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October 4, 1999

For Sale: Telecom Capacity

ompanies can buy and sell just about anything in the virtual world of online exchanges. For the past two years, telecommunications carriers, Internet service providers, and others have bought and sold network capacity and services via the Arbinet Global Clearing Network.

Using a browser, customers access the Arbinet Web site-which serves as an online trading floor-at any time. Sellers post signs advertising excess network capacity, and interested parties can bid on the goods.

The exchange, says Stephen Sweet, director of business development at Arbinet Communications, gives telcos the flexibility to buy and sell capacity day by day, as opposed to months-long contract negotiations or reselling capacity on their own. Moreover, Arbinet handles financial statements for the transactions. "In the old model, you're locking yourself in for three months," Sweet says. "We've created an online platform for carriers to buy and sell."

The concept is catching on. In 1998, more than 173 million minutes of WAN services were transacted via Arbinet's six international switches, boosting the company's revenue 115% over the year before. Arbinet takes a cut on each transaction. Last spring, the privately held company secured $12 million in private equity funding.

KPN Telecom has tested Arbinet for the past few months, and already the Netherlands telecommunications provider has bought about 500,000 minutes of voice capacity on the exchange. KPN is assessing Arbinet and other exchanges to see how well they stand up to claims. For example, KPN would like to sell unused minutes on its Asian network-hours when U.S. businesses are still operating, says a KPN source who asked not to be identified.

As the telecommunications market continues to open internationally, carriers such as KPN are looking for the flexibility to sell and buy bandwidth at a moment's notice. "We believe that telecom is turning into a commodity market, and we're looking at ways to adapt to that," the KPN source says.

So far, Arbinet is dealing only in capacity that's available now, creating what traders call a spot market. The company may consider trading rights to buy future capacity at fixed prices-but that would require a critical mass of companies interested in both buying and selling such futures. "Today we have a spot market," says Sweet. "A futures market is being considered, but we need liquidity."

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