“The Bear” on Business

This Telephony article from 2001 is a telecom bubble gem.

In it, Greg Jenkins CEO of El Paso Global Networks writes: “One molecule of natural gas versus another isn’t very different. In telecom, you are plugging a little packet into the fiber optic network, and you want that exact packet coming back out. So the logistics are a little bit more cumbersome.”  Oh, just a little.

Yesterday’s blog covered Pontio Communications.  They were bought by El Paso Global Networks for $108M and El Paso sought to co-lead the bandwidth trading revolution.  They didn’t stop there.  In a co-build with Broadwing, El Paso invested in a long-haul route between Houston and Los Angeles.  From there, they hoped purchase, trade and lease their way to a vast network of bandwidth pipelines. 

The meltdown appearantly was good news for El Paso Global.   “We are in a position to get control of those scarce assets at a time when they are not being sold at a premium. In fact, they are going at a discount,” said Jenkins in the article.  “For this reason, El Paso Global will be able to assemble…network at a much lower cost than we originally contemplated.”  Hooray!

Jenkins and his deeply-pocketed El Paso parent weren’t intimidated from being new to the telecom playground: “While this industry has a great deal of technological sophistication and advancement, it has very little commercial sophistication and a great deal of inefficiencies from an operational standpoint.”  I for one appreciate El Paso’s help in improving our industry.  Thank you.

Balu Balagopal, El Paso Global’s chief commercial officer, echo’d Jenkins’ excitement for the innovation their company would bring to telecom: “[Telecom companies] were motivated to provide a leading-edge service for the simple sake that it was leading-edge and not driven by the value considerations underneath that,” Balu appearantly babbled and then vowed that El Paso Global will not mimic these mistakes. 

By February 21st, 2001, El Paso was making good on Balu’s babble.  In their own words in this press release, they touted:  “El Paso Global Networks has been one of the most active market makers in the emerging bandwidth trading market, having completed more than 260 transactions covering approximately two billion DS-0 miles since the beginning of 2000, including the industry’s first bandwidth option.” Now that is bringing commercial sophistication, efficiency, value consideration to the stodgy telecom industry. 

I included the links so that you didn’t think I made these quotes up.  The telecom bubble was a strange yet exciting place to be. 

Anyway, I have no idea what El Paso contributed to the bubble.  Neither do they.  Let’s put them down for $500M.

Below is an abstract from a market research report entitled “Bandwidth Trading”. It was published in 2001 by New Paradigm Resources Group. I suspect you can get a slight discount off the $75 price. If interested, call them at 800-774-4410. Let me know what they say. As a follow-up to the two earlier posts on bandwidth trading, I will provide some of my thoughts on the viability of the concept. I thought this description of what bandwidth trading means would be useful context to the readers.

Bandwidth Trading by New Paradigm Resources Group: February 2001

Bandwidth trading is defined as the exchange of rights to move data across telecommunications lines at a future date. While this trading of a commoditized service might sound like something thought up at Chicago’s Mercantile Exchange or Board of Trade, the concept really is not new. Bandwidth brokers have been providing the service for years. Similarly, utility companies trade energy; so the trading of bandwidth is not much of a conceptual stretch for many large-scale players.

What is different is the standardized way in which the commodity bandwidth trading market is developing. Traditionally, in the worlds of direct inter-company or broker-facilitated exchange, companies execute bandwidth trades through a lengthy process of carefully negotiating each individual contract. Then comes the even more laborious part: provisioning and installing the physical lines. On top of all this are the considerable administrative costs. The bottom line is that the process is inefficient. It is too inefficient to constitute a effective market for apportioning under-used bandwidth.

Hence the need for a commoditized service traded in a standardized arena. A step in this direction is the buying and selling of point-to-point circuits among telecom carriers. Only through such total connectivity can bandwidth be effectively traded. But because no company has access to every point on the map, connectivity needs to growth still further. Another right foot forward is the leadership shown by a company such as Enron Broadband Services, which is pushing the market to commoditize according to standard criteria, including:

• Quality of Service (QOS) benchmarks that can be developed and measured;
• Interconnection between carriers’ networks, enabling the immediate provisioning of contracted services; and
• Master Agreements that expedite trading, replacing individually negotiated contracts.Such moves are a step in the right direction, a trend toward a standardized marketplace in which performance expectations are filled, and filled in a timely manner.All of this needs to be done as rapidly as possible. Bandwidth demand is growing at a very rapid rate; some say the use of bandwidth consumed on the Internet doubles every four months. And bandwidth infrastructure is indeed being deployed. The problem is that these existing infrastructures are not being fully utilized. Capacity under- utilization is a considerable threat. Yet it is one that can be helped along by the development of an efficient bandwidth trading market.

Yesterday’s blog contained an article from the fire of the Telecom Boom: 1999. Enron was rolling out Bandwidth Trading over the Enron Intelligent Network. This raises an interesting question: was Bandwidth Trading a bad idea? I’ve asked this question of several people. The answer I received was almost always decisive. Frequently it was emotional. Often, it came with looks like I was a bit of an idiot for even asking the question.

One thing the answers weren’t: consistent. That is, some people were adamant that it was fundamental flawed from the get-go. If you have a history with Level 3, my guess is this opinion hits home to you.

Others, though, were vehement that it was a great idea. Enron just screwed it up. If you were involved with one of the many companies who were involved with Bandwidth Trading, you probably believe this to be true.

So what is it? Was Bandwidth Trading Dead-on-Arrival, a flawed idea from the beginning that was destined to crash and burn? Or is it in hibernation, waiting for the right technical and market developments and some clever entrepreneur to re-kindle the idea?

I’d welcome any thoughts the readers might have, so if you are inclined to do so shoot me a note. I will provide my thoughts in a future blog.

It is a cold winter night, a week before Christmas. Time for some nostalgia. Do you remember Enron’s Intelligent Network? Do you recall Enron’s Bandwidth Trading initiative? I thought you might enjoy this article from 1999.

December 3, 1999
Enron Opens Bandwidth Commodity Trading Service
By Maura Ginty

Cutting the red ribbon for bandwidth commodity trading, high-bandwidth application service company Enron Communications Inc. Friday officially introduced its new approach to bandwidth.

“This is ‘Day One’ of a potentially enormous market,” said Jeff Skilling, Enron president and chief operating officer. He compared the present inflexible agreements for pre-set capacity amounts to pre-reform “oil contracts in the 1970s, natural gas contracts prior to 1990 and electric power contracts prior to 1994.”

The first contract for Enron’s (ENE) new structure is for DS-3 bandwidth between New York and Los Angeles which transmits video and other high-bandwidth data at 45 megabits per second. Global Crossing (GBLX) is selling the capacity, and has expressed its excitement to be involved in the new system.

Skilling said that his company will prove that bandwidth can be traded without losing quality standards, adding that both the buyer and the seller will be monitoring the transactions.

Enron introduced plans for the new bandwidth capacity reservation system in May, promising that bandwidth trading would make Internet applications more efficient and cost-effective, as well as pave the way for development of new applications. Cisco Systems Inc. and other major companies welcomed the concept, which would free them from signing long-term capacity contracts.

Enron Communications also announced that the currently operational North American (New York-Los Angeles) Benchmark Segment is expected to be connected to the mid-construction Atlantic (New York - London) Benchmark Segment soon after its introduction in May of next year. Once tapped, the connection will allow international bandwidth trade in the near future.

Global Crossing enters the picture again as the facility owner of the UK bandwidth pooling point.

Enron’s IP broadband infrastructure, the Enron Intelligent Network, is also expected to expand into Europe, Japan, Asia and South America early next year.