Company Description
Arbinet has created the only Internet-based business-to-business, or B2B,
trading exchange through which telecommunications service providers can buy,
sell and deliver to each other network capacity, expressed in minutes of
available calling time, for international and domestic long distance voice and
fax calls. Our exchange is neutral, favoring neither buyers nor sellers, and
allows participants to trade anonymously. Physical delivery of traded capacity
is made automatically through our multi-port switch using software that we
developed and a process that we patented. We handle all invoicing, collection
and payment for trades effected on our exchange, evaluate and assume the risk of
the creditworthiness of each buyer and provide continuous monitoring and on-line
rating of the service quality of each seller's network. By trading capacity on
our on-line exchange, telecommunications service providers can enhance the
utilization of their networks, increase their revenues and reduce their
operating and administrative costs.
THE GLOBAL TELECOMMUNICATIONS INDUSTRY
The $877 billion global telecommunications services industry is
characterized by rapid growth, fragmentation, operating inefficiencies, high
fixed costs, and declining prices and margins. This has resulted from, among
other things, global deregulation, the development and deployment of new
technologies and declining technology costs. The construction of new
high-capacity telecommunications networks has led to dramatic growth in the
industry's ability to carry telecommunications traffic. Most of this capacity
remains unused, except in peak periods. As a result, carriers are under pressure
to sell their excess capacity, since available minutes of calling time expire
worthless unless used. Current industry practices for trading network capacity
typically involve a one-to-one contract process that takes place in the absence
of information regarding prevailing market prices and without competitive
bidding. Most telecommunications service providers employ large staffs and
expend significant resources to find a buyer or seller on a desired route at
acceptable price and quality levels. They must then negotiate a contract for the
sale or purchase of network capacity, evaluate the creditworthiness or network
quality of their counterparty, set up a physical interconnection with that
party, and establish and implement procedures for invoicing and payment. This
one-to-one process is expensive, can take from three to six months for each
transaction, binds each party to a contract that may well become obsolete as
market conditions change, and burdens them with numerous interconnections that
must be maintained and managed.
ARBINET--THEXCHANGE
In stark contrast to traditional industry practices, once interconnected to
our exchange, telecommunications service providers can efficiently trade network
capacity with other users of our exchange. Our on-line exchange automatically
matches a buyer's posted bid for network capacity on a specified route with the
lowest priced offer of capacity on that route posted by a seller that can meet
the buyer's specified price and quality criteria. All bids, offers and trades
are anonymous, although bid and offer prices are available to all exchange users
to facilitate market transparency. With a single interconnection to our central
communications switch, a user of our exchange can send call traffic to or
receive traffic from the networks of all other exchange users without further
interconnections. All trades become effective, and a buyer's obligation for
payment arises, upon physical delivery of calls, which are routed automatically
from the seller's network to the buyer's network when they are made. We evaluate
the creditworthiness of each buyer that seeks to trade on our exchange and
assume responsibility for collections from those buyers and remittances to
sellers. We currently generate
revenues from minutes traded on our exchange and exchange fees. We commenced
trading on our exchange in October 1999. From October 1999 through
February 2000, 17.2 million minutes were traded on our exchange.
Our exchange serves the growing market for international and domestic long
distance voice and fax calls. In 1998, calls in the international market
aggregated 93 billion minutes, generating $69 billion in total revenues. The
number of minutes in this market is expected to grow at a rate of approximately
12% annually, and total revenue is expected to grow at a rate of approximately
1.5% annually. We estimate that the service providers in this market include
over 1,000 international long distance carriers, over 500 competitive local
exchange carriers and over 250 voice over Internet protocol service providers
worldwide.
BENEFITS OF ARBINET--THEXCHANGE
The benefits of our exchange to buyers include:
- lower operating costs;
- access to multiple sellers;
- automatic least-cost traffic routing;
- availability of network quality ratings; and
- convenience and confidentiality.
The benefits of our exchange to sellers include:
- lower operating costs;
- access to multiple buyers;
- anonymity;
- increased revenues;
- reduced financial exposure; and
- convenience and confidentiality.
OUR STRATEGY
We intend to be the primary centralized market for the purchase, sale and
delivery of telecommunications capacity. Key elements of our strategy include:
- increasing participation on our exchange;
- expanding our geographic presence;
- expanding the services offered through our exchange; and
- enhancing our technology offerings.
RECENT DEVELOPMENTS
On March 7, 2000, we completed the private placement of 2,120,228 shares of
our Series D preferred stock for a total purchase price of approximately
$41.0 million. Purchasers of the Series D preferred stock included investors
affiliated with Van Wagoner Capital Management, Breakaway Capital, Amerindo
Investment Advisors, Inc., Communications Ventures III, L.P., Bedrock Capital
Partners I, L.P., Internet Capital Group, Inc., J.P. Morgan Investment
Corporation, Chase Capital Partners and BancBoston Ventures Inc. |
