DRAFT OF MARCH 12, 2001 EBS BANDWIDTH AND STORAGE TRADING IN MEXICO Background and Selected Tax and

Regulatory I ue This memorandum provides background or Me!ican "a! and regu#a"or$ advisors regarding "he various aspec"s o "rading b$ %nron &roadband 'ervices ()%&'*+ o ph$sica# "e#ecommunica"ions capaci"$ ()band,id"h*+ and s"orage capaci"$- .ar" / discusses cer"ain undamen"a#s o iberop"ic ne",orks "ha" are use u# in unders"anding "he band,id"h "rading- .ar" // provides an overvie, o "he "$pes o band,id"h and s"orage capaci"$ "ha" %&' p#ans "o "rade- .ar" /// summari0es "he inancia# band,id"h produc"s "ha" %&' ,i## o er-1 .ar" /1 se"s or"h "he "rading s"ra"eg$ %&' has adop"ed "o emphasi0e i"s compe"i"ive advan"ages- .ar" 1 describes "he #ega# and ph$sica# aspec"s o band,id"h and s"orage "rading and e!ecu"ion- Fina##$, .ar"s 1/ and 1// ou"#ine 2ues"ions regarding cri"ica# regu#a"or$ and "a! issues respec"ive#$ "ha" need "o be addressed "o de"ermine "he bes" s"ruc"ure or ph$sica# "rading o band,id"h and s"orage services in Me!ico-

I! "#$ero%t#c net&ork $a #c
To be""er unders"and "he spec"rum o %&' produc"s3services, i" is use u# "o unders"and cer"ain common e#emen"s o communica"ions ne",orks- The combina"ion o "hese e#emen"s de ine "he )ne",ork archi"ec"ure-* The Open '"andard /n"erconnec"ion ()O'/*+ mode# is "he ,ide#$4accep"ed means o de ining ne",orks- The O'/ mode# organi0es "he communica"ions process in"o seven #a$ers-2 %ach o "hese #a$ers bui#ds upon "he ones be#o, i"- 5a$ers one "hrough "hree dea# ,i"h da"a "ransmission and rou"ing- 5a$ers ive "hrough seven ocus on user app#ica"ions, ,hi#e #a$er our provides an in"er ace be",een "he irs" "hree and #as" "hree #a$ers- Mos" o "he unc"iona#i"$ in "he O'/ mode# e!is"s in a## communica"ions s$s"ems, a#"hough ",o or "hree O'/ #a$ers ma$ be incorpora"ed in"o oneAs %&' band,id"h "rading dea#s on#$ ,i"h #a$ers one "hrough "hree, on#$ "he irs" "hree #a$ers are discussed be#o,-

A. The physical layer

The irs" #a$er, kno,n as "he )ph$sica# #a$er,* re ers "o "he ph$sica# means o sending da"a rom one poin" "o ano"her- This #a$er is imp#emen"ed ,i"h a combina"ion o hard,are and so ",are- /n a iberop"ic ne",ork, "his #a$er ,ou#d inc#ude "he iber i"se# , #asers, and signa# regenera"ion e2uipmen"- The ph$sica# #a$er a#so inc#udes cer"ain
1

A#"hough inancia# "rading is brie #$ summari0ed, "his memorandum is res"ric"ed "o "he "a! and regu#a"or$ issues arising ,i"h respec" "o "he ph$sica# "rading o band,id"h and s"orage- Financia# "rading ,i## be "he sub6ec" o a separa"e memorandum2 For a summar$ o a## seven O'/ #a$ers, see a""achmen" 1-

e2uipmen" "ha" increases "he band,id"h o "he iber b$ a process kno,n as dense ,ave division mu#"ip#e!ing ()D7DM*+- %ssen"ia##$, D7DM increases "he band,id"h o a iber b$ ac"ing as a prism "o divide "he #igh" "raversing "he iber in"o a number o ,ave#eng"hs (or )#ambdas*+- %ach o "he ,ave#eng"hs per orms vir"ua##$ as a separa"e iber- Ano"her ke$ componen" o "he ph$sica# #a$er are "he signa# regenera"ors "ha" mus" be p#aced ever$ 80 "o 100 ki#ome"ers "o boos" "he signa#, ,hich #oses s"reng"h over dis"anceFina##$, a common, bu" no #onger essen"ia#, ph$sica# #a$er ne",ork e#emen" ("ha" can be used in con6unc"ion ,i"h D7DM e2uipmen"+ is s$nchronous op"ica# ne",ork ()'O9%T*+ e2uipmen"- 'uch e2uipmen" per orms "he ph$sica# #a$er unc"ion o mu#"ip#e!ing (combining+ numerous da"a s"reams on"o one iber using a "echni2ue kno,n as "ime division mu#"ip#e!ing ()TDM*+- Through TDM, each da"a s"ream is assigned a "ime s#o" a" regu#ar in"erva#s a" i"s poin" o origina"ion- 'O9%T e2uipmen" (kno,n as add3drop mu#"ip#e!ers+ #oca"ed a" "he des"ina"ion o a given da"a s"ream can )demu#"ip#e!* "he s"ream because i" is s$nchroni0ed so "ha" each "ime s#o" assigned "o each da"a s"ream can be iden"i ied and separa"ed ou" rom "he o"her da"a s"reams- /n addi"ion, 'O9%T per orms "he ph$sica# #a$er unc"ion o circui" pro"ec"ion- 'O9%T ne",orks are genera##$ cons"ruc"ed in "he orm o a ring or circ#e- /n "he even" o e2uipmen" ai#ure or a iber cu", 'O9%T e2uipmen" au"oma"ica##$ res"ores "he ne",ork b$ reversing "he direc"ion o da"a #o, around "he circ#e- 'O9%T e2uipmen" a#so per orms error correc"ion and da"a raming ( orma""ing+, ,hich are unc"ions o "he da"a#ink #a$er ",o described be#o,-

B. The data link layer

The ph$sica# #a$er mere#$ accep"s and "ransmi"s a da"a s"ream comprised o #igh" pu#ses ,i"hou" an$ regard or in orma"ion con"en"- The second #a$er, kno,n as "he )da"a#ink* #a$er, "akes "he ra, communica"ion channe# provided b$ "he ph$sica# #a$er and "rans orms i" in"o an error ree "ransmission aci#i"$- To do "his, i" breaks da"a up in"o rames, and uses ackno,#edgemen"s and o"her devices "o make "he channe# re#iab#e- 5ike "he ph$sica# #a$er, "he da"a#ink #a$er is imp#emen"ed via a combina"ion o hard,are and so ",are-

C. The network layer

The :ra,: communica"ion channe# o "he ph$sica# #a$er is bui#" over a sing#e #ink be",een ",o nodes (e-g-, a rou"er, a persona# compu"er+ ,hich communica"e a" "he da"a#ink #a$er- /" is o "en "he case "ha" ",o machines "ha" need "o communica"e ,i## no" be direc"#$ connec"ed in such a ,a$- /n "his even", an$ communica"ions be",een "he ",o ,i## have "o be rou"ed irs" "hrough one or more in"ermedia"e nodes or ne",orks- This rou"ing o in orma"ion is hand#ed b$ "he ne",ork #a$er- The ne",ork #a$er "hus ,orks ,i"h "he da"a#ink #a$er b$ using man$ da"a#ink connec"ions "o provide one "ransparen" #ink be",een "he source and "he des"ina"ion- The ne",ork #a$er, #ike "he #a$ers benea"h i", is imp#emen"ed "hrough a combina"ion o hard,are and so ",areThe ne",ork #a$er is in a ver$ specia# posi"ion in "he #a$er hierarch$, because i" orms "he "radi"iona# in"er ace be",een "he user and "he ne",ork- Tha" is "o sa$, "he ne",ork is 2

con"ro##ed b$ "he ne",ork #a$er and "he ",o #a$ers be#o, i"- The our #a$ers above "his ("ranspor", session , presen"a"ion and app#ica"ion+ run on "he user;s persona# compu"er (or o"her ne",ork device+- 'o "he ne",ork #a$er de ines "he service provided b$ "he ne",ork "o "he user 4 i" is "he in"er ace be",een "he user and "he ou"side ,or#d-

