You Say You Want A Revolution?I abhor copywriters. They are responsible not only for such abominations as "crispy" and "think different," but for emasculating such once-virile words as "revolutionary" by impressing them into service to describe new colors of laundry detergent. After the copywriters have finished their cherry-picking, what words are left to those of us who wish to describe unfolding events that promise to significantly change the way we (and our national governments) work?
The overloaded World Wide Web is more and more frequently being referred to as the World Wide Wait. So, those who spend much time using it may find it hard to believe that much international bandwidth goes unused.
International carriers have long bought and sold excess capacity amongst themselves, but no centralized market existed. The process largely consisted of working through a Rolodex of industry contacts until a buyer was found for surplus capacity, or someone agreed to carry excess traffic.
Industry watchers have long expected a centralized bandwidth market to emerge. Very few probably anticipated the form it has taken, however. In July 1997, Marcus de Ferranti and Richard Elliott created the first international bandwidth clearinghouse in de Ferranti's London home when they created Band-X, an Internet-based bandwidth exchange (http://www.band-x.com/).
Band-X members who wish to buy or sell bandwidth or minutes between two locations use a web-based interface to post bids and offers. They can also browse anonymously posted bids and offers and, if interested in a particular listing, notify Band-X via the website. Band-X then introduces prospective buyer and seller, and takes a commission on any sale that results.
De Ferranti explains that three factors have contributed to the need for a centralized market like Band-X. First, international telecommunications deregulation has resulted in a huge increase in the number of companies in the market, making working through a Rolodex to find a buyer for excess bandwidth increasingly inefficient. Second, international traffic is increasing not only in quantity, but in geographic diversity. It's not just one or two main routes that are being traded, but dozens. And finally, recent hardware and software improvements allow traffic to be easily and efficiently switched between carriers.
Buyers and sellers cover the whole telecom spectrum, from the international giants to leased line buyers to small corporate customers. Band-X may well evolve into an actual bandwidth commodities market. Such an eventuality is still a few years away, however, and it is far from certain that the financial community and the telecom industry will support such a market. Still, with its more than 1,300 registered members from over 100 different countries, and more than 600 bids and offers posted so far, Band-X goes a long way to proving the validity of the concept.
Although Band-X maintains a bandwidth price index for the most popular routes from the UK, there are as yet not enough transactions to determine true market prices for most routes. Still, seeing what international carriers actually pay for their bandwidth can be quite educational -- particularly for those of us used to paying retail. At the time of this writing, for example, voice traffic between Los Angeles and Tokyo is being offered for $0.16 per minute, and a 256K line from Japan to France goes for US$35,000 per month.
While trading T3 lines like pork bellies may seem an odd concept at first, the emergence of a bandwidth derivatives market would offer tremendous benefits to both the producers and consumers of bandwidth. Such a market would shift today's price-fluctuation risks from the carriers and their customers to speculators willing to assume such risks.
A Tokyo-based firm, for example, could agree to purchase future bandwidth at a market-determined cost far below today's prices. International carriers, on the other hand, would have guaranteed sales of their future bandwidth at locked-in prices, and could borrow against those sales to build that capacity. In effect, carriers would be able to determine their exact return before laying an inch of cable.
The transformation of bandwidth into a commodity is merely the last shot in a sweeping telecom revolution that has been going on for years. Telecommunications has long been controlled and monopolized by national governments. (In America in the 1960s, it was illegal to use a telephone not approved by AT&T. In Japan in the 1970s, special permission from the Ministry of Posts and Telecommunications was required to use phone lines for any purpose but voice transmission.) Global deregulation and growth of the Internet has not only brought hundreds of new companies into the market, but -- far more importantly -- it is getting governments out.
The big losers when bandwidth becomes a commodity will be the government-backed telecom companies. Long accustomed to protected monopolies and opaque pricing practices, they'll soon find their largest customers will not only have the actual costs at their fingertips, but will be able to change carriers with the click of a mouse. Over the space of a few decades, bandwidth will have been transformed from a bureaucratic, price-fixed, government cash-cow to a freely-tradable commodity upon which the global economy depends.
This is revolutionary change. Tim Romero, president of Vanguard Consulting, often writes and lectures on Internet and software development issues. He can be reached at t3@vanguardjp.com. . |
