"Think of our online switching service as a big underground water system," says Arbinet CEO Alex Mashinsky. "Imagine, as a carrier, you can go to our site and plug in your hose-plug in and basically direct the water to any country you choose via the lowest-cost provider."

New York-based Arbinet (as in Arbitrage Network), was the first to offer a real-time exchange online in November 1997. The company's New York hub office is wired with more than 400 T1 lines through which Arbinet handles all aspects of its round-the-clock service.

Carriers make a distinction between bandwidth and what's called "minutes." Bandwidth is the carrying capacity of a circuit between two points, measured in bits per second, and is generally paid for in advance, on a monthly or even yearly basis. "Minutes" is essentially time rented on an existing line, and is usually paid for retroactively.

Arbinet makes its money on a per-transaction basis, Mashinsky says.

"We charge half a cent to the buyer and half a cent to the seller per minute sold," he says. "No other fees; if you didn't do any transaction a certain month, your cost would be zero to be on the exchange."

For example, Mashinsky says, if a circuit running from New York to Sao Paulo, Brazil, is currently at 9 cents per minute, that minute would cost 9.5 cents to the buyer, and the seller would get 8.5 cents.

"In the month of January we've run over 2 million minutes just to that destination," Mashinsky says. Do the math, and you'll see why in 1998, the privately held company had revenues of better than $13 million.

Arbinet is an ambitious operation in that it acts as a switching service as well as an exchange. Arbinet not only provides billing, metering, credit, and a measure of quality control, it offers New York-area switch co-location for smaller telcos, so they can run with the big guys.

Arbinet constantly monitors the connections it brokers, using such parameters as signal level, channel noise level, and post-dial delay. "We run our own independent benchmark, because the buyer doesn't trust the seller and the seller doesn't trust the buyer. Because we're independent-we don't have any special relationship with the buyer or the seller-they're using our benchmark as an index of quality," says Mashinsky.

Not locked in

RateXchange, a San Francisco-based company, launched its own real-time trading service in September 1998. Vice President of Marketing Ross Mayfield says that his company is also aiming to work as a full-service exchange, providing billing and real-time network switching between two main hubs in New York and Los Angeles, plus 12 other cities coming this year. However, unlike the fully automated Arbinet, for now RateXchange makes switches manually-taking orders online, then rerouting traffic order by order through a separate mechanism. The company plans to become fully automated eventually.