Peering and transit rules are going to change, if only because the business interests of IP domain owners are distinct. The issue is whether such change will change to reflect the actual commercial interests, or take some form that is economically irrational.
Sunday, February 9, 2014
IP Interconnection is Changing, Because the Commercial Relationships and Traffic Flows are Changing
Peering and transit rules are going to change, if only because the business interests of IP domain owners are distinct. The issue is whether such change will change to reflect the actual commercial interests, or take some form that is economically irrational.
Tuesday, April 1, 2014
FCC Chair Says Internet Domain Interconnection Not on the Immediate Agenda
Whether that is politically feasible, or wise, might be the issue.
In principal, networks that terminate traffic on behalf of originating carriers are compensated for the costs of doing so. Were streaming domains to interconnect with "eyeball networks" operated by retail consumer Internet access providers, the consumer ISPs would be terminating huge amounts of traffic sent to them by Netflix and other streaming providers, and might reasonably demand payment for such termination services.
Monday, March 20, 2023
Data Centers as Connectivity Providers
It overstates the matter to argue that “interconnection” is the core business of a data center, compared to rack space, power, air conditioning and security at better financial terms than operating one’s own internal data center.
But it would not be overstating the matter to argue that interconnection is an absolutely vital function of a data center.
According to Cisco data, most global data traffic actually moves within data centers. In past years, “inside the building data traffic has represented as much as 75 percent of all data traffic. Another seven to nine percent of global data traffic moved between data centers, according to Cisco.
Nor would it be incorrect to argue that a data center’s core revenues come only partly from real estate value. As it turns out, a growing part of the business is interconnection value.
By some measures, interconnection represents roughly 18.5 percent of Equinix recurring revenues.
source: Nortia Research, Paolo Gorgo
source: Nortia Research, Paolo Gorgo
Other leading data centers also report significant recurring revenues from interconnection services.
We normally think of connectivity providers as the lead suppliers of “interconnection” or “networking” or “bandwidth,” but data centers also directly earn revenue from supplying interconnection services, access to networks and bandwidth.
On its fourth quarter 2022 earnings call, Equinix noted that interconnection business saw revenues for the quarter growing 13 percent, year-over-year, “outpacing the broader business.”
“Equinix Fabric saw continued growth and is now operating at a $200 million revenue run rate, one of our fastest-growing products,” said Charles Meyers, Equinix CEO.
Thursday, August 8, 2024
How Big a Market for AI Data Center Interconnection?
Lumen Technologies has announced it will receive 10 percent of Corning’s total optical fiber production for a period of two years, to support additional capacity supporting “data center to data center” connections supporting artificial intelligence operations.
The additional fiber is said to double Lumen route miles, but also support an order of magnitude expansion of “inside the data center” optical connections as well. Some might say the new move supports Lumen’s earlier move to emphasize its private connectivity fabric.
And while estimates vary, all observers would note that Lumen is a major provider of public optical networking services in the U.S. market. By some estimates, Lumen is the largest supplier.
Optimists might say the new effort to create capacity connecting AI data centers is “new business.” Skeptics might say it is simply the evolution of the existing business. But Christopher Stansbury, CFO, says the new AI-related deals are “largely all incremental.”
“This isn't cannibalization of legacy at all,” he notes.
Research FirmAI "Data Center to Data Center" Interconnection Services (Capacity) ForecastOverall "Data Center to Data Center" Capacity Market ForecastGartner
The AI "data center to data center" interconnection services market is expected to grow from $4.2 billion in 2023 to $9.1 billion by 2027, a CAGR of 16.8 percent, according to analysts at Gartner.
Gartner also forecasts the overall "data center to data center" capacity market is forecast to grow from $48 billion in 2023 to $72 billion by 2027, a CAGR of 10.6 percent.
According to IDC, the AI-driven "data center to data center" interconnection services will account for 22 percent of the total "data center to data center" capacity market by 2025, up from 15 percent in 2023.
The global "data center to data center" capacity market is projected to reach $64 billion by 2025, growing at a CAGR of 12.7 percent from 2023, IDC also believes.
Forrester researchers believe the market for AI-enabled "data center to data center" interconnection services will grow at a CAGR of 19 percent from 2023 to 2027, reaching $8.5 billion by 2027.
Forrester also estimates the overall "data center to data center" capacity market will grow at a CAGR of 11 percent from 2023 to 2027, reaching $68 billion by 2027.
Markets and Markets predicts the AI "data center to data center" interconnection services market will grow from $4.6 billion in 2023 to $10.2 billion by 2027, at a CAGR of 17.3 percent .The global "data center to data center" capacity market is forecast to grow from $51 billion in 2023 to $78 billion by 2027, at a CAGR of 11.2 percent, the firm says.
Either way, “data center to data center” connections are an important niche or segment of the capacity business, including sales to third party customers as well as captive capacity owned and operated by hyperscalers including Alphabet, Amazon and Meta, which consume much capacity to support their own operations.
