Posted: 02/2001
GE Brings Good Things to Arbinet
By Bruce Christian
Arbinet-thexchange Inc. (www.arbinet.com), a full-service trading solution for buyers and sellers of telephony bandwidth, reached an agreement in December with GE Capital Commercial Services (www.geccs.com) that provides thexchange with global credit risk management, a variety of financing and back-office support services.
The deal supports thexchange's mission to provide a centralized e-commerce service that integrates trading and real-time delivery of bandwidth capacity through its switching infrastructure.
It also is expected to provide a way to avoid bad-debt risk for sellers, options to accelerate cash flow for selling members and a range of payment timing options for buyers, according to Chris Reid, Arbinet-thexchange's director of marketing.
"We've been watching the trend over the last six months; it's becoming a lot harder to raise capital," Reid explains. "Companies that are not cash-flow positive are finding it harder to get capital. We are starting to see people go under, even a couple of the big wholesale businesses are beginning to take big hits.
"We think that in the year ahead, it probably is going to get worse before it gets better, so people are going to have to manage their cash better," Reid says.
In that regard, Reid explains that financial strength and high- volume settlement capability is needed.
Arbinet-thexchange is a full-service centralized solution that replaces bilateral wholesale bandwidth transactions. Its platform links an online marketplace with a physical delivery infrastructure and clearing and settlement systems.
Thexchange operates a commodities-like exchange in which a single buy order may be filled in real time from multiple sellers depending on the market dynamics.
"We did this deal with GE Capital to broaden what we offer through the exchange," Reid explains.
"In the exchange, you can negotiate a deal, and we do real-time delivery through switching," Reid explains. "We are the neutral party. As volume and number increases, there is kind of internal danger, because you can't scale your working capital."
He says the standard time to come to payment terms within the industry is 66 days. At Arbinet-thexchange, the time can be cut to 15 days, with an option to pay within two days.
The amount of money that floats for a couple of months can be a concern, and Reid says it makes no sense to do business that way.
"When you do that, that means you can only do deals with a couple of other people," Reid says. "We are trying to allow buys from everyone."
The GE Capital Service agreement provides the needed capital for the companies that may need the cash infusion.
In a prepared announcement to reveal the agreement, Arbinet-thexchange company president and CEO Curt Hockemeier said, "GE Capital understood right away what we were trying to do, and has developed an integrated set of financial services that really expands our value to our members. Thexchange had already automated the negotiation and physical delivery services of our marketplace. GE Capital is enhancing the automation of our credit risk management and financial settlement services, completing our end-to-end e-commerce solution.
"This provides a means for our members to increase network utilization and reduce sales and marketing, operational, bad debt and capital costs at a juncture when telecommunications industry earnings are under heavy siege," Hockemeier added.
GE Capital Commercial Services president Joe Krum added, "Thexchange has been able to develop a very advanced e-commerce application because it has been able to integrate the physical delivery of bandwidth via switching and routing equipment with an online marketplace. We are delighted to be involved in enhancing the credit risk management and financial settlement services that allow thexchange to safely scale its role as the counterparty to all transactions, completing this full-service offering."
With the agreement, Reid says, "If you think about a more established financial exchange, we are trying to bring that kind of level to the telecom industry."
Through its Commercial Services group, GE Capital is a global provider of working capital financing, accounts receivable risk management, and related back-office services to clients in electronic and conventional business-to-business supply chains. It has assets of more than $345 billion, and is a wholly owned subsidiary of the General Electric Co. (www.ge.com).
