Showing posts sorted by relevance for query interconnection. Sort by date Show all posts
Showing posts sorted by relevance for query interconnection. Sort by date Show all posts

Sunday, February 9, 2014

IP Interconnection is Changing, Because the Commercial Relationships and Traffic Flows are Changing

IP network interconnection periodically erupts as a business issue between two or more interconnecting IP domains, and the problems will grow as the types of interconnecting domains diversify.

The interconnection issue further is complicated by the types of domains. Interconnections can occur between scores of thousands of “autonomous systems,” also called “routing domains.”

Though most of the autonomous systems are Internet service providers, interconnections also occur between enterprises, governmental and educational institutions, large content providers with mostly outbound traffic such as Google, Yahoo, and YouTube, as well as
overlay content distribution networks such as Akamai and Limelight.

In other words, end users, application, service and “access” and “wide area network” providers now are among the entities interconnecting, complicating any potential frameworks for regulating such diverse entities in ways that promote investment and innovation.

Where separate “common carrier” regulation arguably was easier, in the sense that only licensed “carriers” could interconnect, these days, application providers including Google, Apple, Netflix and others operate their own IP networks, interconnecting with carriers and non-profit entities alike.

The interconnection of IP networks historically has been a matter of bilateral agreements between IP network owners, with a tendency to interconnect without settlement payments so long as traffic flows were roughly balanced (the same amount of sent and received traffic on each interconnecting network).

As you can imagine, highly asymmetrical traffic flows such as streaming video will upset those assumptions. That matters, as a practical business matter, since interconnection costs money if traffic flows are not equivalent, or if domains are of disparate size.

Historically, the major distinction among different ISPs was their size, based on geographic scope, traffic volume across network boundaries or the number of attached customers. But symmetry encouraged the “peering” or “settlement-free interconnection” model.

Those assumptions increasingly are challenged, though. Today, a smaller number of large networks exchange traffic with many smaller networks. And there are cost implications.

In an uncongested state, a packet that originates on a network with smaller geographic scope and ends up on the larger network might be expected to impose higher delivery costs on the larger network (which must typically carry the packet a greater distance).

A larger network would presumably have more customers, and this might be seen as giving the
larger network more value because of the larger positive network externalities associated with being part of their networks.

Perhaps more important, even networks of similar size have different characteristics. Consumer-focused “access” providers (cable and telcos) are “eyeball aggregators.” Other ISPs, such as Netflix, are content stores. That has practical implications, namely highly asymmetrical traffic flows between the “eyeball aggregators” and “content stores.”

Also, there are natural economies of scale for a wide area network-based ISP than for an “access” ISP that has to supply last mile connections. Even when traffic flows actually are symmetrical, network costs are unequal.

The point is that settlement-free peering worked best when networks were homogenous, not heterogeneous as they now have become. Like it or not, the traditional peering and transit arrangements are less well suited to today’s interconnection environment.

For that reason, “partial transit” deals have arisen, where  a network Z sells access
to and from from a subset of the Internet prefixes.

For instance, Z may sell A only the ability to send traffic to part of the Internet, but not receive traffic. The reverse may also occur: a network may be allowed to receive traffic but not send traffic.

That arrangement is intended to reflect asymmetrical traffic flows between content store and eyeball aggregator networks.

Those changes in traffic flows, which bifurcate along content store and eyeball aggregator roles, inevitably will disrupt interconnection economics and business arrangements, leading to demand for imposition of common carrier rules for interconnection of IP networks.

Oddly enough, the logic of common carrier rules might lead to precisely the opposite “benefit” some expect.

Disagreements by parties to a bilateral interconnection agreement can lead to service disruptions, if one network refuses to accept traffic from another network on a “settlement free” basis.

So some might call for mandatory interconnection rules, to end peering disputes. Such rules could make the problem worse.

Interconnection disagreements today are about business models and revenue flows. Content stores benefit from settlement-free peering, since they deliver far more traffic than they receive.

Eyeball aggregators often benefit from transit agreements, since they would be paid for the asymmetric traffic flows.

Unless the assumption is that network economics are to be disregarded, the way common carrier rules would work, if applied to IP networks in a manner consistent with common carrier regulation  is that a network imposed an asymmetric load on a receiving network would have to pay for such access.

Disputes over “peering” between IP domains sometimes leads to service disruptions viewed as “throttling” of traffic in some quarters. It is not “throttling,” but a contract dispute.

The relationships between discrete IP networks take three forms. Large networks with equal traffic flows “peer” without payment of settlement fees.

Networks of unequal size tend to use “transit” agreements, where the smaller network pays to connect with the larger network, but also gets access to all other Internet domains. Also, in many cases one network pays a third party to provide interconnection.

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, January 14, 2025

Will AI Really be that Big a Deal for Connectivity Providers?

