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Commodity or Not a Commodity: Does It Matter?

Posted: 12/2000

The Letter

Commodity or Not a Commodity: Does It
Matter?

Tell
me if I’m wrong, but if it can squeeze itself into the strict definition of a
commodity and can be sold as a commodity, then isn’t bandwidth a commodity?

What’s all the fuss? Why do some people in this industry insist bandwidth is
not a commodity? Then they use that as their excuse for not exploring the brave
new world of capacity and/or minute exchanges.

Perhaps they are like the older-than-baby-boomers who are afraid of learning
how to use a computer or the Internet.

Perhaps they simply want to avoid the evolutionary migration to what may be a
much more efficient and timely way to sell telephony service.

Most likely, the reason has to do with margins. Some resisters probably don’t
know how to operate in a trading environment and are afraid to learn. They may
believe they will lose dollars in their pockets.

While capacity may not fit the commodity definition traders in other markets,
such as electricity, use, it certainly is a valued asset that is bought and
sold.

According to an article co-written recently by Sushil Nelson, general manager
of Aquila Broadband Services and Keith Stamm, CEO of Aquila Energy Corp. (www.aquilaenergy.com),
commodities are created when three "critical" elements–liquidity,
volatility and fungibility–exist in a market.

Applying broadband capacity to Nelson and Stamm’s criteria is an easy fit.
Liquidity exists, as numerous buyers and sellers populate the telecom industry,
and none has undue influences on prices. In fact, the competition is so great,
prices constantly are dropping as providers scramble to find value-adds to make
up for the lower prices they charge to stay competitive.

No one can suggest the market is not volatile. As providers drop prices, the
demand for bandwidth increases. End users want more services, and providers want
to find the content to move through the pipes that will keep them solvent.

As for fungibility, the notion that minutes or capacity are different from
one place to another is ludicrous. Last time I looked, 60 seconds is a minute in
Thailand, just as it is in South Africa. That is not to say an imbalance will
not be evident in actual capacity or use of capacity when comparing
data-centric-savvy nations with less developed countries.

But those differences can and will be solved, once a standardized contract is
reached, which by all accounts continues to inch toward realization.

When that occurs, you won’t have to stretch the definition to squeeze
bandwidth into the commodity skin.

The goal in reaching a standard contract is to ensure that transactions can
be completed quickly, which is another departure from the way telecom industry
veterans operate. Maybe that’s the real reason some stalwarts are reluctant to
enter the MTV-paced world. Perhaps they realize the days of negotiating for
days, weeks and months at a time are about over, and they simply are going to
miss the schmoozing.

Bruce Christian
Editor


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