Why have bandwidth trading markets not matured? Analysis of technological and market issues
by P. Ferreira, J. Mindel, L. McKnight
International Journal of Technology, Policy and Management (IJTPM), Vol. 3, No. 2, 2003

Abstract: This paper provides an in-depth analysis of technological and market issues that will impact the development of bandwidth trading markets with liquidity. We provide a very broad definition for a bandwidth trading agreement and we analyse several network topologies in which trading bandwidth would make sense both from a business perspective and a technical perspective. The paper suggests that there is a gap between what the current routing protocols allow carriers to do and what carriers would like to do in order to implement more complex business relationships to trade bandwidth. We provide several examples of such situations. Additionally, we point out two major problems that may hamper the implementation of dynamic and fluid spot markets for bandwidth trading. The first problem is related to the excessive time that disseminating the new routing information generated by an agreement may take. The second problem is associated with the difficulties in performing traffic engineering to balance load across links once carriers become multi-connected, which we believe will be the case for most of them with mature bandwidth trading markets in place. The analysis provided in this paper contributes to understanding the directions in which routing would need to be enhanced in order to establish more attractive bandwidth trading markets. The analysis of market issues addresses the promise of these markets from the perspectives of demand and feasibility. From a public policy perspective, bandwidth trading markets are important because they have the potential to impact the sustainability of competition in the telecommunications sector. Existence and sustainability of market competitors in the service sector is a fundamental tenet of telecommunications policy because competitive markets offer consumers services with better quality that are priced closer to their true costs. This paper shows that there is price volatility in today's bandwidth markets; however not enough to convince market participants to adhere in bulk and thus to build the critical mass needed for the markets to take off. There is a significant amount of education that needs to take place for suppliers and wholesale consumers to become adept at the use of, for example, future contracts for risk management purposes in such markets.

Online publication date: Mon, 10-May-2004

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