D. Bandwidth
/n "he con"e!" o digi"a# ne",orks, "he "erm band,id"h means "he amoun" o da"a "ha" can pass "hrough a "ransmission medium and is de ined in "erms o digi"a# signa# speeds- A hierarch$ o digi"a# signa# speeds is used "o c#assi $ "he capaci"$ o digi"a# #ines and "runks- The basic capaci"$ #eve# is D'40 (<= ki#obi"s per second >kbps?+, "he s"andard capaci"$ his"orica##$ used "o digi"i0e one voice conversa"ion, samp#ing "he ana#og voice signa# @,000 "imes per second and encoding "he resu#" in an @4bi" code ("hus @ ! @000 A <=,000+- /n o"her ,ords, D'40 is "he band,id"h re2uired "o "ransmi" a norma# "e#ephone ca##- /n 9or"h America, D'41, D'41C, D'42, D'4B and D'4= correspond "o 1-8== mi##ion bi"s per second (Mbps+ o capaci"$, B-182 Mbps, <-B12 Mbps, ==-CB< Mbps, and 2C=-1C< Mbps, respec"ive#$- Con using#$, some o "hese same "erms designa"e di eren" capaci"ies in %urope and Dapan- For e!amp#e, a %uropean D'4B #eve# designa"es B=-B<@ Mbps o capaci"$- The D' designa"ion is o "en rep#aced b$ an )%* pre i! (e-g-, %41, %4B ra"her "han D'41 or D'4B+ in an a""emp" "o avoid con usionT Carrier hierarch$ "ermino#og$ is common#$ used in"erchangeab#$ ,i"h D' hierarch$ "ermino#og$ (even "hough T Carrier "ermino#og$ "echnica##$ re ers on#$ "o "he capaci"$ o copper #ines+- For e!amp#e, a T41 #ine has D'41 capaci"$ and a T4B #ine has D'4B capaci"$'O9%TB ()'$nchronous Op"ica# 9e",ork*+ and 'DH ()'$nchrous Digi"a# Hierarch$*+ are a se" o re#a"ed s"andards or s$nchronous da"a "ransmission over iber op"ic ne",orks'O9%T is "he Eni"ed '"a"es version o "he s"andard pub#ished b$ "he American 9a"iona# '"andards /ns"i"u"e- 'DH is "he in"erna"iona# version o "he s"andard pub#ished b$ "he /n"erna"iona# Te#ecommunica"ions Enion- The #o,es" speed on "he 'O9%T hierarch$ is OC41 (81-@= Mbps+, ,hich is "he amoun" o capaci"$ re2uired "o carr$ a signa# "ha" "$pica##$ origina"es as a D'4B "ransmission (==-CB< Mbps+- The addi"iona# bps are re2uired "o or op"ica# processing overhead (signa#ing and con"ro# da"a+- Higher OC #eve#s are simp#$ mu#"ip#es o "he basic OC41 #eve# in "erms o Mbps- The #o,es" speed on "he 'DH hierarch$ is 'TM41 (180-BB< Mbps+-

II! Ty%e o' %(y #cal $and&#dt( t(at EBS &#ll trade
Fenera##$ speaking, %&' p#ans "o "rade in a## "$pes o band,id"h produc"s ,here "here is a su icien"#$ #i2uid marke"- Moreover, %&' ,i## engage in bo"h ph$sica# and inancia# "rades o band,id"h- This sec"ion brie #$ describes "he e!is"ing ca"egories o ph$sica# band,id"h produc"s "ha" %&' p#ans "o "rade- Financia# band,id"h "rades are brie #$ described in par" /// be#o,-

'ee ur"her discussion o 'O9%T in par" // ).riva"e 5ine 'ervice* infra-

A. Dark fiber
Trading in dark iber is "he mos" "angib#e ,a$ "o bu$ and se## capaci"$- 4 )Dark iber* is iberop"ic cab#e "ha" has no" been e2uipped ,i"h "he e#ec"ronic componen"s necessar$ or "e#ecommunica"ions "ransmission- Dark iber sa#es and purchases are "$pica##$ documen"ed in "he orm o an inde easib#e righ"s o use con"rac" ()/REs*+- /n "he con"e!" o a dark iber purchase, "he /RE gran"ee receives "he righ" "o use a speci ic iber or ibers or a speci ied period o "ime, genera##$ or i "een "o ",en"$ $ears-8 The /RE is common#$ s,apped or an /RE in o"her iber(s+ bu" is a#so o "en gran"ed in e!change or mon"h#$ recurring pa$men"s or an up ron" #ump sum- For an addi"iona# periodic ee, "he /RE gran"or ma$ bund#e basic main"enance services or "he s$s"em ,i"h "he gran"ing o "he /RE- A#so or an addi"iona# ee, "he /RE gran"or ma$ o er co##oca"ion o cus"omer e2uipmen" in i"s poin"s o presence ().o. si"es*+< or regenera"ion si"es- Regenera"ion si"es are "$pica##$ #oca"ed ever$ 80 "o 100 ki#ome"ers a#ong "he iber rou"eThe dark iber o,ner or /RE gran"ee ma$ a""ach ,ha"ever voice, da"a, or video e2uipmen" i" chooses "o )#igh"* "he ibers and o"her,ise de ine "he ne",ork archi"ec"ure/n "he case o an /RE, "he /RE gran"ee has un e""ered con"ro# o "he iber and "he e2uipmen" associa"ed ,i"h "he iber or "he "erm o "he /RE- /n o"her ,ords, "he /RE gran"ee can de ine, and rede ine, #a$er one (o"her "han "he iber i"se# + "hrough #a$er "hree according "o i"s needs and budge" cons"rain"sFor purposes o deve#oping %&'Gs proprie"ar$ iberop"ic ne",ork, %&' has been par"icipa"ing in a number o dark iber cons"ruc"ion pro6ec"s in "he E-'- and CanadaThrough "his par"icipa"ion, %&' has ac2uired a direc" o,nership in"eres" in iberop"ic cab#es over numerous rou"es in "he E' and Canada- &ecause righ" o ,a$ cos"s and #abor cos"s represen" "he #ionGs share o "he overa## cons"ruc"ion cos"s, mos" iberop"ic cons"ruc"ion pro6ec"s #a$ hundreds o iber cab#es in addi"ion "o "he cab#es reasonab#$ an"icipa"ed "o be necessar$ or a given rou"e- %&' norma##$ se##s "he e!cess cab#es or cash or ibers on ano"her rou"e ()s,ap*+- %&' does no" curren"#$ ac" as a dea#er ,i"h respec" "o dark iber and has no p#ans "o do so- 9ever"he#ess, given "ha" business s"ra"egies ,i## change as circums"ances change, dea#ing in dark iber b$ %&' shou#d no" be ca"egorica##$ ru#ed ou"-

)Dark* or )un#i"* iber is iberop"ic cab#e "ha" has no" been e2uipped ,i"h "he e#ec"ronic componen"s necessar$ or "e#ecommunica"ions "ransmission8 An /RE is genera##$ de ined as "he inde easib#e righ" "o use a cer"ain amoun" o capaci"$ (no" necessari#$ speci $ing an$ iber+ or a given amoun" o "ime over a speci ic poin"4"o4poin" segmen" or ne",ork- This de ini"ion is "oo broad "o be ver$ he#p u# rom a "a! and inancia# accoun"ing s"andpoin"- For ins"ance, a 20 $ear /RE in dark iber ,i"h passage o #ega# "i"#e a" "he end o "he /RE is c#ear#$ a sa#e o "he iber, ,hi#e a 8 $ear /RE in capaci"$ ,here "he se##er remains responsib#e or a ne",ork ai#ure is #ike#$ "o charac"eri0ed as a service (a#"hough i" migh" be "rea"ed as a #ease based on a## "he ac"s and circums"ances+- Thus, ,he"her an /RE is charac"eri0ed as a sa#e, a #ease, a par"nership, or a service or "a! and inancia# accoun"ing purposes ,i## depend on "he ac"s and circums"ances surrounding each /RE< A .o. si"e is a ph$sica# p#ace ,here a compan$ has a presence (e-g-, servers, rou"ers, e"c-+ or ne",ork access- For %&', a .o. si"e is genera##$ ,here %&'Gs )#ong hau#* iber mee"s "he )ci"$ ga"e* o a me"ropo#i"an "e#ecom carrier-

