June 30, 2008

Putting Bits and Bytes Up for Bid

By Eric Pfanner

There are exchanges where you can buy and sell stocks, futures, pork bellies, wine and even pollution allowances. Why not an exchange for the trading of digital bits and bytes?

"That is my dream," said Hamadoun Toure, secretary general of the International Telecommunications Union, a United Nations agency based in Geneva that sets international communications standards.

The exchange would let telephone networks, mobile operators, satellite providers and other telecommunications companies trade capacity on their systems. Network operators spotting potential bottlenecks could buy extra capacity, ensuring the smooth functioning of phone services, cellphone networks, the Internet and other communications links. Those with excess capacity could sell bandwidth, helping to limit the financial losses that occur when networks sit idle.

Applying a marketplace solution to the allocation of bandwidth, Toure said, could improve efficiency and reduce prices. That might help with one of his main goals, to bridge the digital divide in places like Africa, he added.

Toure, who mentioned the idea recently by telephone, is not the first person to think of such an exchange. Enron, the energy and trading company, briefly ran an electronic bandwidth exchange before the company was brought down by financial scandal in 2001.

Perhaps the notoriety of Enron explains why Toure and his aides quickly cautioned that the idea was nothing more than a dream for now, and might never be created. Instead, Toure said he was focusing on a more modest plan, one that could be a step toward an exchange: the creation of a real-time database detailing the flow of traffic on the world's major communications networks.

Toure said the database could play an essential role in helping networks manage capacity and plan new investments at a time when telecommunications traffic is surging, and when some experts are warning that the growth of voice, data and particularly video traffic threatens to create the digital equivalent of traffic jams. Nemertes Research, based in a suburb of Chicago, has predicted that over the next three to five years, Internet users in North America could experience "brownouts" unless telecommunications operators significantly step up their investments.

"There are a lot of megabytes sitting in a lot of places that are underutilized," Toure said. "It would be good to have a better knowledge of this."

Toure said he had discussed this idea recently with telecommunications companies at an annual meeting organized by Intelsat, which operates communications satellites for use by media and telecommunications companies and governments. At these gatherings, network operators already trade capacity through bilateral agreements, without the structure of an exchange - when, for instance, a European operator puts in place an arrangement to deal with an anticipated spike in traffic to China or India.

It was not clear whether network operators would want to participate in such a system.

"It's a little bit preliminary to talk about something like this at this point," said Nicholas Mitsis, a spokesman for Intelsat.

Analysts said some telecommunications carriers might be reluctant to take part for fear of revealing sensitive information to competitors. Some might prefer to continue operating the way they do now, trading capacity as needed, usually with one counterparty, rather than making details about their networks available to all.

"The more granular they try to make this, the more difficult it would be to do it," said John Delaney, an analyst at IDC, a research firm.

Toure said operators' identities would be withheld to help prevent such problems.

If telecommunications providers can be persuaded, Delaney said, the database could play a useful role, helping network operators avoid the boom-bust investment cycles that have bedeviled them in the past. One of these contributed to the demise of Enron's trading system, which suffered from a collapse in demand for trading after a multiyear investment spree by telecommunications companies left billions of dollars worth of fiber-optic networks lying unused.

"There is a mutual interest in getting capex to follow rather than lead demand," Delaney said, referring to capital expenditures by operators.

The ITU, with the help of two software companies, Microsoft and IDV Solutions, has already created a more limited database called Global View, which tracks the spread of information and communications technologies in Africa, showing how different regions stack up in terms of mobile network coverage, broadband access and other communications benchmarks.

The ITU wants to expand Global View to other continents, including Asia, Toure said. With better access to information, he said, companies will be more likely to invest in regions like Africa, where growth in mobile phone penetration has been rapid but where access to other communications technologies remains patchy.

"We're making sure the industry is aware of the opportunities," Toure said.

Global View could serve as a model for more ambitious plans, like the live database, he said.

"The world will benefit in knowing what traffic is going where and when," he said. "The capacity problems are like the global food problem. It's not because of a lack of food, it's a lack of distribution of food."

Originally published by The New York Times Media Group.

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