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LighTrade Aims For Bandwidth Boom With "Points"
Monday, February 14, 2000 03:29 PM

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By Michael Rieke
HOUSTON (Dow Jones)--Washington, D.C. entrepreneur Ted Pierson is betting on
a boom in bandwidth trading.
His company, LighTrade Inc., will spend $20 million-$25 million this year to
install and operate hardware to trade bandwidth, or space on telecom lines,
in Atlanta, Chicago, Denver, Dallas, Miami, San Francisco, San Jose, Seattle
and Washington, D.C.
Bandwidth trading is growing, driven by increased demand by businesses for
the Internet. In a report released last December, CIBC World Markets
estimated that 20% of total bandwidth traffic, or $12 billion in revenues,
could be traded in some manner within five years.
Last week, Oklahoma energy company Williams Communications Group Inc. (WCG,
news, msgs) announced plans to open a bandwidth trading unit.
LighTrade will be the first company not affiliated with a larger energy or
telecommunications concern to develop the trading sites, known as pooling
points, Pierson told Dow Jones Newswires.
The points connect telecommunications carriers, allowing data to move from
one network to another. They are installed in "telecom hotels," buildings
that house carrier facilities, and essentially consist of a Lucent
Technologies Inc. (LU, news, msgs) bandwidth manager about the size of a
tall, narrow refrigerator.
Enron Broadband Services, a unit of Enron Corp. (ENE, news, msgs),
established the first two points last year in New York and Los Angeles. It
plans to build another in London this year.
Last year, Enron Corp. proposed trading bandwidth under a standardized
contract. It executed the first trade under the contract in December, buying
space on a monthly basis on a New York-Los Angeles line from Global Crossing
Ltd. of Bermuda.
Forrester Research Inc., a Cambridge, Mass.-based technology research firm,
has charged that Enron's ownership of pooling points prevents neutrality in
bandwidth trades.
Having an independent company like LighTrade operate points will help the
bandwidth trading market get off the ground, said Stephen Kamman, a
telecommunications industry analyst for CIBC World Markets.
It's a "very positive" development for the bandwidth trading market, said Tom
Gros, vice president of international bandwidth trading for Enron.
"This is the first of what I think will be at least a few others who are
interested in building pooling points that meet the Enron specifications for
the open trading of bandwidth," Gros said.
The industry has been trading bandwidth without a standardized contract for
years. Deals have typically taken weeks or months to negotiate. Companies
must start from scratch with each deal, negotiating price, quantity, length
of contract and quality of service.
In the past, deals have been long-term, sometimes as long as 20 years. But
with the cost of bandwidth along some routes declining 15%-20% a year, such
terms are less attractive.
Enron has also called on telecommunications companies to form a bandwidth
trading organization, an independent body that will decide on standard terms
and conditions for trading. Two groups in London and one in the United States
are vying to form such a group.
LighTrade chose pooling point sites based on telecommunications traffic,
Pierson said. Long-range plans call for the company to have sites in the 50
U.S. cities that develop the most traffic.
But the company's pace building a network of points will depend on how
quickly the telecommunications industry can decide on standards for trading
bandwidth as a commodity.
LighTrade wants to install points in Boston, Houston, Las Vegas, Memphis and
Phoenix in 2001, Pierson said. It is eyeing a move into international markets
as early as next year, if the market will support it. Western Europe is a
likely starting point, with Paris and Frankfurt possible sites.
Eventually, LighTrade could connect Miami to a South American city like Rio
de Janeiro or Sao Paulo, and build Asian pooling points in sites like Tokyo
and Osaka.
The company raised financing from private investors in two rounds last year
and is now looking for investment from venture capital companies.
In addition to reaching an agreement with Lucent Technologies to use its
bandwidth managers, LighTrade has another connection to the high-tech
company. William Plunkett, a senior vice president at Lucent, is on
LighTrade's board of directors. Pierson declined to say whether Lucent would
invest in his company.
LighTrade isn't Pierson's first startup company. The telecommunications
attorney founded Advanced Radio Telecom (ARTT, news, msgs), a NASDAQ-traded
company that owns and operates broadband wireless metropolitan area networks.
That company now has market capitalization of $800 million.
Pierson has commitments to tie pooling points into the networks of three
major telecommunications carriers, he said. He wouldn't identify the
companies. He said he doesn't know of any competitors building pooling
points, but he expects others to enter the market.
He and his investors are taking a chance starting a company to develop
pooling points because they don't know how quickly the market will develop,
he said.
"But I wouldn't be in it if ... I did not think this would be a very
significant economic return," Pierson said.
-By Michael Rieke 1-713-547-9207 michael.rieke@dowjones.com