the LMC website is free, simple and, potentially, lucrative.

— End