Monday, June 23, 2008

Any Link Between Telecom Capacity Swaps and Flipping Oil Contracts?

Not so long ago employees at Enron and at numerous telecom firms learned a financially lucrative lesson: there was (is?) more money to be made in swapping capacity than in delivering it. Indeed there was plenty more money available if traders could collectively create artificial bottlenecks and shortages.

My takeaway from that experience: if traders can manipulate electrons delivering electric power and telecommunications traffic, it’s quite possible that managers of packet streams can engage in similar conduct. Packet management can represent legitimate (and lawful) network management, or it can represent surreptitious meddling with an eye toward raising the cost of doing business for competitors and favoring affiliates or third parties.

A variety of petroleum industry observers reckon that traders may have helped artificially run up the price of oil. Notwithstanding some significant confidence in marketplace forces, I am beginning to wonder whether previous attempts to manipulate the price and profitability of electricity and telecom capacity may present a model emulated by oil traders.

While not hankering for oil trading regulation, I wonder whether empirical data might corporate this suspicion.

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