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, April 1, 2014

FCC Chair Says Internet Domain Interconnection Not on the Immediate Agenda

Though the U.S. Federal Communications Commission intends to rework its network neutrality regulations, it apparently has no appetite--and arguably no authority--for venturing beyond consumer high speed access to look at carrier interconnection as network neutrality issue, as Netflix CEO Reed Hastings has advocated.


That is “not a network neutrality issue,” said FCC Chairman Tom Wheeler, apparently referring to Internet domain peering or transit agreements.


"Peering and interconnection are not under consideration in the ‘open Internet’ proceeding, but we are monitoring  the issues involved to see if any action is needed in any other context,” the agency said.


Carrier interconnection is covered under common carrier rules, while enhanced services are outside the FCC’s Title II jurisdiction.


But it is possible the FCC might try to reclassify Internet domain connections as common carrier operations in the future.


Such moves would have unknown and possibly unsettling implications for Internet services and apps in general. over the longer term, though some common carrier regulation of Internet domain interconnection would not be problematic.


And though video streaming suppliers and their transport providers might welcome such common carrier rules, which would give them “mandatory” interconnection rights, it isn’t so clear that such interconnection would necessarily also include “settlement free” or other business practices unrelated to traffic volume.


In principle, the FCC could mandate that all interconnection occur without regard to cost, and be conducted on a “zero rating” basis, as European regulators are proposing for mobile international roaming, at least within the European Union.

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. 


source: 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. 


source: Nortia Research


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. 


source: Equinix, dgtlinfra  


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. 


source: Wayback Machine 


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

Arcane network interconnection rules are anything but irrelevant for service providers (mobile or fixed) whose revenues are directly affected by such rules. So it is that a proposal to change interconnection fees for service providers terminating calls has become a big  business issue for India’s mobile operators.


Now, an interconnection charge for terminating a mobile call generates 14 paise about two-tenths of a U.S. cent) per minute (some call this “calling party pays”).


Conversely, no termination charges are levied on calls made from one landline to another or from a smartphone to a landline number, using the “bill-and-keep” method for interconnection.


But the Telecommunications Regulatory Authority of India (TRAI) wants to change mobile interconnection to a “bill and keep” approach as well.


The has big implications. In the U.S. market, “bill and keep” was viewed as favorable to upstarts and attackers, for reasons related to traffic flows.


Simply, small challengers tend to terminate more traffic on other networks than the big legacy networks terminate on the small networks. Using one methodology, the network that terminates a call gets paid for doing so.


Using “bill and keep,” carriers are not paid for terminating calls.


So why the proposed change? TRAI believes a shift to bill and keep would make IP telephony services more competitive, as IP telephony providers would not have to pay the termination charges. As it happens, Reliance Jio, the big new player in the Indian mobile market, will use IP-based voice.


Incumbent mobile service providers would lose revenue under the bill and keep framework, which is why they accuse TRAI of setting policy in ways that favor Reliance Jio, the big new challenger.

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.

As always, arcane network interconnection rules have real-world business effects.

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. 

source: S&P Global


Tuesday, July 21, 2015

Zero is a Compelling Price

As many have noted, across many products and industries, zero is a very compelling price. As many also have noted, government regulators can create, destroy and modify whole industries, while helping or harming specific actors within industries, by essentially mandating zero prices.

In the case of spectrum auctions, the very availability of spectrum creates the foundation for business models. But rules about “who can bid” also affect market entry and potential market shares.

Spectrum set-asides or discounts further shape the potential fortunes of some contestants.

Many would argue the recent classification of Internet access services as common carrier services will have direct and indirect impact on Internet access and telecommunication markets and market structure, as well.

For Netflix and other content delivery domains, one direct implication seems to be that domain interconnection costs have been affected.

Though the contract details have not been made public, it would appear that traditional common carrier practices about network interconnection, which are based on amount of traffic exchanged, now have been pushed further in the direction of settlement-free peering, irrespective of traffic flows.

Paradoxically, some might argue, we now have the worst of all worlds, The best of all worlds, from a supplier perspective, is a de facto monopoly in a de jure non-regulated framework.

Conversely, the worst of all worlds, for some suppliers, is monopoly regulation in a competitive framework (de facto price controls in open markets).

Cable TV companies once were clear examples of the former, common carrier regulation of Internet access an example of the latter.

