Trading Desk - Metro Connectivity Advances Bode Well for Trading

By Tara Seals

Posted: 09/2001

Trading Desk

Metro Connectivity Advances Bode Well for Trading
By Tara Seals

Metropolitan-area interconnection is beginning to exhibit signs of life. This is good news for capacity trading, which depends on metro connectivity to achieve its potential. But the market has a ways to go.

Industry players acknowledge that bringing buyers and sellers together on a metro level is an important piece of the bandwidth-trading puzzle. R. Nick Cioll, chief strategy officer for RateXchange Corp., notes that 90 percent of the bandwidth deals that fall apart do so because of interconnection and provisioning breakdowns on a local level.

“Not everyone’s in the same carrier hotel in any given city,” explains TFS Energy LLC’s Ron Banaszek, director of the TFS telecom division, an over-the-counter (OTC) brokerage. “So somehow you’ve got to connect those dots in order for there to be
fluid trading, unless all these people intend to build on the same pooling point.”

Paul Haddad, a principal in Nortel Networks Ltd.’s bandwidth trading strategic business development division, says the ideal trading scenario will link backbone and metro routes, “because customers will only feel comfortable to trade faster and more often when they go to a seller–whether that’s a trading company, a carrier, a
broker–and get end-to-end solutions.”

To that end, RateXchange worked with several metro network providers to develop a metro trading platform, launched in July. Meanwhile, in late June, RateXchange named Telseon Inc. as a distribution partner for its new IP transit and access exchanges. Telseon will use its optical metro footprint as a neutral delivery grid.

Breaking the bottleneck on an interconnection level will alleviate the glut on intercity routes and provide opportunity to metro market players. Recognizing this, more players are trickling in. In addition to Telseon, Sphera Optical Networks N.A. Inc. launched this year, joining GigE provider Yipes Communications Inc., Sigma Networks Inc. and various utility players leveraging their power grid metro presence, such as Consolidated Edison Inc. in New York.

“There’s definitely a value proposition to metro,” says Telseon’s Sean Whelan, vice president of partners and alliances. “Access to that long-haul network is pretty tightly controlled by a few players in the metro, so there’s a lot of pent-up demand that can’t reach an excess supply.”

Awkward Phase

Despite the rosy outlook, metro providers face obstacles, such as unproven market strength. Many players have not completed their footprints, for instance. This means connectivity varies widely from market to market. And the metro market is home to startups, which are scrutinized more closely, especially in today’s declining financial climate. Except for utility players, RateXchange’s Cioll says, “They’re all basically startups, and while they have significant funding, everyone questions the viability of some of these players to some degree.”

Another obstacle is that metro connectivity, linking collocation facility to meet-me room to telehouse, doesn’t solve the local RBOC loop issues. Even with fluidity throughout a given route, getting to the end building still will be a regulatory and technological provisioning nightmare.

And metro connections aren’t being traded actively yet. For instance, while TFS has metro providers willing to show pricing, Banaszek says this is only a first step.

“They’ll say ‘Sure, we’ll work with TFS and let them broker our metro connectivity,'” he says. “But from my perspective, that’s not really trading, unless it’s guaranteeing firm delivery with liquidated damages–just working with a broker or exchange, that’s not classifying it as trading, that’s just using a third party to broker some deals.”

Metro also is not immune to the issues plaguing long-haul capacity trading: QoS, provisioning, carrier participation and standardization.

Nortel has pushed back its original forecast that bandwidth trading, metro and long haul would be full-fledged by 2002.

“Now we think it’s going to be 2003,” says Haddad. “And the years 2002 and 2001 will be solutions years: How do you link the networks, solve the business hurdles, standardize the contract? Let’s look at the interconnectivity and build pooling points, find the right party to manage them, form consortiums, understand carrier roles.”

Technology to the Rescue

Nortel and Telseon have developed platforms tailored to solve concerns such as provisioning intervals and QoS.

In July, Nortel launched its OpTera Metro suite, a multiservice, bit rate and protocol-independent platform that offers one-card access to different types and sizes of metro bandwidth that can be
software-provisioned in real time.

“We’re enhancing the speed of provisioning, increasing flexibility for the customer’s requirement for bandwidth, making it multiservice and making it very easy to manage at the software level,” says Haddad. “That’s what’s going to enhance bandwidth trading–the technology will make it even easier for the liquidity to happen, and that’s what our solution does.”

The all-optical Telseon IP provisioning system, expected to launch during the third quarter, will allow trading partners to scale and provision their metro IP bandwidth connections from 1mbps to 1000mbps via the web and on the fly. Like Nortel, it allows for instant provisioning and short-term commitments. It also gives end users the ability to monitor QoS and capacity utilization on the provisioned circuits.

“It’s important to focus on the fact that it’s an IP network that’s more likely to provide the answer to standardization and QoS,” says Whelan. “If you’re trading packets, they will behave the most like a commodity if you can access them in real time and distinguish the quality, which is what the traders are most interested in–this leads to spikes and dips in price, and without real-time access you’re more likely to just see a general downward trend in price points.”

Acknowledging the problems with local-loop connectivity, Whelan adds that Telseon has a phase two planned in which it will build out to Fortune 500 enterprise clients.