Though it is virtually impossible to know with great precision, most estimates of active traffic on global long-haul networks point to the importance of “data center to data center” connections as a percentage of total active connectivity. For example, broad consensus seems to exist that between 30 percent and perhaps as much as half of active capacity now is used to support connections between data centers and other data centers.
By definition, that data center traffic is all enterprise or wholesale, while traffic between internet PoPs might be either retail or wholesale; consumer or enterprise.
Category | Global Capacity |
Data Center Interconnections | 30-50% |
Internet Points of Presence (PoPs) | 30-40% |
Enterprise Networks | 10-15% |
Other | 5-10% |
The contribution of AI data center interconnection to Lumen financial results remains to be seen. But it is an important segment of the connectivity business and among the largest segments.
Saturday, December 3, 2022
Interconnection Regulation on Cusp of Major Change?
“Who” should be covered by common carrier regulation relating to network interconnection has gotten murkier in the internet era, as have many other older concepts. We used to leave “data services” largely unregulated. Telcos were highly regulated, though less so these days than in the past.
Debates about “sending party pays” policies for interconnection are an example. In the past, only retail-facing telcos were subject to clear interconnection obligations, Internet domains interconnect on a voluntary basis.
But “sending party pays” rules extend those obligations to new parties: a few hyperscale content or app providers. That moves beyond public common carrier interconnection and towards rules for internet domains with no obligations to serve the public.
Such arguments also implicitly raise issues about which regulatory regime ought to hold: common carrier or data networks; internet or "telecom.
All arguments about universal service and now access network infrastructure upgrades necessarily entail rules about who should pay. To an extent, the answer could be “shareholders.” More often the answer is “customers” but sometimes the answer is “business partners.”
The point is that universal service or network upgrades typically entail some contribution by all customers of communication networks; payments by service providers (whether they pay or simply collect is an issue), financial support from all taxpayers or shareholders. In some cases, debt holders can wind up paying, especially if a firm goes into voluntary bankruptcy.
Basically, the argument that a handful of hyperscale app providers should make payments to access providers is of the “make business partners pay” argument, even if, in practice, there are no formal business relationships between app providers and ISPs.
ISPs do have such direct relationships with other internet domains and connectivity providers. Adding a few hyperscale app providers to the interconnection framework essentially treats those hyperscalers as though they were “carriers.” Historically, such agreements were between “telcos” and other public communications service providers.
Perhaps the difference now is that both ISPs and content domains now interconnect--directly or indirectly--to the internet fabric. So one way of framing the “sending party pays” discussion about internet traffic is to view the issue as a new form of debate over interconnection.
The idea is not unprecedented. Internet domains have used both settlement-free peering and transit fees when setting up business relationships. Peering is easy to justify when traffic flows are roughly equivalent.
It is harder to accomplish when traffic flows are unequal. And that is among the problems with proposals to charge a few hyperscale app providers for unequal traffic exchange volumes.
The bigger question is whether rules for common carriers should be extended to data service providers. In the past, the answer has unequivocably been "no." But that seems to be changing.
Wednesday, August 24, 2016
Termination Charges Now a Key Business Issue for India Mobile Operators
Of course, regulators always get accused of that, irrespective of their intended objectives. It is not possible for any regulatory policy to be completely neutral in its impact. And, often, the desired impact is to upset the existing order of things. That appears to be, in substantial part, what TRAI intends.
Sunday, April 26, 2020
Carrier Neutral Interconnection Has Financial Value for Data Centers
It is fairly easy to illustrate the value wide area networks have for data centers. S&P Global, for example, expects carrier-neutral data centers with multiple connections to wide area networks to generate revenue growth about 10 percent higher than data centers without such connections.
S&P Global expects cash flow growth of data centers with carrier-neutral interconnection to grow about three times the rate of sites without such carrier-neutral interconnections. Cash flow margins also are expected to be higher, and financial leverage lower, for carrier-neutral sites.
“Interconnection provides a key competitive advantage,” S&P Global says. “We expect providers with carrier-neutral interconnection facilities will continue to outperform those that lack interconnection capabilities.”
“We believe that interconnected data center facilities with carrier-neutral ecosystems will continue to have greater demand among cloud and network providers, as well as enterprise customers, enabling greater pricing power than data centers that do not have carrier-neutral hotels,” the firm argues.
“Operators that lack interconnection are forced to primarily compete on price or upselling their customers with managed services, which tend to have lower margins, shorter contract lengths, and higher churn than colocation,” S&P Global says.
Tuesday, July 21, 2015
Zero is a Compelling Price
Mandatory interconnection really is not the issue. Divorcing interconnection from direct cost structures might be the big issue.
Tuesday, September 13, 2016
Network Interconnection Now is a Business Model Issue in India
If Reliance Jio plans to offer “no incremental cost” (“free”) domestic calling, then interconnection charges to terminate those calls on other networks has to be set at “no incremental cost” levels as well, at a high level, or else Reliance Jio will subsidize every minute of use.
Saturday, February 15, 2014
Asymmetrical Traffic Dominates Networks; Will Affect Interconnection Wars
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