B. Raw Bandwidth - Wavelengths

One s"ep removed rom "he sa#e o dark iber is "he sa#e o )ra,* band,id"h over iber "ha" is #i" bu" no" u##$ opera"iona# because no #a$er above "he ph$sica# #a$er has been provisioned- /n "his con"e!", a aci#i"ies4based "e#ecommunica"ions carrierC o,ns, ins"a##s and co##oca"es "he D7DM and regenera"ion e2uipmen" necessar$ "o #igh" "he iber and channe#i0e i" in"o ,ave#eng"hs, bu" does no" ins"a## 'O9%T or o"her e2uipmen" necessar$ "o "ransmi" in orma"ion over "he ne",ork- The carrier genera##$ se##s an e!c#usive righ" "o use "he ,ave#eng"h on "he same basis as i" ,ou#d se## an /RE in dark iber, e!cep" "ha" i" does no" unbund#e "he provision o co##oca"ion, and opera"ions and main"enance services ,i"h respec" "o "he D7DM and regenera"ion e2uipmen"5ike "he dark iber purchaser, "he ,ave#eng"h purchaser ma$ a""ach ,ha"ever voice, da"a, or video e2uipmen" i" chooses "o de ine "he ne",ork archi"ec"ure- Thus, "he ,ave#eng"h purchaser has "he po,er "o de ine and rede ine #a$ers ",o and "hree- Ho,ever, un#ike "he dark iber purchaser, "he ,ave#eng"h purchaser ma$ no" rede ine "he capaci"$ o "he ,ave#eng"h i" purchased, because "he ,ave#eng"h se##er re"ains o,nership o "he under#$ing iber- Thus, "he ,ave#eng"h se##er cou#d decide "o ins"a## more advanced e2uipmen" "ha" divides a iber in"o addi"iona# ,ave#eng"hs, ,hich addi"iona# ,ave#eng"hs ,ou#d be so#e#$ or "he ,ave#eng"h se##er "o se##- /n con"ras", "he purchaser o dark iber ,ou#d be "he one "o decide ,he"her "he e2uipmen" shou#d be ins"a##ed, and ,ou#d be en"i"#ed "o se## "he addi"iona# ,ave#eng"hs resu#"ing rom "he ins"a##a"ion%&' norma##$ ac"s as a dea#er ,i"h respec" "o ,ave#eng"hs as opposed "o a producer #ike "he aci#i"ies4based carrier re erred "o above- Thus, or e!amp#e, %&' ma$ bu$ "he e!c#usive righ" "o a ,ave#eng"h be",een a carrierGs 9e, Hork .o. si"e and i"s 5ondon .o. si"e- The righ" ma$ be #ega##$ documen"ed in an$ number o orms (e-g-, as an /RE, a Capaci"$ .urchase Agreemen", a Mas"er &and,id"h .urchase and 'a#e Agreemen"+ and ma$ be purchased rom an$ o a varie"$ o se##ers (e-g-, carriers, end users ,i"h e!cess capaci"$, o"her dea#ers, re"ai#ers+- /n "urn, %&' ma$ divide or combine "he righ" in a mu#"i"ude o ,a$s or resa#e "o a varie"$ o bu$ers (e-g-, carriers, end users, o"her dea#ers, re"ai#ers+-

C.

rivate line service

Fur"her a#ong "he bund#ing spec"rum is %&'G priva"e #ine service- A priva"e #ine is essen"ia##$ a pair o circui"s "ha" are dedica"ed "o "he e!c#usive use o "he priva"e #ine purchaser- As ,i"h ra, band,id"h, 1+ "he priva"e #ine purchaser bu$s on#$ a righ" "o use circui"s, 2+ "he priva"e #ine se##er main"ains an ongoing opera"ions and main"enance responsibi#i"$ or "he circui"s, and B+ "he circui"s purchased are permanen" ( or "he "erm o "he priva"e #ine+ s,i"ch#ess ph$sica# connec"ions be",een ",o poin"s- The essen"ia# di erence be",een "he purchase o a ,ave#eng"h and "he purchase o a priva"e #ine is "ha" "he priva"e #ine circui" is genera##$ provisioned b$ "he priva"e #ine se##er ,i"h 'O9%T e2uipmen" in a ring con igura"ion, i-e-, each o "he ",o circui"s have "he same "ermina"ion poin"s bu" "ake geographica##$ di eren" rou"es be",een such poin"s- This archi"ec"ure
C

The "erm ) aci#i"ies4based carrier* is common#$ app#ied "o "e#ecommunica"ions companies "ha" ac"ua##$ o,n, opera"e and main"ain da"a and voice "ransmission ne",orks, as opposed "o )services4based carriers* "ha" ac" pure#$ as dea#ers and re"ai#ers in band,id"h capaci"$-

serves "o pro"ec" "he priva"e #ine circui" rom service in"errup"ions "ha" ,ou#d o"her,ise resu#" rom a iber cu" or e2uipmen" ai#ure a#ong "he pa"h o "he circui"- /n "he even" o a iber cu" or e2uipmen" ai#ure, "he 'O9%T e2uipmen" a" "he poin" o in"roduc"ion o "he da"a "o "he ring a#mos" immedia"e#$ and au"oma"ica##$ reverses "he direc"ion o da"a #o, around "he ring "o reach ne",ork users on "he ar side o "he iber cu" or poin" o ai#ureMa6or carriers have so#d priva"e #ine services or man$ $ears under man$ names (e-g-, ) u##$4#i" capaci"$,* )OC4! capaci"$,* and ).riva"e 5eased Circui"*+- %&'G priva"e #ine service produc" di ers rom such "radi"iona# priva"e #ine service "o "he e!"en" "ha" (i+ %&' provides such service ,i"h a shor"er "erm and #ead4"ime, and (ii+ %&' ac"s as a dea#er in, ra"her "han a producer o , band,id"h- As ,i"h Ra, &and,id"h, %&' norma##$ ac"s as a dea#er in priva"e #ine service band,id"h- Thus, %&' bu$s rom a varie"$ o se##ers and ma$ divide or combine "he righ"s ac2uired (or no"+ in a mu#"i"ude o ,a$s and or resa#e "o a varie"$ o bu$ers-

D. !atellite bandwidth
'a"e##i"e band,id"h di ers signi ican"#$ rom iberop"ic band,id"h in "ha" sa"e##i"e circui"s run over radio re2uencies signa#s ra"her "han iberop"ic cab#e- A sa"e##i"e band,id"h segmen" ma$ be divided in"o ",o pieces, "he ground piece and "he space piece- The ground piece is comprised o "he ear"h s"a"ions a" "he "ermina"ion poin"s o "he sa"e##i"e band,id"h segmen", bo"h o ,hich are e2uipped "o send and receive signa#s rom "he sa"e##i"e- An ear"h s"a"ion genera##$ inc#udes "he an"ennae and mu#"ip#e! gear or "he up#inks ("ransmission "o "he sa"e##i"e+ and do,n#inks (recep"ion rom "he sa"e##i"e+- 7i"h "he adven" o "he 1er$ 'ma## Aper"ure Termina# ()1'AT*+, such ear"h s"a"ions are shrinking in cos" and si0e- The ground piece o a 1'AT ne",ork genera##$ consis"s o a mas"er ear"h s"a"ion and remo"e s"a"ions- The mas"er ear"h s"a"ion is "he cen"ra# #oca"ion ,here "he ne",ork is moni"ored and con"ro##ed and "hrough ,hich a## remo"e s"a"ion communica"ions mus" pass- The mas"er ear"h s"a"ion is genera##$ e2uipped #ike a conven"iona# ear"h s"a"ion- On "he o"her hand, "he remo"e s"a"ions consis" on#$ o a parabo#ic an"enna #ess "han a $ard ,ide and a sma## desk"op bo! "ha" con"ains receiver and "ransmi""er boards and an in"er ace "o communica"e ,i"h "he userGs in4house e2uipmen" (e-g-, 5A9s, servers, .Cs+The space piece is "he sa"e##i"e i"se# - The mos" impor"an" componen" o an$ communica"ions sa"e##i"e is "he "ransponder- The "ransponder accep"s communica"ion signa#s re#a$ed "o i" rom "he sa"e##i"e;s receive an"enna (,hich signa# ,as received rom a "ransmi" an"enna or "ransmission "o a receive ear"h s"a"ion+, amp#i ies "he signa#, conver"s "he signa# in"o ano"her re2uenc$ and re#a$s "he signa# "o "he sa"e##i"e;s "ransmi" an"enna or "ransmission "o a receive ear"h s"a"ion-@ A sing#e sa"e##i"e ma$ have rom 12 "o B< "ransponders- A signi ican" por"ion o "he number o "ransponders serve simp#$ as back4 ups- The receive and "ransmi" an"ennas on "he sa"e##i"e hand#e a## "he signa#s re#a$ed "hrough "he various "ransponders- %ach "ransponder accep"s on#$ signa#s on "he re2uenc$ or ,hich i" is programmed@

The "ransponder "ransmi"s on a di eren" re2uenc$ "han "he re2uenc$ i" received "he da"a "o preven" "he po,er u# do,n#ink signa# rom over,he#ming "he ,eak up#ink signa#-

<

'a"e##i"e band,id"h is genera##$ so#d in ",o orms, as a sa#e o one or more "ransponders or as a sa#e o communica"ions services- The sa#e o "ransponders is ana#ogous "o a sa#e o dark iber in "ha" "i"#e passes "o "he purchaser and "he purchaser ma$ e2uip "he ear"h segmen" o "he band,id"h as i" sees i" "o "ake ma!imum advan"age o "he "ransponderGs capabi#i"ies-I The "$pica# "ransponder sa#es con"rac" provides "ha" "i"#e "o "he "ransponders passes ,hen "he sa"e##i"e is in i"s designa"ed orbi" and "he sa"e##i"e and "ransponders have been u##$ "es"ed and are u##$ opera"iona#- The sa#es con"rac" usua##$ con"ains ,arran"ies "ha" i an$ o "he purchased "ransponders ai# "o unc"ion proper#$ a "er "rans er o "i"#e and during "heir use u# #ives, "he se##er ,i## "rans er "i"#e "o a spare "ransponder on "he same or on a di eren" sa"e##i"e "o "he purchaser or no e!"ra charge- The sa#es con"rac" ma$ a#so con"ain a provision re unding a por"ion o "he purchase price upon ai#ure o "he purchased and spare "ransponders during "heir use u# #ives i "he ai#ure is due "o circums"ances ,i"hin "he con"ro# o "he sa"e##i"e opera"or- The re und is usua##$ ca#cu#a"ed b$ mu#"ip#$ing "he purchase price b$ a rac"ion represen"ing "he "ime remaining in "he use u# #ives o "he "ransponders- The sa#es con"rac" usua##$ con"ains an agreemen" in ,hich "he sa"e##i"e opera"or agrees "o main"ain "he sa"e##i"e and keep i" in i"s designa"ed orbi"- This unc"ion is "$pica##$ ca##ed )Tracking, Te#eme"r$ and Con"ro#* or )T,TJC*The sa#e o sa"e##i"e band,id"h in "he orm o communica"ions services is genera##$ ana#ogous "o priva"e #ine service in "ha" a speci ic channe# o a speci ic 2uan"um o sa"e##i"e capaci"$ is reserved or "he e!c#usive use o "he band,id"h purchaser- 5ike 'O9%T4con igured priva"e #ines, sa"e##i"es have back4up capaci"$ "ha" can be used in "he even" o e2uipmen" ai#ure-

