Trading Desk - To Pool or Not to Pool? That is the Question

By Tara Seals

Posted: 08/2001

Trading Desk

To Pool or Not to Pool? That is the Question
By Tara Seals

LighTrade Inc. (www.lightrade.com) and Enron Broadband Services (EBS,
www.enron.net) are the only two players investing in the construction of bandwidth delivery pooling points for the trading community, but they believe they have the right solution for an emerging marketplace where fast-paced shifts in demand for bandwidth will be the rule.

While some industry figures say the community finally is addressing significant obstacles to market liquidity in the delivery hubs, others say these pooling points are helpful, but unnecessary. Moreover, questions remain as to the viability of EBS’s non-neutral approach. With some market players adopting a wait-and-see attitude, action in the form of new entries in the pooling points sector appears to have come to a Hamlet-esque standstill.

For the moment, delivery commonly occurs via existing collocation facilities, telehouses and private interconnections. “Virtual” pooling points use connections already in place to cobble together an end-to-end arrangement between buyer and seller. However, this leads to accountability questions about where something went wrong in the network, the sort of QoS monitoring in place and issues involving time-to-market for legacy systems.

To that end, pooling points make sense, says Doug Minster, LighTrade’s vice president of corporate development. He says the ability to provision bandwidth at short notice and for varying short periods of time are two advantages to pooling points that traditional interconnection facilities cannot offer.

“A lot of networks are hard-wired to each other per long term, 20-year contracts between buyers and sellers, and there’s not a whole lot of flexibility in terms of adding new connections or moving those connections around,” Minster explains.

“The driver here is more efficient connectivity between networks,” he adds. “Given current economics and structure and the amount of capacity that’s being deployed, there’s a real desire for real-time delivery because the ability to move quickly is one of the key impediments to the market. Liquidity depends upon it.”

LighTrade’s carrier-neutral pooling points offer monitoring for QoS, the ability to provision bandwidth incrementally and the use of Lucent (Technologies,
www.lucent.com) WaveStar optical switches for point-and-click provisioning capability.

“The turn up and tear down are virtually nonexistent, because once a carrier connects to a pooling point, it has access to all the other participants, and it can be connected and disconnected at will,” says Minster. “So without pulling more fiber or making more hard connections, you can achieve more connectivity and move bandwidth instantaneously.”

Revolutionizing the Bandwidth Market

By the beginning of the third quarter, Washington, D.C.-based LighTrade will have deployed pooling points at home and in Atlanta, Boston, Chicago, Dallas, Denver, Houston, Los Angeles, Miami, New York, Philadelphia, San Francisco, San Jose, Calif. and Seattle.

Similarly, EBS bandwidth pooling points, deployed in 25 cities around the globe, provide an interconnection and switching platform that allows the dynamic provisioning and monitoring of bandwidth at varying speeds, terms and QoS. They also can be managed remotely.

“This is an important step towards revolutionizing the bandwidth market,” says Steve Elliott, EBS Europe’s president. “Until now, the market has been characterized by a lack of liquidity and inflexible contract terms.”

EBS and LighTrade maintain the friendliest of rivalries, having recognized that more pooling points mean more liquidity and, ultimately, more participants and revenue to be made.

“The more the merrier,” says Joe Edwards, director of EBS’s global wholesale market. “We are happy to see other players in the market doing this.”

Minster adds, “Additional connectivity is good, and to the extent that a transaction begins at our pooling point and ends at an EBS pooling point, if it weren’t for that EBS pooling point, we wouldn’t have that deal.”

EBS’s position as a market maker has raised questions as to its ability to provide blind, equal-opportunity quality, service, reporting and access. “There are certain carriers that are more comfortable connecting to an entity that is not a market participant,” says Minster.

“It really is a question of whether they truly can avoid using their position to uncover proprietary information,” much like an inside trader, says Ron Banaszek, director of TFS Energy LLC’s telecom division (www.tfsbrokers.com).

In April, EBS opened its pooling points to all qualified bandwidth traders to connect with each other, with or without EBS as the counter party as previously required. Edwards says the difference since then between EBS’s pooling points and LighTrade’s facilities is that Enron Corp. is a $55-billion company standing behind the concept.

“EBS’s recent move may not be enough to attract carriers to its pooling points,” says analyst Seth Libby of the Yankee Group (www.yankeegroup.com). “As both a facilities-based carrier and a bandwidth trader, EBS will benefit from the information it derives as a pooling-point operator, and is therefore perceived as less neutral by other carriers. Right or wrong, in the short term, it is a factor we believe will continue to work against EBS.”

Meet-me Rooms

While acknowledging pooling points as a nice concept, market maker El Paso Global Networks Co. (www.elpaso.com) has launched EP Connect–the closest thing to pooling points that aren’t pooling points. EP Connect are neutral “meet-me rooms” in existing telehouses such as 60 Hudson (in New York), where many carriers already are present. The rooms offer centralized and interactive cross-connects, tight security, standardized agreements, dedicated maintenance and inventory tracking.

“A pooling point implies a new structure,” says Balu Balagopal, El Paso’s chief commercial officer. “That’s not necessary. With changes in network connectivity [such as] faster cross-connects, lower operating costs and so on, carriers will not need to change everything to keep up.”

The debate continues.

“We feel that before setting new cross-connections using pooling points, we should leverage our current cross-connections in existing carrier hotels,” says Lionel Grosclaude, in a recent roundtable discussion conducted in Telecoms-Capacity magazine by the RiskWaters Group Ltd. (www.riskwaters.com).

“We don’t want to put equipment in place where we can’t control an element of the link between the customer and us.”

Banaszek disagrees. He tells Telecoms-Capacity, “A and B can only be equal if there is a pooling point mechanism in place.”

Further, Minster adds, “It’s much easier said than done to upgrade existing facilities such as 60 Hudson or 1 Wilshire [Los Angeles]. Issues include who’s got facilities where? Can they be easily connected together? And do the companies want to connect together in this fashion?”

Edwards says building something

new is the path of least resistance and

least cost.

“The technology just isn’t there to make those systems accommodate market needs,” he says. “Inflexibility will be demonstrated as units decrease and the need to cross-connect on an hourly or weekly basis will impact.”

Somewhere in between pooling points and the use of existing facilities are state-of-the-art, centralized, neutral physical interconnection companies Universal Access (www.universalaccess.com) and Europe’s CityReach International Inc. (www.city-reach.com). The companies are watching the market develop with interest and are open to addressing bandwidth trading as an active business segment. However, spokespeople for the companies say no plans have been made to enter the fray.

It remains an important issue.

“Bandwidth trading clearly has some distance to go to prove its viability,” says Libby. “We strongly believe building direct interconnections between multiple networks is a crucial step toward

that process.”