Bandwidth Trading and Williams Communications [Drip] March 13, 2000

Bandwidth Trading and Williams Communications

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By George Runkle (TMF Runkle)
March 13, 2000

This past week, I spoke to Mrs. Sharon Crow, Vice President of Broadband Trading, Gil Broyle, Director of Internal and External Communications, and Paul Savill, Vice President of Network Planning from Williams Communications Group (NYSE: WCG). We discussed broadband trading both in general and how it will apply to Williams Communications and its competitors.

One of the important items to come out of this interview is that standards are still being developed to define the market. The big problem is, of course, how do you describe "bandwidth"? Such items as units of measurement, pricing terms, settlement terms, and credit still have to be worked out. Ultimately, the idea is to have a way to trade this as a commodity back and forth between the carriers and the users to minimize risk for both. At this time, a meeting of proposed market players is being organized by a third party as an initial step to setting standards.

We discussed the competitive environment, and as we've discussed previously in this column, Enron (NYSE: ENE) will be in bandwidth trading, and so will El Paso Energy (NYSE: EPG). Mrs. Crow did not feel having additional bandwidth traders would hurt her company or others. A larger number of companies involved in this would add "liquidity to the market." She said "all could be winners if trading for different reasons." For Williams Communications, trading bandwidth would be a way to provide risk management to existing customers.

How does this provide risk management? One example that they gave me was in the case of a client that may need additional bandwidth for an event three weeks in duration sometime in the future (such as a sporting event). Currently, it is very difficult to lease fiber for that short of a period of time. With the trading operation, it could be possible to get the capability. Additionally, the carrier leasing it would be able to more efficiently utilize its network.

They feel that companies that have the communications infrastructure will benefit greatly from bandwidth trading because of this increased efficiency. Also, the bandwidth trading and communications network should be building upon each other for increasing business.

I asked how much bandwidth trading would add to the revenues. They didn't want to put a figure on this. Mr. Savill did say that the "revenue plan does not depend on bandwidth trading." He did say it "holds a lot of potential for entirely new markets" and that there will be a "big expansion in the market for broadband media in the next five years."

So, let me sum up this interview. First, it's not as important as I thought as to who is the "first mover" in this market. It's not a "them or us" market for those trading in broadband. This fact will help Williams Communications in particular because it has an extensive network in place that they will be better able to market, and that network will allow them to build more business in their broadband trading. Let's see what Enron has to say about this when I speak to them this week.

Finally, back to our Foolish readers. We have an easy-to-understand explanation of ATM vs. IP networks from joetangerine in our Drip Companies board. Joe, thanks for the information!

To discuss this column and direct investing, please visit the message boards linked below.

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