Trading Desk – There’s No Business like Slow Business

Posted: 12/2001

Trading Desk

There’s No Business like Slow
By Tara Seals

In theory, short-term contracts at low prices and on a just-in-time basis should make bandwidth trading appealing to the broadcast industry.

In practice, however, capacity traders had better look at getting true bandwidth-on-demand capability, and fast. As providers add Gigabit Ethernet and other new technologies into their networks, offering instantaneous provisioning to broadcast customers directly, some argue trading will not be able to compete as a distribution channel.

Hungry capacity traders looking for takers have tackled metro, IP, long haul and satellite capacity as likely markets. Broadcast provisioning is also in the mix, but with a benefit over other markets: It represents billions of dollars in near-guaranteed revenue.

Regardless of Wall Street’s caprices, the show must go on. It’s a pretty safe bet the Academy Awards will attract an audience, networks will run ads and news events will require live feeds from places as far away as Afghanistan.

Broadcast provisioning is a project-

driven industry, says Neil Fairbrother, product and marketing director for neosnetworks Inc.

For enterprise wholesale customers of broadcast capacity, which include individual television stations, networks, cable companies and film studios, there is no need for the two- to five-year contracts, which is typical of a broadband purchase.

Capacity trading offers a way to provision short-term contracts, Fairbrother says, speaking from experience.

Sohonet, a neosnetworks subsidiary, provides services to the “media creation” side of the broadcasting industry, which is defined as television, film and advertising. For example, Sohonet created the digital special effects for HBO’s “Band of Brothers.” And, it is holding exploratory talks with potential partners in the e-cinema market regarding distribution of digital film.

Dylan Browne, the recently appointed managing director of the London Satellite Exchange, says he sees a strong demand on his exchange for broadcast service for news and sports events.

“In Central Asia there’s been tremendous demand for short-term leases for large amounts of space capacity, up to the size of one transponder,” he says by way of illustration.

In the broadcast industry, it is difficult to determine how much demand there will be and how much capacity should be set aside for live events, even when they

are anticipated.

“So in terms of trading, a lot of the deals get done at the last minute and, of course, there’s sort of a rush, and from an operator’s point of view, they can keep their prices as high as possible to maximize the revenue,” says Browne.

“[The industry] is often under pressure to satisfy a last-minute demand, and if we can help place that with an alternative source, which wouldn’t have previously been available, then we’re providing a unique service,” he adds.

Two upcoming events demonstrate the role capacity trading can play. The Winter Olympics in Salt Lake City, for example, run for a 40-day period, during which broadcast organizations from all over the world will offer coverage. Just how much coverage — and accompanying transport — will be determined on the fly, based on the success and losses of home teams.

The World Cup soccer championship next summer in Japan and Korea raises a similar dilemma for broadcasters. Only a few teams will make it to the event, and some countries don’t know if their national team will qualify. Many will hold off provisioning capacity, meaning there could be a last-minute rush.

“What we see is very strong demand for short amounts of time and basically there are only certain operators that are well-placed to do that,” explains Browne. “So we’ll see a spike and the requirement to broker or trade that capacity, which will either be scarce or expensive.”

The size of the demand also comes into focus in deals like the one Williams Communications Group Inc.’s (WCG) Vyvx Broadband Media unit signed this fall. Vyvx, which specializes in capacity for the broadcast industry, announced it will expand its network for electronic distribution of advertisements from about 600 U.S. television stations to about 800 stations by the second quarter of 2002. It delivers about 2.75 million advertising spots per year to stations.

In 1990, Vyvx became the first company to transmit a live broadcast over a fiber-optic network.

Vyvx now provides broadcast transmission services for a roster of luminaries. These include 80 percent of all live professional sports events, including the Super Bowl, the World Series, the NBA and NHL championships, 65 percent of all live news special events, the Academy Awards, Golden Globe Awards and the Emmys.

Parent WCG provides about 252,000 video feeds for its customers annually.

Online matchmaker iacto AB capitalizes on such brisk business. It has 500 members in Europe, swapping capacity for live broadcast provisioning. iacto caters to heavy hitters like the BBC, Reuters and Manchester United, an English soccer club.

“We have had a great response from the broadcasting industry so far, and we now feel it is time to strengthen our ability to evaluate our strategic options, develop our concept and to continue to outperform the competition,” says Henrik Thomasson, iacto’s CEO.

Despite the bullishness, this type of market hungers for liquidity. Quick provisioning and flexibility is vital in the broadcast capacity market, and this issue remains in the craw of the trading industry.

While brokering can mean short-term contracts, cheap capacity and quicker provisioning than in more traditional deals, trading cannot yet offer widespread on-the-fly delivery.

While it has a 33,000-mile fiber optic network, satellite transponders and four satellite earth stations, WCG also is an active participant in bandwidth trading, provisioning off-net capacity and selling its own.

However, Vyvx has implemented processes to directly provide one-hour turnarounds for its broadcast customers, who then have no need to turn to the capacity-trading channel.

“Our one-hour service, along with the expansion of our advertising distribution network and deployment of the machine control software demonstrates our continued commitment to delivering second-to-none service to our customers,” says Michael Schlesier, vice president of broadcast, cable and advertising services for Vyvx.

Pooling points such as those provided by neutral provider LighTrade Inc. and Enron Broadband Services (EBS) hope to solve the problem by acting as soft-switch, dynamic distribution points for traded capacity, affording quick, short-term turn up and tear down.

Marc Pfeiffer, senior director product development at LighTrade, says the facilities can switch capacity between buyers and sellers in hours.

“If there is a bright spot in the current malaise of over-capacity and under-performing telecom assets, it is in creating just-in-time bandwidth connectivity,” he says.

There is big push, he says, to attract enterprises and specialized service providers looking to gain “ready access to capacity” to the pooling points. But for now, not everyone has access to these next-generation pooling points, particularly overseas.

iacto’s Thomasson admits, “We want to be prepared for the future restructuring of the business.”

According to neosnetworks’ Fairbrother, the advent of Gigabit Ethernet for the last mile will bring true liquid bandwidth and radically change the face of the market.

“There are hugely compelling arguments for wall-to-wall Ethernet — LAN, MAN and WAN — not least of which is price, but also less complexity and better quality of service,” notes Fairbrother.

GigE also allows for web-enabled customer self-provisioning of bandwidth.

“I think this will have a huge impact on the market, once people get used to the idea of bandwidth being like a gas tap on

a stove,” says Fairbrother. “This also throws up different billing models. Pay-per-use, prepayment, megabit [and] days are some of the examples that we are experimenting with.”

When those different billing paradigms are factored in, “capacity trading almost becomes irrelevant, as it just won’t be able to react fast enough,” says Fairbrother.

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