Trading Post

Q: What Is the Role of Pooling Points?

A: Key components of capacity trading and a liquid marketplace include: A standardized contract that eliminates the lengthy negotiations that attend the one-off purchase and sale agreements used today; marketplaces or mechanisms–online exchanges, brokers and the like–for matching buyers and sellers, supplying credit and settlement support, and to provide real-time market information and price transparency; and deployment of pooling points that provide an efficient way for many buyers and many sellers to interconnect instantaneous delivery of bandwidth and QoS monitoring.

Without a prearranged, dynamic and scalable delivery mechanism, the volume of trades is much lower, despite the growth of bandwidth trading operations and online/offline marketplaces.

Q: What are pooling points, primary functions?

A: The primary function of pooling points is to provide dynamic, real-time provisioning and delivery of bandwidth between buyers and sellers, and to provide the QoS measurements necessary to create truly fungible units of capacity. One version of a pooling point is a high-capacity switch connected to a network element of each participating capacity buyer and seller.

In the absence of pooling points, each carrier has to make separate one-off arrangements for each trade, rather than connecting to a central switch and taking or making delivery with multiple counterparties in multiple increments of capacity on an hour’s notice.

Moreover, pooling points offer carriers an efficient method to acquire or unload capacity as needed. This permits greater utilization of bandwidth assets.

Some solutions that are deployed offer the ability to automatically, remotely and virtually instantaneously switch large quantities of bandwidth–DS-3 and higher. Pooling points enable dynamic reconfiguration to permit subset quantities of a port to be traded. For example, a carrier with an OC-12 could retain an OC-3 and sell three OC-3s to other carriers. Other solutions appear to be designed to handle smaller capacity increments.

Pooling points monitor the bandwidth and report the rate of errored and unavailable seconds, so buyers and sellers can determine whether the QoS contract terms are being met.

Q: What are a pooling point’s component parts?

A: A pooling point consists of three main components:

* Demarcation Point–A fiber termination panel, DS-3 patch panel or the like will serve as a demarcation point between the pooling point and the participants.

* I/O Ports–From the demarcation points, active participants will be connected to input/output ports on the switch. These I/O ports provide a transmission function and support DS-3, OC-3, OC-12 and OC-48 interfaces. In the future they also will support OC-192.

* Switch Matrix–The switch matrix multiplexes signals to allow the pooling point to establish and “tear down” cross-connects among the I/O ports.

Q: Where are pooling points located?

A: Initial deployments of pooling points likely will focus on major metropolitan areas–where the majority of carrier facilities is located. This enables the bandwidth trading marketplace to develop quickly, as the city pairs with major metropolitan areas at their terminus are the densest and most liquid routes.

Pooling points typically will be located at one primary carrier hotel in each metropolitan area to allow for relatively easy interconnection. In certain circumstances, pooling points may be located in built-to-suit facilities located on primary metropolitan fiber rings.

Q: Who operates pooling points?

A: Several entities propose to operate pooling points or alternative delivery and clearance mechanisms, including independent operators like LighTrade [Inc.,
www.lightrade.com], certain over-the-counter market makers like Enron Broadband Services
[www.enron.net] and carriers who use existing arrangements referred to as virtual pooling points.

In some cases, operators of integrated online bandwidth and minutes “exchanges” provide “hub” facilities that offer delivery functions similar to some of the functionality of a pooling point.

Q: Should a pooling point be neutral?

A: A neutral pooling point–a pooling point owned and operated by an entity that is not controlled by a carrier, market maker, trader or provider of exchange service–will best serve the bandwidth trading market. This group asserts that neutral pooling points will operate without unfair influence by market forces. They also will offer carriers a level of comfort that their proprietary information, including circuit efficiency, quality and capacity, is not being viewed by a competitor or other market participant. As a result, bandwidth trading participants can be assured of a fair, equitable and confidential bandwidth trading and delivery process.

Others maintain that pooling point neutrality is not necessary to ensure a level playing field, and that the process and information flow can be held in confidence through the carrier contracting process and utilization of auditing procedures.

Still others suggest that neutral pooling points are ideal and necessary in the long run. They also may say other arrangements can and should be used to fill the gaps as neutral pooling points are built out.

Q: How many pooling points does the market require?

A: The number depends on the development and growth of the capacity trading market. Some predict there will be one or more pooling points in every metropolitan area that is served by multiple long-haul carriers.

The answers to this month’s Trading Post questions were provided by Doug Minster, vice president for corporate development for LighTrade Inc.
(www.lightrade.com), a neutral pooling point operator. He can be reached at +1 202 466 3490.