". # Capacity
%&' is a#so "r$ing "o make a marke" in ,ha" i" "erms as )/. capaci"$-* %&' de ines /. capaci"$ as "he righ" "o u"i#i0e an /. rou"ed ne",ork c#oud, ,hich ma$ consis" o one or more au"onomous s$s"ems, "o de#iver packe"s "o /. addresses "ha" ma$ or ma$ no" reside on "he same ne",ork- %&' o ers ",o "$pes o /. capaci"$ under "he rubric o /. 9e"Connec", name#$ /. "ranspor" and /. "ransi"- %&' de ines /. "ranspor" as "he righ" "o use an /. rou"ed ne",ork c#oud, ,hich consis"s o one au"onomous s$s"em, "o de#iver packe"s on "he same ne",ork- /. "ransi" is high4speed access "o "he pub#ic /n"erne" c#oud&o"h /. "ransi" and /. "ranspor" are produc"s "ha" provide /. da"a "ranspor"a"ion- Aside rom "he ac" "ha" /. "ransi" provides access "o "he 7or#d 7ide 7eb, "he essen"ia# di erence be",een /. "ranspor" and /. "ransi" is "ha" %&' can o er "o guaran"ee 2ua#i"$ o service ()KO'*+ #eve#s ,i"h /. "ranspor" capaci"$ bu" no" ,i"h /. "ransi"- %&' can guaran"ee KO' ,i"h /. "ranspor" because "he cus"omerGs da"a ,i## "raverse on#$ ne",ork rou"es managed b$ %&' or managed b$ a "hird par"$ "ha" has guaran"eed KO' #eve#s "o %&' on "he same "erms "ha" %&' o ers i"s cus"omers- / "he /. "ranspor" cus"omer ,ishes ph$sica#4address4"o4ph$sica# address KO', "hen %&' mus" provide and manage "he cus"omer premises rou"er, "he #oca# #oop connec"ion rom each speci ied cus"omer address "o "he neares" %&' .o. si"e, and /. access "o %&'G proprie"ar$ iberop"ic ne",ork kno,n
I

/ "he "ransponder purchaser does no" have i"s o,n "ransmi" and receive ear"h s"a"ions, "he sa#es con"rac" ma$ a#so inc#ude provisions or "he purchaser "o use "he se##er;s ear"h s"a"ions-

as "he %nron /n"e##igen" 9e",ork ("he )%/9*+-10 %&' a#so o ers a #ess4e!"ensive /. "ranspor" produc" in ,hich %&' on#$ provides /. capaci"$ on "he %/9, ,i"h KO' guaran"eed on#$ ,i"h respec" "o "he %/9 por"ion- /n such cases, "he cus"omer mus" arrange or "he ac2uisi"ion and managemen" o "he #oca# #oop connec"ion "o %&'G .o. si"e and cus"omer premises rou"er/. "ransi" is o "en o ered a#ong ,i"h /. "ranspor"- %ven ,hen i" is so#d a#ong ,i"h /. "ranspor", "he /. "ransi" service ma$ no" invo#ve "he %/9 a" a## (i-e-, ma$ be conduc"ed en"ire#$ o 4ne"+, or "he %/9 ma$ serve as an in"ermedia"e ne",ork be",een "he cus"omer and "he /n"erne"%&' e!pec"s "ha" "he ini"ia# cus"omers or "he /n"erne" Transpor" produc" ,i## be For"une 100 en"erprises "ha" re2uire "he "ranspor"a"ion o #arge amoun"s o da"a among "heir various E' and in"erna"iona# o ices- The /. Transi" produc" ,i## be so#d "o re"ai# /n"erne" service providers (/'.s+ and #arge en"erprises "ha" re2uire high band,id"h /n"erne" access bu" no" on a sca#e "ha" ,ou#d be pro i"ab#e "o "he ma6or /n"erne" backbone providers- /n "his regard, %&' ,i## purchase por" capaci"$ rom /n"erne" backbone providers and connec" such capaci"$ "o "he %/9- %&' ,i## "hen rese## "he por" capaci"$ in pieces a#ong ,i"h an$ %/9 capaci"$ necessar$ "o ge" "he da"a rom "he /n"erne" "o "he cus"omer and vice versaThe /. Transpor" produc" provides cus"omers ,i"h da"a "ranspor"a"ion service a" a signi ican"#$ #o,er price "han comparab#e priva"e #ine service- /n "he pas", en"erprises have "$pica##$ used ne",orks comprised o numerous poin"4"o4poin" priva"e #ines "o "ranspor" voice and da"a "ra ic- Compared ,i"h "he pub#ic s,i"ched "e#ephone ne",ork, such priva"e dedica"ed ne",orks have "he advan"ages o 2ua#i"$, re#iabi#i"$ and securi"$The "remendous disadvan"age o priva"e ne",orks is "ha" "he$ are 2ui"e e!pensiveA#"hough i" per orms "he same unc"ions as a priva"e dedica"ed ne",ork, "he /. Transpor" produc" is signi ican"#$ cheaper "han a priva"e dedica"ed ne",ork because i" "ransmi"s da"a using /. packe"s ra"her "han dedica"ed circui"s- The ac" "ha" "he %/9 is an /.4based ne",ork enab#es %&' "o se## %/9 band,id"h a" a much #o,er cos" "o each par"icipan" compared "o priva"e #ine ne",orks because "he use o /. ma!imi0es "he e icien" use o band,id"h b$ a##o,ing "he simu#"aneous sharing o "he same circui" b$ numerous par"icipan"s- /.4based ne",orks such as "he %/9 "ransmi" da"a in a s"andardi0ed packe" orma"- %ach individua# packe" con"ains des"ina"ion address in orma"ion "ha" a##o,s "he packe" "o be rou"ed "o i"s ina# des"ina"ion- Fenera##$ speaking, an$ given packe" can "ake an$ number o rou"es across "he ne",ork "o reach "he des"ina"ion- %&' is curren"#$ designing so ",are "o insure "ha" packe"s "ake "he mos" e icien" rou"e- The mos" e icien" rou"e ,i## be a unc"ion o "he "$pe o da"a, dis"ance, ne",ork avai#abi#i"$, and ne",ork conges"ion- /n addi"ion, "he so ",are ,i## assign packe"s di eren" #eve#s o priori"$, a
10

The %/9 is comprised o "he o##o,ing componen"sL (i+ a ph$sica# iberop"ic ne",ork o,ned or con"ro##ed b$ %&', (ii+ .o. si"es o,ned, opera"ed, and main"ained b$ %&', (iii+ /. so ",are de ining "he ne",ork #a$er "ranspor"a"ion o da"a, (iv+ %&' proprie"ar$ opera"ing s$s"em so ",are "ha" moni"ors and con"ro#s da"a #o, on "he ne",ork, and (v+ a 9e",ork Con"ro# Cen"er ()9CC*+, #oca"ed in "he E', ,hich cons"an"#$ moni"ors and manages ne",ork da"a #o,s, error seconds, and ou"ages on a## iber and capaci"$ o,ned, con"ro##ed, or used b$ %&' in i"s %/9-

unc"ion "ha" e ec"s "he assignmen" o di eren" #eve#s o Ko' in addi"ion "o s"ream#ining ne",ork da"a #o,-11