Implicitly, mandatory interconnection of Internet domains irrespective of traffic exchange volumes also provides structural business advantage for content delivery domains at the expense of customer-aggregation domains (consumer ISPs).

Government regulators often have logical reasons for tilting regulations in favor of some industry segments, protecting some segments or encouraging other segments while essentially penalizing other segments.

That might be a growing pattern in some countries which believe they can foster their domestic content and app industries by essentially restructuring business costs within the Internet ecosystem.

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

Network interconnection is more than a technical process whereby companies connect their networks. The business rules for exchanging traffic can help some providers and harm other providers.

As Reliance Jio prepares to enter the India mobile market, interconnection rules once again are highlighted as a material contributor to firm revenues and business models. The Telecom Regulatory Authority of India, for example, is taking a look at termination charges.

There is some possibility TRAI could recommend essentially eliminating interconnection charges. That would reduce revenue for the largest mobile companies in India, and reduce cost for Reliance Jio.

The reason is simply that when networks of unequal size exchange traffic, the large networks always will, on balance, terminate many more calls than the small carriers.

At the same time, the small networks will mostly originate traffic, and will get relatively small amounts of terminating traffic from the big networks.

So low or zero-rated termination helps small carriers, and hurts big carriers, since it is the big carriers that terminate most traffic.

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

Asymmetrical traffic demand has been a technology and business issue in the networks business for some time, and is becoming an issue again as video traffic starts to dominate all traffic types, and networks have to be fundamentally redesigned to account for the new traffic characteristics.

The biggest single change is that IP network traffic increasingly is dominated by highly-asymmetrical entertainment video.

Metro traffic will surpass long-haul traffic in 2014, for example, and will account for 58 percent of total IP traffic by 2017.

Metro network traffic will grow nearly twice as fast as long-haul traffic from 2012 to 2017, propelled by the increasingly significant role of content delivery networks, which bypass long-haul links and deliver traffic to metro and regional backbones.

Likewise, content delivery networks will carry 51 percent of Internet traffic in 2017, up from 34 percent in 2012.

Globally, IP video traffic will be 73 percent of all IP traffic (both business and consumer) by 2017, up from 60 percent in 2012. The sum of all forms of video (TV, video on demand [VoD], Internet, and P2P) will continue to be in the range of 80 and 90 percent of global consumer traffic by 2017.

But significant business issues are raised, not just technology and architectural issues.

Though some of the implications mostly are about efficiency, many of the traffic-related issues have revenue and business implications.

In years past, the Federal Communications Commission has had to consider situations where asymmetrical traffic flows have cost implications for service providers that are one-sided and distort the normal economics of traffic exchange.

Historically, the assumption was that traffic would be symmetrical, both inbound and outbound on any single network, and then symmetrical across network boundaries. That had obvious implications for network design and also the arrangements whereby networks compensated each other for terminating or carrying traffic.

But business relationships between networks have been, and will be, affected by various types of arbitrage, especially when traffic flows or retail rates are asymmetrical.

Traffic pumping, also known as access stimulation, is a controversial practice by which some local exchange telephone carriers in rural areas of the United States inflate the volume of incoming calls to their networks, and profit from greatly increased intercarrier compensation fees.

They do so by operating inbound toll-free calling services services where traffic is, by definition, unbalanced. Back in the days when dial-up Internet access was the norm, the same sort of arbitrage existed.

Modem pools could be located where favorable long distance termination rates could be leveraged.

Phantom traffic is another form of interconnection arbitrage.

Granted, IP network interconnection is governed by different rules than common carrier services.

But the same potential for arbitrage can exist, if networks with highly-unequal traffic flows are forced to interconnect on a settlement-free basis. That already is an issue for interconnecting content delivery networks or networks handling video applications such as Netflix, which by definition are characterized by huge downstream flows and almost no upstream traffic.

For that reason, the potential for arbitrage will exist, if IP networks are forced to interconnect on a settlement-free basis. Proponents naturally will put the best light on such mandatory, settlement-free interconnection by arguing it is necessary to maintain lawful content access.

In other words, the mandatory settlement-free interconnection will be couched in “equal access to content” or “network neutrality” terms.

Others might say the issue is business arbitrage.

And that potential arbitrage will grow as all public IP network traffic comes to be dominated by content, specifically entertainment video.


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