Electronic markets for telecommunications transport capacities

Abstract

Until recently inter-carrier sales and purchase of telecommunications transport capacities were mainly based on long-term bilateral contracts between capacity supplying and demanding operators. Not long ago various firms started to supplement this traditional decentralized organization of the capacity business by setting up institutionalized electronic market places to trade network capacity products similar to traditional commodity exchanges. This paper portrays the mechanics of the new capacity trading approach along with its advantages and disadvantages for both established and new carriers. Eleven electronic carrier capacity market places were identified around the globe and analyzed with regard to the volume and structure of carrier capacity products being traded. Results suggest that operators of electronic capacity markets face severe difficulties in motivating major carriers to participate in the market. Former transmission network monopoly holders are particularly reluctant to participate in electronic carrier capacity market places. Incumbents fear that their participation could accelerate the decline of transport capacity prices. On a more general level the analysis suggests that new intermediaries in electronic markets are likely to fail when (1) supply and demand is highly concentrated and (2) trust in the quality of the products traded and in the commercial settlement processes is not firmly established.