$. !torage
%&' is a#so deve#oping a marke" in da"a s"orage- The demand or da"a s"orage has gro,n in para##e# ,i"h "he demand or band,id"h- Dus" as ,i"h "he cos" o band,id"h, "he cos" o da"a s"orage has begun dec#ining rapid#$ as a resu#" o advances in s"orage "echno#og$ and "he in"erconnec"ion o s"orage supp#$ "ha" has resu#"ed rom "he in"erconnec"ion o da"a ne",orks- 'uch in"erconnec"ion has #ed "o "he emergence o s"orage area ne",orks ('A9s+ and s"orage service providers- A '"orage Area 9e",ork ('A9+ is a high4speed subne",ork o shared s"orage devices%&' has a ",o4pronged s"ra"eg$ ,i"h respec" "o s"orage- Firs", i" ,i## he#p deve#op s"orage as a commodi"$ b$ deve#oping ,i"h o"her s"orage service providers con"rac"s ,i"h s"andardi0ed "erms or "he provision o s"orage- /n genera#, such s"andard con"rac"s ,i## speci $ "ha" "he se##er, in e!change or mon"h#$ recurring cash pa$men"s ,i## provide "he bu$er a s"andardi0ed amoun" o s"orage capaci"$ a" a speci ic #oca"ion or a speci ic "ime period- %&' and "he cus"omer ma$ en"er in"o a separa"e con"rac" or "he band,id"h necessar$ "o de#iver "he s"orage, or "he cus"omer ma$ ac2uire such band,id"h rom "hird par"iesThe second prong o "he %&' s"orage s"ra"eg$ is "o #everage "he %/9 as a )s"orage grid-* /n o"her ,ords, %&' ,i## seek "o in"erconnec" "he %/9 ,i"h numerous 'A9s "ha" %&' or an unre#a"ed s"orage service provider-

III! Ty%e o' '#nanc#al $and&#dt( t(at EBS &#ll trade

/n addi"ion "o "he ph$sica# "rades described in par" // above, %&' ,i## en"er in"o cash4 se""#ed deriva"ives "ransac"ions ,i"h band,id"h as "he under#$ing commodi"$ once inancia# indices or band,id"h deve#op- 'uch "ransac"ions ,i## inc#ude s,aps, op"ions, u"ures and or,ards "ied "o a range o band,id"h prices or price indices- Financia# regu#a"or$ re2uiremen"s ,i## a#so in #uence "he manner in ,hich "hese inancia# produc"s are "raded-

11

/" shou#d be no"ed "ha" %&' ,i## a#so use capaci"$ on "he %/9 "o provide uni2ue con"en" de#iver$ services such as Mediacas" and 1ideo4On4Demand ()1OD*+- The Mediacas" produc" is a service "o providers o con"en" over "he /n"erne" "ha" permi"s "he providers "o reduce or avoid "he prob#ems caused b$ /n"erne" conges"ion b$ (i+ s"reaming "heir da"a "o /'.s over "he conges"ion4 ree %/9 and (ii+ caching "he con"en" in %&' servers #oca"ed a" "he edges o "he %/9, "hereb$ signi ican"#$ reducing "he "ime re2uired "o s"ream "he da"a "o "he con"en" consumers- /n addi"ion "o "he use o "he %/9, "he Mediacas" produc" re2uires "he use o proprie"ar$ %&' so ",are, rou"ers a" "he con"en" providerGs premises, and rou"ers and servers a" .o. si"es #oca"ed on "he ne",ork edges- The 1OD produc" is a service "o video con"en" providers "ha" permi"s "he provider "o s"ream con"en" over "he %/9 "o a #oca# #oop provider (,hich ma$ be ei"her a #oca# e!change carrier or a #oca# cab#e opera"or+- The #oca# #oop provider ,i## in "urn s"ream "he con"en" direc"#$ "o a se"4 "op bo! (,hich ma$ be so#d or #eased "o "he cus"omer b$ %&' or a "hird par"$+ connec"ed "o "he "e#evision o "he con"en" consumer- The se"4"op bo! caches "he con"en" so "ha" "he consumer ma$ )re,ind* or ) as"4 or,ard* "he video- %&' p#ans "o deve#op ne, produc"s and ma$ abandon e!is"ing produc"s as in orma"ion and "e#ecommunica"ions innova"ions occur-

A. !waps
',ap "ransac"ions are "ransac"ions e!ecu"ed be",een ",o or more par"ies "o e!change di eren" pa$men" #o,s- 'uch #o,s are mos" "$pica##$ "ied "o ob#iga"ions "o pa$ i!ed amoun"s o currenc$ or in"eres" a" a speci ied ra"e- /n %&'G case, one par"$ "o "he s,ap migh" be ob#iga"ed "o make a i!ed pa$men" ,hi#e "he pa$men" #o, o "he o"her par"$ ,ou#d be "ied "o "he prices o band,id"h re #ec"ed in one or more band,id"h "rading indices- These pa$men" s"reams ,ou#d be s,apped under agreed "erms and condi"ions designed "o reduce "he risk o band,id"h price #uc"ua"ion or "o provide a means "o specu#a"e in band,id"h price #uc"ua"ion-

B. %ptions and $orwards

%&' ma$ a#so o er pure#$ inancia# or,ard "ransac"ions, i-e-, or,ard con"rac"s ,here no ph$sica# de#iver$ o "he under#$ing band,id"h is e!pec"ed- Ra"her, such con"rac"s are cash4se""#ed, ,here one par"$ ,i## pa$ "he o"her a mone"ar$ di erence be",een "he ini"ia# con"rac" price and "he price o "he band,id"h on "he no"iona# de#iver$ da"e(s+- Op"ion "ransac"ions re er genera##$ "o agreemen"s "o bu$ and se## a ca## op"ion or a pu" op"ion ,i"h respec" "o designa"ed produc"s, in %&'G case, various "$pes o band,id"h, a" a pre4 de"ermined price on a i!ed da"e or during a i!ed period in "he u"ure, in e!change or an op"ion pa$men" or premium- Cash se""#ed op"ions ,ou#d norma##$ be se""#ed b$ pa$men" o "he di erence be",een "he op"ion and marke" prices a" e!ercise-

I)! Band&#dt( and torage trad#ng trategy

%&' is posi"ioned "o #everage %nron;s e!per"ise in o"her commodi"$ marke"s (e-g-, gas, po,er, pu#p and paper+ "o capi"a#i0e on ,ha" %&' be#ieves is "he commodi"i0a"ion o "he band,id"h marke"- &and,id"h is presen"#$ provisioned as a one "ime, i##i2uid, #ong4"erm ph$sica# dea# ,i"h a #ong #ead "ime be",een p#a$ers ,ho o,n under#$ing ph$sica# asse"sHo,ever, band,id"h possesses man$ commodi"$ charac"eris"ics- Firs", in"erna"iona# indus"r$ groups and3or governmen"a# en"i"ies have se" s"andards or da"a "ransmission and connec"ivi"$- 'econd, a#mos" a## domes"ic and man$ in"erna"iona# communica"ions #ines are in"erconnec"ed, and bo"h incumben" and s"ar"4up carriers have access "o "hese #inesThird, due "o advances in e#ec"ronics and op"ronics, da"a "rave#s across iber a" "he speed o #igh" vir"ua##$ ,i"hou" an$ degrada"ion o 2ua#i"$, and s,i"ches can rou"e band,id"h over mu#"ip#e pa"hs via mu#"ip#e en"i"ies $e" o er "he same address4"o4address serviceAccording#$, band,id"h has su icien" ph$sica# charac"eris"ics "o become a ungib#e i"em i "he inancia# "erms under ,hich i" is provisioned are modi ied- 9a"ura# gas and e#ec"rici"$ o##o,ed "his same evo#u"ionar$ pa"h rom #ong "erm uni2ue, ph$sica# con"rac"s "o commodi"$ con"rac"sThe %&' "rading group provides )price risk managemen" services* "o cus"omers in "he orm o or,ard i!ed4price con"rac"s "o purchase and se## band,id"h described in par" // above, and even"ua##$ inancia# deriva"ives such as s,aps and op"ions described in par" /// above- /n "his regard, %&' ,i## ac" as a dea#er in "he band,id"h commodi"$ "rading marke" and as such ,i## have "he capabi#i"$ "o bu$ and se## band,id"h con"rac"s based upon i"s in"erna##$ deve#oped or,ard bid3ask curves- The primar$ ocus o "he "rading group ,i## be "o o er cus"omers s"andardi0ed band,id"h capaci"$ con"rac"s, described in

