Enron Thinks Bandwith a Natural Fit for Government

By Jennifer Freer, Staff WriterEnron Broadband Services, whose online trading service has helped transform the way energy and natural gas are bought and sold, is planning to sell bandwidth to government agencies with the same cutting-edge approach that could reduce costs for telecommunications services.The increasing use of the Internet, videoconferencing and other electronic tools has created an exploding demand for bandwidth, the capacity to move information over telephone and cable lines. Enron, a telecommunications provider itself, intends to treat bandwidth as a commodity that can be bought and sold online among telecommunications carriers, who then can offer it to their government customers at lower prices."We can be the largest trader of bandwidth in the country," said Kirk Neuner, Enron's manager for broadband services to the government and non-profit organizations. Enron Broadband Services of Portland, Ore., is a wholly owned subsidiary of Enron Corp. of Houston. Enron is a leading electricity, natural gas and communications company. EBS provides broadband Internet content and applications. Last year, it kicked off a Web-based commodity trading system to leverage its wholesale market expertise and publish real-time prices for coal, emission credits, liquids, natural gas, paper, petrochemicals, power, pulp and weather products. "Because of our market expertise, we will be able to provide agencies with the lowest cost bandwidth they can get," Neuner said.The global bandwidth market is estimated at $30 billion today, and expected to grow to $100 billion in the next three years, analysts said. Bandwidth is one of the top three markets in the world, just behind energy and real estate, analysts said.Bandwidth can be traded like electricity, gas or oil, only cheaper, easier and faster, using a "get what you pay for" philosophy, EBS officials said. The company will provide a scalable broadband connectivity, where customers will pay only for the capacity they use. "We are better equipped than anyone in the business to have government agencies outsource their bandwidth services to us on all levels," Neuner said.This approach is relatively new, even in the private sector. EBS' first bandwidth trade took place Dec. 2 with Global Crossing Ltd., a U.S. telecommunications company based in Hamilton, Bermuda. The contract provided for one month's use of a T1 line between New York and Los Angeles. Despite its novelty, bandwidth trading holds great promise, said Paul Hammer, vice president of technology, media and telecommunications for Houlihan Lokey Howard & Zukin, an investment banking firm based in Los Angeles. Hammer said EBS likely would be the largest trader of bandwidth because the company's core competency is trading. Even if a government agency is locked into a long-term, fixed-price contract for bandwidth with a particular telecommunications provider, EBS might be able to step in and offer its intermediation services to obtain lower market prices for bandwidth, Neuner said. EBS is targeting the Defense Department as the first federal agency to receive its bandwidth services, and it likely will make its first bid within the next several months, he said. "We're a natural for the State Department, the DoD and international agencies, and we make a lot of sense for agencies with a national scope," he said.A government agency could save money, for example, by purchasing needed bandwidth during off-peak hours. If the agency has a large amount of data that needs to be delivered to all its offices the next day, it could schedule the delivery at 3 a.m., when rates are much lower. EBS' plan to offer this service to the public sector depends on its ability to bring efficiency to the bandwidth market. Currently, there is no market transparency, said Scott Bolton, Enron's director of government and regulatory affairs. Users can shop around among bandwidth sellers, but there is no benchmark for establishing truly competitive prices."Our trading concepts will bring efficiencies to the market that currently don't exist," Bolton said.This approach to buying and selling bandwidth has not been embraced universally. Sprint Corp., for example, does not engage in bandwidth trading."We have the coverage we need where we need it, so there wouldn't be much of a benefit to Sprint to trade bandwidth with another carrier," said Brad Bass, a spokesman for the Westwood, Kan., company.Another large telecommunications company, AT&T Corp. of New York, did not respond to requests to comment on bandwidth trading."The AT&Ts of the world and NTT in Japan have been reluctant to view bandwidth as a commodity, because they sell bandwidth," Neuner said. Nevertheless, there are some other players. Williams Communications Group Inc., Tulsa, Okla., a provider of energy and communications services, has announced its intention to get into this market."It looks like there is enough traction, energy and interest in the area of bandwidth with enough players to build a coalition and start really doing the critical things that are necessary to create opportunities in bandwidth trading," said Kenneth Epps, senior vice president of strategic marketing for Williams. EBS is taking steps to jump-start the bandwidth market. The company has built and acquired 14,250 miles of fiber-optic network across the country, the Enron Intelligent Network, which is expected to span 20,000 miles before the end of the year. Officials would not say how much the network has cost.Also, over a year ago the company acquired Modulus Inc. of Houston, a company that developed software for NASA and supplied the intelligence of Enron's network.EBS has teamed up with a range of strategic partners, such as Cisco Systems Inc., San Jose, Calif.; Lucent Technologies Inc., Murray Hill, N.J.; Oracle Corp., Redwood Shores, Calif.; and Sun Microsystems Inc., Palo Alto, Calif.In an era where data transmission and the Internet are vital to businesses, Enron thinks it can change the way the Internet works by trading bandwidth."It seems like a simple concept, but it will be a major leap for this industry," Bolton said.