Trading Telecoms Bandwidth in Asia:A demonstration and explanation

Paula Brillson, founder & Managing DirectorHong Kong, 24 June 1999

OUTLINE

• Evolution of the Telecoms Brokering Market (Focus on Asia)

• Role of Exchange/Clearinghouse

• Creation of Liquid Markets

Rapid Growth...

The Asian market alone exceeds 14.3 billion minutes with annual growth of 13.5%. At least 60% of this amount flows between Asian destinations. Source: Telegeography, 1999.

Hong Kong: a logical hub for trading activities

3.8 Billion Minutes routed in 1998

Competitive Market4 FTNS104 ETS (additional applications pending)44 International Calling Card23 VPNs

Market Drivers

• Liberalisation

• Increased Competition

• Advances in Technology

• More Available Capacity

• Internet Proliferation (global economies)

The Situation: Broker’s Perspective

• As commissions shrink, brokers must process more transactions in order to maintain revenues

• Must find ways to attract new customers and create loyalty (avoid broker-bypass)

• Must operate more efficiently

The Situation: Carriers’ Perspective• As rates decrease, profit margins shrink• More players require more sales staff to

negotiate/develop relationships• Must have immediate access to rate and market

information• Must operate more efficiently (reduce lead time

for implementing deals, use bandwidth more efficiently)

The Opportunity: Centralised Trading Facilities via Internet

• Centralised Database: Most competitive Bids/Offers

• One contract with the Exchange• Standardised contract terms (quality, size,

delivery, credit and liability provisions)• Clear transactions• Provide timely market information• Provide benchmark for quality and rates

Commonly Asked Questions• How do transactions get cleared?• How do settlements work?• What happens when buyer/seller defaults?• What happens to traditional carrier-to-carrier

relationships?• How does trading through an exchange increase

efficiency?

Commonly Asked Question No. 1How do transactions get cleared?

Step1. Sign Traders Agreement with ACE

Step 2. Connect to ACE Telehub/Pay Subscription Fee

Step 3. List Rates to BUY or SELL

Step 4. When BID or OFFER is accepted,

route is tested for quality, deposit is posted, traffic flows

Commonly Asked Question No. 2

How do settlements work?

Settle with the Exchange on weekly basis

COMMISSIONS ARE:

ACE TELEHUB: Value of Contract x 0.025

OTC TRADES: Value of Contract x 0.01

Commonly Asked Question No. 3What happens when buyer/seller defaults?• Contracts are monthly and are based on take-or-

pay arrangements• Seller Default - Pays price between contract rate

and spot rate (next most competitive rate listed in the market for the same, agreed-to quality level)

• Opportunity to cure default for reduced quality level if lower rate can be mutually agreed to

Commonly Asked Question No. 4 What happens to traditional carrier-to-carrier

relationships?• Trading through Exchanges will not replace

carrier-to-carrier agreements (at least not in short term)

• Carriers maintain relationship with largest customers while using the Exchange to do business with smaller, new entrant players

Commonly Asked Question No. 5• How does trading through an exchange increase

efficiency?• Lowered Transaction Costs • Reduced Inventory • More Efficient Customer Service • Lower Sales And Marketing Costs • New Sales Opportunities

What’s Next?

• Educate the Market (Carriers/Brokers/Market Makers)

• Set standards/create standards body• Introduce Risk Management Products (through

collecting historical data on supply/demand)• Forward, Futures and Options Trading

Commoditization of Telecoms is Underway in Asia….

www.ace-asia.com