10

par" 1 be#o,, "o a##o, cus"omers "o manage "heir under#$ing band,id"h e!posures- %&', ac"ing as a broker3dea#er "o ever$ cus"omer, ,i## provide pricing based on or,ard curves "ha" have been deve#oped "hrough e!"ensive marke" in"e##igence and curren" economic and marke" condi"ions ,i"h a primar$ ocus on pro i"ing on marke" movemen"s- %&' ma$ or ma$ no" o,n "he under#$ing ph$sica# capaci"$ or service being "raded- %&'G "raders are indi eren" "o rese##ing e!is"ing %/9 capaci"$ compared "o rese##ing capaci"$ ac2uired rom o"hers "o speci ica##$ cover a "rade%&'; ph$sica# "rading s"ra"eg$ ,i## ocus on "rading around ma6or .oo#ing .oin" si"es.oo#ing .oin"s are essen"ia##$ )super* .o. si"es ,here numerous ne",orks in"erconnec"Advanced .oo#ing .oin" e2uipmen" a##o,s rea#4"ime s,i"ching among iber ne",orks "hrough s,i"ching devices- The .oo#ing .oin" e2uipmen" is managed b$ so ",are ,hich e ec"ive#$ reserves and es"ab#ishes connec"ions be",een bu$ers and se##ers a" speci ied capaci"$ ra"es, and moni"ors "he 2ua#i"$ o service o "he connec"ionsThe primar$ asse"s and #iabi#i"ies o "he "rading group ,i## genera##$ be "he ph$sica# and inancia# band,id"h capaci"$ con"rac"s ,i"h "erms described in par" 1 be#o,- %&' ,i## no" genera##$ seek "o derive pro i" rom specu#a"ion on band,id"h prices bu" ra"her rom band,id"h price arbi"rage- Thus, "he "rading group ,i## genera##$ seek "o ma"ch i"s shor" and #ong posi"ions in such a ,a$ "ha" i"s #ong posi"ions are ac2uired a" a #o,er cos" "han "he price o i"s shor" posi"ions- The "rading group ,i## not be invo#ved in ac"ivi"ies re#a"ed "o bui#ding or ac2uiring ph$sica# asse"s- Coun"erpar"ies "o "he "rading con"rac"s are e!pec"ed "o be #arge carriers, commercia# cus"omers, marke"ers, pure inancia# p#a$ers and end users ,i"h signi ican" band,id"h needs-

)! Band&#dt( and torage trade or#g#nat#on and execut#on

A. Trading Desk and %rigination
%&' has es"ab#ished "rading desks (i-e-, "raders si""ing a" desks+ in "he E', "he EM and p#ans "o es"ab#ish a "hird "rading desk in 'ingapore- A "rading desk migh" even"ua##$ be opened some,here in 5a"in America- The "raders associa"ed ,i"h each "rading desk ,i## be emp#o$ed b$ a dis"inc" #ega# en"i"$ and ,i## "rade so#e#$ on beha# o "ha" en"i"$5oca##$4incorpora"ed en"i"ies have been es"ab#ished ,i"h respec" "o each coun"r$ ,here %&' has a ph$sica# presence- 'uch ph$sica# presence is genera##$ in "he orm o a .o. si"e, bu" ma$ a#so inc#ude an origina"or based in "he coun"r$ (see discussion o origina"ion be#o,+- %ach "rading desk en"i"$ is, or ,i## be, a par"$ "o a con"rac" ,i"h each o "he #oca##$4incorpora"ed en"i"ies "o "he e!"en" #oca# en"i"$ provides access "o i"s .o. si"e or services o i"s in4coun"r$ origina"or-12 Curren"#$, i" is unc#ear ,he"her each "rading desk ,i## "rade so#e#$ ,i"hin i"s o,n region, ,i"h over#ap on#$ ,i"h respec" "o "ransoceanic segmen"s, or ,he"her each "rading desk ,i## be ab#e "o "rade g#oba##$- 7hi#e i" is se# 4eviden" "ha" "he commercia# idea# ,ou#d be "o a##o, each "rading desk "o "rade g#oba##$, "here are ",o "hresho#d issues "o address12

'ee a""achmen" 2 or a diagram o "his s"ruc"ure-

11

Firs", "here is "he prob#em o 2ua#i $ing each desk rom a regu#a"or$ s"andpoin" as necessar$ "o "rade band,id"h in"erna"iona##$- This is prob#ema"ic in Asia and migh" be impossib#e in 5a"in America- The second issue is ho, risk books shou#d be managed- /" is genera##$ "hough" "ha" each regiona# desk ,i## have grea"er in orma"ion and e!per"ise ,i"h respec" "o i"s o,n region- / "his dispari"$ in in orma"ion and e!per"ise is signi ican", "hen res"ric"ing each "rading desk "o "rade band,id"h in i"s o,n region cou#d be "he more pro i"ab#e mode#)Origina"ion* is "he process o #oca"ing a coun"erpar"$ "o a "rade- A band,id"h "rade or an$ given geographic area o "he ,or#d ma$ origina"e romL an$ one o "he "rading desks as "he resu#" o "e#ephone, e4mai#, and a! con"ac"s be",een "raders on "he desk and indus"r$ par"icipan"sN b$ ,a$ o %nron On5ine, an /n"erne" ,eb4si"e hos"ed b$ %&' in "he E' (basica##$ "his cou#d be considered as simp#$ ano"her means b$ ,hich "he "rading desks communica"e ,i"h po"en"ia# cus"omers+N "he ac"ivi"ies o %&' origina"ors (a-k-a-, sa#esmen or business deve#opers+ in "he coun"ries ,here a" #eas" par" o "he capaci"$ is #oca"ed, or in "he coun"ries ,here "he bu$ers or se##ers o "he capaci"$ are #oca"edN or "he ac"ivi"ies o ou"side brokers #oca"ed an$,here in "he ,or#d-

On#$ "raders have #ega# au"hori"$ "o ina##$ nego"ia"e and e!ecu"e a "rade- Origina"ors mee"ing ,i"h coun"erpar"ies ou"side "he E' do no", and ,i## no", have au"hori"$ "o ina#i0e nego"ia"ions and c#ose a "rade- Fenera##$ speaking, band,id"h "rades ,i## be ina##$ nego"ia"ed and e!ecu"ed b$ "raders on "he "rading desk in "he geographic region neares" "he area covered b$ "he origina"or- As discussed be#o,, mos" band,id"h con"rac"s ,i## be e!ecu"ed in "he orm o a s"andardi0ed mas"er band,id"h "rading agreemen"-

B. &egal analysis and doc'(entation

*! Dark '#$er
As no"ed above, %&' ,i## no" genera##$ ac2uire dark iber ou"side "he E'- The E' indus"r$ s"andard dark iber con"rac" gran"s a minimum C $ear "erm /RE in "he iber, ,i"h "rans er o "i"#e "o "he iber a" "he end o "he "erm- The s"andard con"rac" ca##s or "he up4 ron" pa$men" o cash or "he /RE and periodic pa$men"s or co##oca"ion and OAMJ. services- As no"ed above, %&' is ,i##ing "o unbund#e "hese services rom "he /RE and ma$ or ma$ no" ,an" "o do so in "he case o a dark iber ac2uisi"ion-

+! Ot(er %(y #cal $and&#dt( %roduct and torage

The ma6ori"$ o "he "rading business in "he o"her band,id"h produc"s described above ,i## be per ormed u"i#i0ing a s"andard mas"er services agreemen" ()%&' Mas"er*+ "ha" %&' has proposed or genera# use b$ "he indus"r$-1B &and,id"h capaci"$ agreemen"s provide
1B

The Mas"er is a""ached as a""achmen" B- His"orica##$, capaci"$ "ransac"ions have been e!ecu"ed pursuan" "o a ,ide varie"$ o non4s"andardi0ed agreemen"s, ,i"h "i"#es such as )Capaci"$ 'a#es Agreemen"s, )/n"erna"iona# .riva"e 5eased Circui" 'ervice* or simp#$ )'ervice Agreemen"-* This #ack o s"andardi0a"ion signi ican"#$ #eng"hens "he process o nego"ia"ing band,id"h "ransac"ions- /n "he E-'-, an

12

or "he sa#e o s"andardi0ed band,id"h uni"s over segmen"s be",een ci"ies or a i!ed amoun" o cash pa$ab#e mon"h#$- As discussed above, "he s"andardi0a"ion o "he commercia# aspec"s o "hese "ransac"ions ,i## a##o, #i2uidi"$ or "rading o such con"rac"s in "he marke"p#ace and, ,hen combined ,i"h advances in rou"ing and s,i"ching "echno#ogies, ,i## a##o, or "rades "o be provisioned (#ega##$ and ph$sica##$ e!ecu"ed+ in a ma""er o minu"es ra"her "han mon"hs'ome o "he ke$ componen"s o %&';s Mas"er are as o##o,sL 'peci ic bi#a"era# "erms and condi"ions ,i"h ear#$ "ermina"ion and de au#" provisions a##o,ing ei"her par"$ "o de au#" on "he "ransac"ion and se""#e on a ne" basis based on curren" marke" pricesCommodi"i0ed band,id"h uni"s (D'4B, OC4B, OC42=, e"c-+, #oca"ions (ci"$ "o ci"$+ and period o con"rac" (< mon"hs, 1 $ear, e"c-+'peci ied i!ed price per uni", 2uan"i"$, and benchmark 2ua#i"$ o service s"andardsThe con"rac"s are s"ruc"ured "o provide or marke" based damages (ca#cu#a"ed based on hour#$ incremen"s+ i cer"ain indus"r$ 2ua#i"$ o service s"andards are no" me"Assignmen" #anguage ,hich a##o,s marke" mechanism "o aci#i"a"e ne" se""#emen"The con"rac" a##o,s or assignmen" o "he con"rac" ,i"h "he approva# o "he coun"erpar"$ and s"ipu#a"es "ha" "he coun"erpar"$ canno" reasonab#$ ,i"hho#d "he assignmen" o "he con"rac" "o ano"her par"$- The primar$ purpose or "his c#ause is "o a##o, "he coun"erpar"$ "o manage "he credi" risks o "he con"rac"s a" a## "imes-

