Making a market in minutes: RateXchange offers a Web way to buy and sell capacity

Time is money, and so is space-at least over the public network. The growth of Internet commerce and the booming on-line population have carriers expanding their international networks. That looming overcapacity will increase the spot market for international bandwidth from $5 billion today to as much as $20 billion in three years, according to some projections.

Traditional methods of buying and selling bandwidth are not adequate in today's competitive, deregulated industry, said Ross Mayfield, marketing director of San Francisco-based RateXchange. Bilateral carrier-to-carrier sales often are inefficiently priced and plagued by quality variations that amount to "bait-and-switch tactics." Carriers doing business through a broker sometimes find that four or five brokers have stacked their commissions onto a two-party transaction.

RateXchange eliminates brokers by acting both as an information clearinghouse for buyers and sellers of telecom traffic and as a neutral meeting place where they can transact business.

A Web visitor finds a pair of browsing windows for offers and bids on minutes and bandwidth. The minutes window contains multiple offers. Each lists a blind reference number, the originating and destination countries of the traffic, rate, volumes required for purchase and a classification by service grade.

Companies seeking bandwidth see the reference number, one terminating point on the leased route and its destination country, its size-T-1 or OC-3, for example-and the length of contract. A spot rate page benchmarks prices for the same U.S./international routes-and draws one-fifth of RateXchange's members back for a daily visit.

Once a qualified registrant posts a bid for minutes or bandwidth, RateXchange puts the parties in touch. If the offer is accepted, the company collects a commission of 0.29cents a minute for a deal of 25cents a minute or less and 0.39cents a minute on higher sell rates.

The exchange began with the launch of its Web site on Jan. 2, has more than 600 members and has processed more than 50 transactions since its establishment, although Mayfield would not disclose the value or number of transactions to date. RateXchange recently signed an agreement to become the exclusive Internet channel for Qwest Communications' voice and bandwidth transactions.

The Web-based model may work a permanent change on the industry model of bilateral deals. "It's exciting," said Michael Scheele, president of M.J. Scheele & Associates. "Twenty-four hours a day, 365 days a year, it's an on-line trade show of buying and selling."

David Cooperstein, senior analyst of telecom strategies at Forrester Research, agreed. "This minute-to-minute market will eventually be useful not only to wholesalers and resellers but to large end users," he said. "A company like Ford with a big private network will be able to buy telecom services virtually when it needs them."

RateXchange is the first telecom exchange to standardize quality by grading for carriers, and intervening occasionally when a posted offer seems out of line with a carrier's capacity, Mayfield said. "Every other consideration-volume, length of contract-is falling aside except for price and quality," he said. The company is working with several Tier 1 carriers to benchmark quality as a first step toward more refined quality ratings in the near future.

"That quality ranking is important," said Scheele. "International telephony is not a commodity, even though domestic is."

Ultimately, RateXchange may evolve into a real-time bandwidth market that can smooth bulges in either supply or demand as needed.

"We're in a tipping game," said Mayfield.

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