As a rule, forecasts for markets tend to err on the optimistic side, many of us would note. So it might not come as a surprise that the benefits of artificial intelligence boosting the need for data center connectivity might be too-optimistic as well. 


We already are hearing how important AI will be for suppliers of data center connectivity, for example. Lumen Technologies is a good example of that, though even data centers are both suppliers and customers of connectivity services (often “local” interconnection rather than “wide area.”


The larger point is that interconnecting domains, already important for cloud computing, is likely to generate even more AI connectivity demand. But the issue is how much new revenue-relevant activity will happen for connectivity providers (data centers also earn interconnection revenue)


Provider

AI Connectivity Revenue

Year

Source

Equinix

$1.2 billion

2024

Gartner Research

Zayo Group

$780 million

2024

IDC Insights

Digital Realty

$650 million

2024

S&P Global Market Intelligence

AT&T

$520 million

2024

Forrester Research

Lumen

$410 million

2024

TeleGeography Research

Total Market Estimate

$3.56 billion

2024

Synergy Research Group


One obvious change in the market is that data center interconnection, for example, used to be largely supplied by “connectivity specialists.” These days, much of the connectivity is supplied by enterprises themselves (Google, Meta, AWS, for example), and not “purchased as a service” from other connectivity suppliers. 


Provider

Bandwidth Estimate

Year

Context

Source Title

Date Published

Publisher

Google Cloud

35.2 Tbps

2024

Internal Network Capacity

"Global Cloud Infrastructure Report"

February 2024

Synergy Research Group

Meta (Facebook)

42.6 Tbps

2023

Private Network Bandwidth

"Hyperscaler Network Infrastructure Analysis"

November 2023

Dell'Oro Group

Amazon Web Services (AWS)

46.8 Tbps

2024

Global Network Capacity

"Cloud Networking Trends"

January 2024

IHS Markit

Microsoft Azure

38.5 Tbps

2024

Internal Network Bandwidth

"Cloud Provider Network Capabilities"

March 2024

Gartner Research

Connectivity Specialists (Combined)

92.7 Tbps

2024

Aggregate Bandwidth from Major Providers

"Telecommunications Infrastructure Report"

February 2024

TeleGeography Research

Internet Backbone Providers

127.4 Tbps

2023

Total Commercial Bandwidth

"Global Internet Bandwidth Overview"

December 2023

Cisco Annual Internet Report


Since firms operating their own networks mostly account for such infrastructure as a cost of doing business rather than a revenue item, we might look at reported interconnection revenue for firms that are in the business of generating revenue from data interconnection or transport, to get some idea of the magnitude of such revenue. 


Company

Revenue Estimate

Source Title

Date Published

Publisher

Equinix

$7.2 billion

"Global Interconnection Market Report"

January 2024

Equinix Market Research

Digital Realty

$5.9 billion

"Data Center Connectivity Market Analysis"

February 2024

Gartner Research

Zayo Group

$3.4 billion

"Telecommunications Infrastructure Report"

November 2023

IDC Insights

Lumen

$4.1 billion

"Enterprise Network Services Forecast"

March 2024

Forrester Research

AT&T

$6.5 billion

"Telecommunications Connectivity Market Study"

February 2024

S&P Global Market Intelligence

Cogent Communications

$1.8 billion

"Data Center Interconnection Market Report"

December 2023

TeleGeography Research


The point is that data center interconnection or capacity revenue is smaller than many would think, though a major revenue source for some connectivity providers. Zayo, Lumen and Cogent Communications are heavily involved in the data center interconnection business. AT&T actually earns more money from such activities, but has much larger revenue contributions from mobility and other services. 


Company

Data Center Bandwidth Revenue

Total Annual Revenue

Percentage of Revenue from Data Center Bandwidth

Year

Publisher

Zayo Group

$3.4 billion

$11.2 billion

30.40%

2023

IDC Insights

Lumen

$4.1 billion

$16.5 billion

24.80%

2024

Forrester Research

AT&T

$6.5 billion

$120.7 billion

5.40%

2024

Morgan Stanley Research

Cogent Communications

$1.8 billion

$5.6 billion

32.10%

2023

TeleGeography Research


The point is that new AI revenues might not be so significant as a source of new bandwidth demand that can be monetized by some transport providers, though it might be important for some specialists. 


Source Title

Date Published

Publisher

Revenue Estimate

Data Center Switches Industry Research Report 2024

September 5, 2024

ResearchAndMarkets.com

$16.3 Billion (2023)

Data Center Networking Market Size, Share, and Trends 2024 to 2033

August 2024

Precedence Research

$38.13 Billion (2024)

Edge Data Center Statistics 2024 By Digital Infra Tech

October 17, 2024

market.us

$12.7 Billion (2024)


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