The Mas"er a#so provides or a speci ic ph$sica# poin" ("he )demarca"ion poin"*+ ,here "he band,id"h se##erGs da"a "ransmission responsibi#i"ies end and "he band,id"h purchaserGs responsibi#i"ies begin- /n "he domes"ic con"e!", "he demarca"ion poin" is genera##$ "he sing#e poin" o in"erconnec"ion o 'e##er and &u$er a" "he re#evan" .oo#ing .oin", .o. si"e, or a" "he &u$erGs premises, depending on "he agreemen" o "he par"ies- /n "he in"erna"iona# con"e!", "he par"ies ma$ chose "o de ine o"her demarca"ion poin"s or his"orica#, regu#a"or$, or "a! reasons- For e!amp#e, a "ransocean circui" serving Coun"r$ O ma$ "ermina"e in "he midd#e o "he ocean, a" "he "erri"oria# ,a"er #imi" o Coun"r$ O, a" "he shore#ine cab#e #anding si"e ("he )/n"erna"iona# Fa"e,a$*+ o Coun"r$ O ,here "he )backhau#* "o a ma6or Coun"r$ O ci"$ begins, or a" a .o. si"e in Coun"r$ O7hi#e a signi ican" number o con"rac"s ,i## be s"ruc"ured using "he %&' Mas"er, %&' ,i## a#so en"er in"o o"her con"rac" s"ruc"ures- For con"rac"s en"ered in"o b$ %&', managemen" ,i## speci ica##$ iden"i $ and dis"inguish "hose u"i#i0ed or "he "rading business as compared "o "he con"en" de#iver$ services business1= and main"ain separa"e books or bo"h businesses- /n addi"ion, or in"erna# purposes, managemen" ,i## moni"or "he per ormance o "he "rading group on a mark4"o4marke" basisThe o##o,ing e!emp#i ies ho, a chain o band,id"h "rades migh" "ake p#aceL
indus"r$ group ca##ed "he &and,id"h Trading Organi0a"ion ()&TO*+ is ac"ive#$ ,orking on preparing a s"andardi0ed mas"er agreemen"- The &TO has used "he %&' Mas"er as i"s s"ar"ing poin"1= 'ee descrip"ion o %&' con"en" de#iver$ services in oo"no"e 11-

1B

A #ong4hau# "e#ecommunica"ions carrier ("he )Carrier*+ cons"ruc"s, o,ns, opera"es and main"ains a segmen" o #i" iber #inking i"s .o. si"e in Tok$o ,i"h i"s .o. si"e in 5os Ange#es- The Carrier ins"a##s, opera"es and main"ains "he #a"es" D7DM "echno#og$ ,hich e ec"ive#$ divides "he iber in"o @0 ,ave#eng"hs, each ,i"h a ma!imum capaci"$ o 2-8 gigabi"s3second (i-e-, OC =@+- The Carrier decides "o o er or sa#e Ra, &and,id"h over "he iber pursuan" "o Capaci"$ 'a#es Agreemen"s ()C'As*+ ,i"h "erms o a $ear or more.ursuan" "o a C'A ,i"h 7ho#esa#e Dea#er P1, Carrier reserves a sing#e ,ave#eng"h or "he e!c#usive use o 7ho#esa#e Dea#er P1 or 12 consecu"ive mon"hs beginning on Danuar$ 1, 2001, in e!change or mon"h#$ pa$men"s o 200! b$ 7ho#esa#e Dea#er P1 beginning Februar$ 1, 2001- 7ho#esa#e Dea#er P1 has no reason "o kno, ,he"her "he Carrier is ac"ing as a ,ho#esa#er or "he iber o,ner.ursuan" "o a separa"e con"rac" ca##ed a )'ervice Con"rac"* ,i"h 7ho#esa#e Dea#er P2, 7ho#esa#e Dea#er P1 reserves (se##s+ ",o ,ave#eng"hs or "he e!c#usive use o 7ho#esa#e Dea#er P2 or < consecu"ive mon"hs beginning on Du#$ 1, 2001, in e!change or mon"h#$ pa$men"s o =80! b$ 7ho#esa#e Dea#er P2 beginning Augus" 1, 2001- 9o"e "ha" "he dura"ion, capaci"$, and mon"h#$ pa$men"s se" or"h in "he ne, con"rac" ma$ be signi ican"#$ di eren" "han "he "erms o "he one $ear C'A "ha" 7ho#esa#e Dea#er P1 nego"ia"ed ,i"h "he Carrier- 7ho#esa#e Dea#er P2 ,i## have no reason "o kno, ,he"her 7ho#esa#e Dea#er P1 is ac"ing as a ,ho#esa#er or "he iber o,nerQQQQ .ursuan" "o a separa"e con"rac" ca##ed a Mas"er &and,id"h .urchase and 'a#e Agreemen" (in "he orm o "he %&' Mas"er+ ,i"h 7ho#esa#e Dea#er PO41, 7ho#esa#e Dea#er PO purchases an OC4=@ band,id"h uni" or "he mon"hs o December 2001 and Danuar$ 2002- /n e ec", 7ho#esa#e Dea#er PO41 reserves Ra, &and,id"h or "he e!c#usive use o 7ho#esa#e Dea#er PO or "he designa"ed mon"hs- /n "his case as ,e##, "he 2uan"um o Ra, &and,id"h reserved ma$ be more or #ess "han "he Ra, &and,id"h "ha" 7ho#esa#e Dea#er PO41 reserved rom 7ho#esa#e Dea#er PO427ho#esa#e Dea#er PO ,i## have no reason "o kno, ,he"her 7ho#esa#e Dea#er PO41 is ac"ing as a ,ho#esa#er or "he iber o,ner.ursuan" "o a separa"e bu" iden"ica# Mas"er &and,id"h .urchase and 'a#e Agreemen", %nd4user purchases rom 7ho#esa#e Dea#er PO a D'4B band,id"h uni" rom noon "o midnigh" on December 2=, 2001 in re"urn or an up4 ron" pa$men" o 2!- As in ever$ o"her case, "he 2uan"um o Ra, &and,id"h reserved3purchased ma$ be more or #ess "han "he Ra, &and,id"h "ha" 7ho#esa#e Dea#er PO reserved3purchased ,i"h3 rom 7ho#esa#e Dea#er PO41- %nd4user ,i## have no reason "o kno, ,he"her 7ho#esa#e Dea#er PO is ac"ing as a ,ho#esa#er or "he iber o,ner-

%nd4user de#ivers i"s da"a (e-g-, )Digimon 4 The Fie#d Trip o Doom .ar" /1*+ "o "he CarrierGs Tok$o .o. si"e or "ransmission "o "he E' on December 2=, 2001, during "he 1=

a##o""ed "ime period- A" "he same "ime, %nd4user de#ivers da"a (e-g-, s"reaming )7or#d,ide 7res"#ing Federa"ionL The F#ipper versus 5assie 'ur and Tur Dea"hma"ch* video+ "o "he CarriersGs E' .o. si"e or "ransmission "o Tok$o during "he a##o""ed "ime period/n summar$, in a "$pica# band,id"h "ransac"ion, a ,ho#esa#e band,id"h dea#er ,i## con"rac" ,i"h a coun"erpar"$ "o provide a speci ied 2uan"i"$ o "e#ecommunica"ions services or a speci ied "ime period a" a speci ied KO'- The coun"erpar"$ ma$ ac"ua##$ use "he services or ma$ i"se# be ano"her dea#er "ha" ,i## e ec"ive#$ rese## "he "e#ecommunica"ions services b$ en"ering in"o a simi#ar con"rac" or an$ number o simi#ar con"rac"s or "he provision o "e#ecommunica"ions services- Regard#ess o ho, man$ dea#ers are in "he chain o con"rac"s, "he ne",ork o,ner (i-e-, Carrier in "he oregoing e!amp#e+ ,i## ac"ua##$ per orm "he services or "he bene i" o "he ina# coun"erpar"$ in "he con"rac" chain, (i-e-, %nd4user+- The end user ,i## on#$ have direc" con"rac"ua# recourse agains" "he band,id"h se##er rom ,hom he purchased, bu" "he chain o #iabi#i"$ ,i## u#"ima"e#$ #ead "o "he ne",ork o,ner- As con"rac" "erms (e-g-, band,id"h uni"s and KO'+ become s"andardi0ed, "hese services ,i## e ec"ive#$ become ,ide#$4"raded commodi"ies-

,! "#nanc#al %roduct
Financia# band,id"h "rades ,i## be documen"ed in a manner simi#ar "o inancia# deriva"ives in o"her commodi"ies- The e!ac" na"ure o a band,id"h inancia# con"rac" ,i## no" be kno,n un"i# ob6ec"ive inancia# indices or band,id"h deve#op-

C.

