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By Alan Stewart


Arbinet-thexchange has one trading system – its business servers working through the web – with multiple exchange delivery points

Some bandwidth exchanges trade circuits between city pairs, some deal in minutes, and some do both. "We have designed a system which operates at the lowest economic unit of trade, which is a call," says Anthony Craig, Chairman of Arbinet-thexchange, a US minutes exchange.

"Arbinet-thexchange is a dynamic exchange," says Mr. Craig. "The system automatically shops for the best routing at the moment you make a call, as opposed to the moment you make a contract."

He likens this dynamic nature to the way a stock exchange works, where a market limit order is submitted, and then fulfilled at the best available pricing. "Our model was developed over the last four years, and we’ve put close to $30m into the technology to make it work," he says.

Mr. Craig gives an example of someone – maybe a telco or corporate customer – who wants to buy telephone calls to Johannesburg at a rate of 14 cents a minute and no more. The Arbinet-thexchange system finds the rate, fulfills the order, and then dispatches the call the moment the phone is picked up. "That’s quite a technological step further than circuit switching," he says.

Arbinet-thexchange has focused on minutes and developed what it claims is the most advanced technology, because it believes this is the biggest bandwidth market. The minutes market is worth around $800bn, while the circuits market is worth about $100bn. "We focus on cost efficiencies, access to new markets, and cash flow for our members," he says.

"We have one trading system – our business servers working through the web – and multiple exchange delivery points," says Mr. Craig. "We try to make it as economical as possible for our members to send and receive traffic from the switches that the exchange drives."

Transatlantic Cost Levels

Mr. Craig describes how, until November 2000, Arbinet-thexchange’s European members were bringing their circuits across the Atlantic and connecting to Arbinet’s system in New York. He points out that, as the price and cost of wholesale minutes keeps dropping, then the cost of the transatlantic connection takes on a greater significance.

"At a certain scale point, it makes sense for us to have a switch that our members can connect to in London," says Mr. Craig. Arbinet-thexchange’s customers will then save the cost of the transatlantic connection and can have the choice of trading free-on-board (FOB) London or FOB New York.

Mr. Craig explains that Arbinet-thexchange started operations in New York because around 40 per cent of the international traffic in telephony flows through the area. "Roughly 20 per cent flows through London, so that was the logical next step," he adds.

"Slightly less flows through Los Angeles, which covers the Pacific Rim and then Frankfurt and Tokyo tie."

According to Mr. Craig, the telecoms companies are in the early adopter stage today. "They want to participate, try it out, and as it proves, they increase their volume and activity," he says. "That’s what we’re seeing. Of our 100 members, there’s about 50-60 trading actively, and 20 of them are now really stepping up their volumes. We add 20-30 members per month."

Most of the $30m funding went into the software and the support systems. "There’s about $12m worth of equipment," says Mr. Craig. "In July 2000, we made the cut-over to a carrier-grade switch, the Nortel GSP."

He describes the trading system itself as having the complexity of that of online auction house eBay – about 65,000 lines of code. The system handles reconciliation, rating, and billing, and allows Arbinet-thexchange to present bills to buyers and to settle with sellers.

"The model we have is one of very low fixed cost and relatively low capital, so once you’re past your break-even point, you begin to get profitable very quickly," explains Mr. Craig. "The break-even point is around a third of a switch-load, and we’re currently at about 10 per cent."

"You hear a lot of talk about voice versus data, and how fast data is overtaking everything," says Mr. Craig. "You don’t have markets in voice and data; markets are counted in minutes or circuits. Minutes don’t care if it’s voice or data, so we have fax, voice over IP, data and voice all going through that minutes market. That’s why we focused on minutes."

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