On 10/8/10 GigabitG said:

"An interesting, and very well timed article. In my opinion the success or otherwise of exchanges will ultimately depend on cost and performance. Right now the main value proposition to end users seems to be that, by connecting to an Ethernet supplier through and exchange, they should expect a faster installation than would otherwise be the case if they were to connect directly. As you mentioned in your article, eliminating this hassle, would be a benefit for buyers and sellers alike. However, that is assuming that connecting to a supplier via an exchange, as a buyer, is less of a hassle. And if the carriers have already been through that hassle, by negotiating a direct NNI agreement in the past, are they likely to do so again, but this time with the added hassle of having to do so through an exchange? So hassle can be something that works both ways.

Also, whilst it can be a time consuming and laborious process for carriers to agree direct NNI agreements, at least that's what it is.. direct! Direct in that each carrier has agreed common sets of QoS settings, and O&M processes between them. There is also more than likely a resilient, and direct, fiber connection between their switch infrastructures, which (aside from the marginal costs of cross-connects within a DC) does not add additional recurring costs to their respective cost bases. Contrast this with the exchanges who are suggesting that connecting via a 3rd party switch infrastructure is more secure and cost-effective than a direct NNI agreement. Maybe so, for NNI's not yet in place, but most of the larger Carriers already have NNI agreements in place with their strategic partners.

And finally what about cost? Equinix and Neutral Tandem / Tinet have an advantage in that they can effectively subsidise the costs of joining the exchange as it compliments their core business. But how will customers justify connecting to a supplier through an exchange if it is going to be more costly than connecting directly? Whichever way you look at it, in the longer term, exchanges will have to generate enough revenue to justify the significant investment and associated costs.

So, in my opinion, the value proposition needs to be more clearly communicated to buyers in order for exchanges to really boom

"