hysical provisioning

*! Dark '#$er
9orma##$, dark iber avai#ab#e or sa#e or s,ap is associa"ed ,i"h a iber segmen" (#ong hau# or me"ro ring+ "ha" is under cons"ruc"ion or "o4be4cons"ruc"ed- These "ransac"ions are genera##$ sub6ec" "o e!"ensive nego"ia"ions mon"hs be ore "he dark iber is ac"ua##$ p#aced in service- Once "he nego"ia"ions are comp#e"e, "he bu$er s"i## mus" ins"a## .o., regenera"ion and OAMJ. si"es a#ong "he segmen"- The process o designing, ins"a##ing, and "es"ing "hese si"es can "ake mon"hs as ,e##- Fina##$, "he bu$er mus" connec" i"s ne",ork "o "he ne,#$4cons"ruc"ed .o. si"es a" "he "ermina"ion poin"s o "he ne,#$4#i" iber segmen"s- 'uch connec"ion genera##$ re2uires addi"iona# capaci"$, ,he"her con"rac"ed or cons"ruc"ed-

+! -r#.ate l#ne and &a.elengt(

7hi#e "he provisioning o priva"e #ines and ,ave#eng"hs "akes #ess "ime and e or" "han #igh"ing dark iber, "he process is s"i## genera##$ "ime4consuming- /n man$ cases, "he bu$er does no" have "he re2uisi"e e2uipmen" and capaci"$ avai#ab#e a" i"s premises- Thus, "he e2uipmen" mus" be ins"a##ed and connec"ed "o "he se##erGs .o. si"e- A" "he same "ime, "he se##er mus" ph$sica##$ recon igure i"s ne",ork in order "o dedica"e "he circui" "o "he e!c#usive use o "he bu$er- Moreover, because "here are no s"andardi0ed con"rac"s in "he indus"r$, con"rac" nego"ia"ions are o "en "ime4consuming as ,e##- As no"ed above, ho,ever, %&' p#ans "o "rade primari#$ around ma6or .oo#ing .oin" si"es ,hich ,i## signi ican"#$ reduce "he "ime necessar$ "o provision band,id"h- /n "his regard, %&' is 18

deve#oping .oo#ing .oin" Con"ro# '$s"em so ",are "ha" ,i## au"oma"e "he pricing, provisioning, moni"oring, and bi##ing processes arising rom such "rading- Moreover, %&' and o"her indus"r$ par"icipan"s are deve#oping s"andardi0ed con"rac" "erms "ha" ,i## reduce nego"ia"ion "ime as ,e##-

,! Satell#te $and&#dt(
The provisioning o sa"e##i"e band,id"h is essen"ia##$ ana#ogous "o "he provisioning o ra, band,id"h or priva"e #ine service in "ha" e2uipmen" and connec"ions mus" be provided "o connec" "he bu$erGs premises ,i"h a .o. si"e "o ,hich "he sa"e##i"e up#ink is connec"ed- Moreover, 6us" as "he iberop"ic ne",ork o,ner dedica"es a speci ic iberop"ic circui" "o "he e!c#usive use o "he bu$er, "he sa"e##i"e band,id"h se##er dedica"es a speci ic radio re2uenc$ channe# "ha" is associa"ed ,i"h a speci ic "ransponder (and back4up "ransponder(s++ on "he sa"e##i"e-

/! I- Tran %ort0Tran #t
/n "he E' "he %/9 is comprised o iberop"ic segmen"s cons"ruc"ed b$ %&' or ac2uired rom o"her indus"r$ par"icipan"s "hrough dark iber s,aps or /RE purchases- %&' does no" curren"#$ p#an "o engage in ph$sica# ne",ork cons"ruc"ion ou"side "he E', bu" ,i## e!pand "he %/9 in"erna"iona##$ b$ s,apping i"s e!cess E' capaci"$ as ,e## as b$ purchasing priva"e #ines, ,ave#eng"hs and /REs7here a## o "he o ices o "he cus"omer are #oca"ed in ci"ies ,i"h an %/9 .o. si"e, provisioning simp#$ en"ai#s "he connec"ion o each cus"omer o ice "o "he neares" .o. si"e and ins"a##ing e2uipmen" on "he cus"omer premises- %&' or "he cus"omer ,i## ins"a## and main"ain an on4si"e rou"er a" each o ice "o rou"e "he appropria"e da"a s"reams "o "he #oca# #oop #ine ,hich in "urn is connec"ed "o "he %/9- %&' or "he cus"omer ,i## con"rac" ,i"h a #oca# "e#ecom carrier or "he so4ca##ed )#oca# #oop* capaci"$ necessar$ "o connec" "he %/9 .o. si"e "o "he #oca# o ice- /" is o "en "he case in "he in"erna"iona# con"e!" "ha" "he cus"omer ,ishes "o inc#ude in "he ne",ork an o ice "ha" is no" near an %/9 .o. si"e- /n "ha" even", %&' E' or "he cus"omer ,i## purchase "he in"erna"iona# capaci"$ (in "he orm o ,ave#eng"hs, sa"e##i"e capaci"$, or priva"e #ine service+ necessar$ "o #ink a #oca# "hird par"$ .o. si"e "o "he %/9- A" "he same "ime, "he cus"omer or an %&' a i#ia"e incorpora"ed in "he coun"r$ ,i## provide "he on4si"e e2uipmen" and con"rac" or an$ #oca# capaci"$ necessar$ "o #ink "he cus"omerGs o ice "o "he .o. si"e o a carrier ,i"h ,hom %&' E' has con"rac"ed or in"erna"iona# capaci"$- %&' E' genera##$ compensa"es i"s #oca# a i#ia"e on a cos"4p#us basis pursuan" "o a ,ri""en in"ercompan$ agreemen"7i"h /. "ransi", %&' ,i## con"rac" ,i"h a Tier 1 or Tier 2 /n"erne" backbone provider or high speed capaci"$ on an /n"erne" por" "ha" accesses "he providerGs ne",ork- As ,i"h /. "ranspor", %&' ,i## provide #oca# #oop and %/9 access a" "he cus"omerGs re2ues"-

1! Storage
As ,i"h a## o "he o"her band,id"h "rading produc"s, %&' ,i## ac" as principa# in purchasing s"orage rom s"orage service providers or resa#e "o end4users as ,e## as o"her dea#ers in s"orage- %&' ,i## a#so bund#e s"orage ,i"h %/9 band,id"h "o se## 'A9s made "o order1<

2! Regulatory A %ect
7hi#e "he regu#a"or$ aspec"s o band,id"h "rading var$ signi ican"#$ rom coun"r$ "o coun"r$, "he genera# ru#e is "ha" "he ac"ivi"ies o aci#i"ies4based carriers are regu#a"ed more heavi#$ "han "hose o rese##ers- /n mos" cases, "he conduc" o a aci#i"ies4based "e#ecommunica"ions ac"ivi"$ in a given coun"r$ re2uires "he ac2uisi"ion o a #icense rom "he governmen", ,hich #icense genera##$ mus" be he#d b$ an en"i"$ ormed under #oca# #a,- Man$ coun"ries a#so re2uire non4 aci#i"ies4based dea#ers "o ob"ain a #icense or "he resa#e o in"erna"iona# capaci"$ "ermina"ing in a coun"r$, as ,e## as "he resa#e o capaci"$ be",een poin"s in a coun"r$- 'uch #icenses genera##$ do no" re2uire "he dea#er "o es"ab#ish a #oca# en"i"$- Fiven "ha" %&' does no" p#an "o o,n ne",ork aci#i"ies ou"side o "he E', i" is #ike#$ "ha" a## "hree "rading desks ,i## ac2uire mu#"ip#e #icenses ,here easib#e "o enab#e "hem "o "rade capaci"$ ou"side "heir #oca# 6urisdic"ion%&' o "en aces regu#a"or$ issues arising rom i"s s"ra"eg$ o "rading around ma6or .oo#ing .oin"s- Mos" cus"omers are no" $e" connec"ed "o an$ .oo#ing .oin" and pre er "ha" %&' arrange "he connec"ion or "hem- This can be prob#ema"ic because #oca# #oop "e#ecommunica"ions service is genera##$ "he mos" heavi#$ regu#a"ed aspec" o "e#ecommunica"ions service- /n some ins"ances, %&' ma$ simp#$ bu$ and rese## capaci"$ rom a #oca# e!change carrier- /n o"her cases, ho,ever, even such rese##ing ac"ivi"$ re2uires %&' "o orm a #oca# en"i"$ "ha" mus" ac2uire some orm o #icense rom "he governmen" and ma$ even be re2uired "o o,n in4coun"r$ "e#ecommunica"ions aci#i"iesRa"her "han ac" as a dea#er in #oca# #oop capaci"$ in such cases, %&' ma$ ac" as an agen" ac2uiring #oca# #oop band,id"h on beha# o "he coun"erpar"$The sa#e3resa#e o sa"e##i"e band,id"h is genera##$ regu#a"ed on#$ in coun"ries ,here ear"h s"a"ions using "he sa"e##i"e are #oca"ed-

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