Best of the ISP-Lists

Is an Online Bandwidth Marketplace Possible?

Members of the ISP-Bandwidth list discuss the pros and cons of online marketplaces.

[June 30, 2000]

On the ISP-Bandwidth list in May, DJ posted a topic for discussion:

"I'd like to know: a) if the group believes bandwidth will be commoditized and how quickly it will take place if it is, and b) what is seen as the benefits/disadvantages of bandwidth being treated as a commodity."

Naturally, list members had much to say about bandwidth as a commodity.

[KA wrote] "I think there is a market for bandwidth futures, but with huge caveats. All networks claim to be 'tier one' but the educated consumer knows better. So the question becomes, 'if I can buy something at commoditized prices, why would I choose not to?' The answer is that not all networks are created or planned equally so it will come down to the age old distinction regarding what is most important: price or quality?"

[GS argued] "The term 'commodity' implies a freely available, freely tradable, freely usable product or service. I can't order 22GB of bandwidth to be delivered at 11 P.M. tonight without weeks of advance preparation and a telco neutral colo provider. And I don't see the technology moving in that direction. For bandwidth to become a commodity requires a reestablishment of the national telecommunications monopoly to create a delivery infrastructure comparable to the interstate highway system or the PSTN."

[JM replied] "When I can order a product from 100 providers, whether the lead time is 1 second or 1 year, then it's a commodity."

A respondent who works for a bandwidth/broadband brokerage agreed and outlined the ways companies are taking a proactive stance regarding the issue:

[MB wrote] "The trading of bandwidth as a commodity is here, trades are being reported every month and the lessons learned as oil, natural gas, paper, and electricity were made into tradable products are being incorporated into the building of the bandwidth trading infrastructure. Every major telecom trade organization has committees studying this issue. One committee is working on a standardized bi-lateral contract that will be the legal basis for transactions. Risk management organizations are discussing the technical aspects with telecom companies. Major companies such as Enron and Williams Communications have formed organizations to trade bandwidth. Remember, the trading of forward-priced contracts is not necessarily about another channel of distribution for networks, but a means to manage the price risks inherent in networks."

DJ weighed in on the issue again:

"If the industry could agree to a standard SLA with a minimum set of quality standards that everyone had to abide by and specified liquidated damages for failures in compliance, you would have a base to start from. If quality of service could be monitored by an impartial third party, possibly employed by the industry as a whole, carriers would have to maintain minimum quality or pay damages for noncompliance. Users could then compare the carriers' connections. This transparency would allow for justified price differentiation between carrier bandwidth capacity and would take some of the mystery out of purchasing and selling bandwidth."

[DG disagreed] "Except that the efforts to commoditize these service would probably be seen as anti-competitive by the Department of Justice."

—End