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Enron Mail |
Williams Communications Forms Bandwidth Trading Grp
Friday, February 11, 2000 12:50 PM ?Mail this article to a friend By Michael Rieke HOUSTON (Dow Jones)--Williams Communications Group Inc. (WCG, news, msgs) has formed a bandwidth trading group in a step toward embracing standardized bandwidth trading. The company was initially opposed to the idea of bandwidth trading as a commodity under standard terms and conditions, so its change of opinion is being viewed by analysts as a key step toward creating a commodity market for telecommunications bandwidth. Williams Communications now wants to be a leader in setting industry standards for bandwidth trading, Gordon Martin, president of Williams Communications' carrier services, told Dow Jones Newswires. The company plans to draw on the commodity trading experience of Williams Co. (WMB, news, msgs), Martin said. Williams Co., an energy company that owns 85% of Williams Communications, has been trading energy commodities such as natural gas for years. Williams Communications has named Sharon Crow as vice president of bandwidth risk and optimization management. She was previously a gas trader and risk manager with Williams Energy Services, a unit of Williams Co. Williams Communications has one of the largest interstate telecommunications networks in the United States. It has recently been adding more telecommunications fiber on both the local and international level, Martin said. "This is a market that may not be at a maturity level that others would like to think it is in terms of ability to trade," Martin said. That's a clear reference to Enron Corp., which proposed last year that bandwidth be traded as a commodity under standard terms and conditions. Enron did the first such trade in December, agreeing to buy DS-3 bandwidth from New York and Los Angeles in monthly increments from Global Crossing Ltd. (GBLX, news, msgs). A DS-3 fiber moves data at a rate of 45 megabits per second. Tom Gros, vice president of global bandwidth trading for Enron, said he welcomes Williams to the bandwidth trading market. "This is something that enables all of us to more effectively manage our bandwidth and offer more innovative solutions to our clients." Williams Communications' Martin is quick to point out that his company has been trading bandwidth for about 15 years. Those deals have typically been long term, as long as 15 to 20 years. Traditional bandwidth deals take weeks or even months to close as companies negotiate quantity, price, quality of service, creditworthiness, damages for non-performance and other issues. Each new deal would start again from scratch to negotiate those issues. By setting standard terms and conditions to cover such issues, industry players can trade bandwidth more quickly and more efficiently, Crow said. The resulting liquidity will add flexibility to the telecommunications industry, allowing producers and users of bandwidth to manage risk. Crow said Williams Communications wants to take the lead in forming a telecommunications industry committee to standardize terms for bandwidth trading. That's an about-face for Williams Communications. Last May a company official was quoted as saying that bandwidth couldn't trade as a commodity under standard terms and conditions. Last December another company official spoke at a bandwidth trading conference in New York City. He was still skeptical but softened the company's opposition to the idea. Crow said Williams Communications and Williams Co. have had a committee studying the bandwidth trading idea for more than a year. The group was looking at the issue from a timing perspective to see how long it would take to become liquid. Now Williams Communications wants to help spur that liquidity. Part of Williams Communications change of opinion has had to do with the evolution of Enron's trading proposal. It was originally seen by Williams as a proposal to trade minutes of long distance telephony minutes, said a Williams official who didn't want to be identified. Later it evolved into trading of high-speed data transmission bandwidth. It's also become evident this year that the stock market likes the bandwidth trading idea. Before Enron did its first bandwidth trade in early December, its share price was less than $38 a share. Then mutual funds came in to buy large blocks of stock in December, pushing the share price above the $50 mark. The share price got another shot in the arm when Enron played up bandwidth trading and its fiber-optic network at its analysts meeting Jan. 20. On Jan. 19, Enron's stock closed at $53.50 a share. On the day of the analysts meeting, it closed at $67.38. The next day it closed at $71.63. The market's reaction to Enron's bandwidth position "did invigorate our examination of the issue," said the Williams Communication official. "The market had shown a willingness to reward the kind of capability we believe we had but that we hadn't brought this kind of focus to," he said. All the Williams Communications officials stressed that a liquid market in bandwidth would enable the company to manage risk for itself and for its customers. Under the traditional long-term deals, a bandwidth consumer has to buy enough bandwidth to handle its maximum needs. It continues to pay for all the bandwidth even if it's using only part of it at times. A liquid market would allow a consumer to more closely match its bandwidth purchases with its needs. Williams hopes to be pushing liquidity in certain aspects of trading, like monthly deals instead of only multi-year deals, said a company official. The more bandwidth trades, the more buyers and sellers learn about the value of individual telecommunications products, he said. Crow said the company is still working on an "action plan" to put together its trading group. It could draft employees from the Williams Communications long-term trading and deal organization group, the Williams Co. energy commodity trading group and from outside the company. As for organizing an industry group to set standards for bandwidth trading, she said that could be as simple as calling other telecommunication carriers.
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