Posted: 01/2001
Trading Post
What Does an Online Exchange Do?
While most offer quality metrics, billing services and clearinghouse functions, each exchange has a very different solution to each of these components.
The big value-add common to most exchanges is that with a single connection, telecommunications products can be purchased at the best market rate and with a quality level their customers require.
The exchanges also permit the use of short contracts so that buyers can flat line their inventory on a monthly basis, and sellers can purchase telecommunications products using more flexible terms that may be better suited to their needs. This use of shorter contracting periods is driving the spot market for telecommunications products and ultimately will lead to a more liquid and truly robust environment for the exchange of these products that is consistent with traditional commodities trading. Telecommunications product exchanges are gaining market share and represent a significant recurring revenue source for participating carriers.
Q: How do exchanges make their money?
A: Some exchanges charge a commission on the value of the capacity traded, while others charge a flat transaction fee per deal or per minute traded.
Q: How many are there? How many could there be?
A: Currently, about 10 online exchanges serve the industry. Some act as electronic brokers as the "exchange" part of their businesses will exist when liquidity in the market is achieved. They do not all compete with each other for the same customers based on: 1. Product/technology deployed; 2. Geographical area of focus; 3. Segment of the market; and 4. Business model.
We do not expect the growth and development of the exchange space will be radically different from any other business. Some exchanges will build their customer base and expand. Others will grow faster and be more profitable. Some may move into other businesses or be liquidated completely, and still others are expected to combine through traditional mergers or acquisitions.
Q: Are they competitors or partners?
A: By working together toward a common goal, the exchanges benefit. The e-bandwidthtraders.org (eBTO) exemplifies this cooperation. Current eBTO members are: Paula Brillson (CEO of Asia Capacity Exchange Ltd., www.ace-asia.com), Russ Matulich (CEO of RateXchange Corp., www.ratexchange.com), Rick Nyman (former vice president of business development for The Global TeleExchange, www.thegtx.com), Jenaro Garcia (CEO of Iber Exchange, www.iber-x.com) and Frank Genin (The London Satellite Exchange, www.e-sax.com).
Q: Are exchanges carrier neutral? How do I know the difference?
A: Some exchanges are carrier neutral. To determine the answer, one needs to understand whether the exchange competes with carriers, acting as a carrier itself. Does the exchange threaten the existing business of traditional carriers or compete with carriers for the same business?
Chart: Telecommodities/Indices
Answers to this month's Trading Post question were provided by the e-bandwidthtraders.org (eBTO) board. The eBTO spokesperson, Jeff Stark, is executive vice president of sales and marketing at The Global TeleExchange (www.thegtx.com). He can be reached at +1 703 748 1230.
