Overview of recent changes in the IP interconnection ecosystem

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1 Presentation for Broadband for America Overview of recent changes in the IP interconnection ecosystem Michael Kende June 7 th, 2011 Ref:

2 Introduction 2 Last year marked the 15 th anniversary of the commercialization of the Internet backbone w Since then traffic has increased by many orders of magnitude, encompassing an increasing amount of premium content, including video w In response, the ecosystem of the Internet has evolved from a simple, hierarchical structure to a dynamic web of interconnections between players w The one constant has been that interconnection arrangements continue to be agreed through commercial negotiations, rather than regulation This webinar introduces a study entitled Overview of recent changes in the IP interconnection ecosystem, which examines the Internet s inherent flexibility and adaptability despite the profound changes in its basic structure in the last 15 years We would like to thank Broadband for America for arranging this webinar. Analysys Mason is responsible for all research, analysis, and conclusions.

3 We answer some common questions about IP interconnection 3 Question 1: What is the history of IP interconnection? Question 2: What is peering? Question 3: What is transit? Question 4: How are peering. decisions made? Question 5: Are backbones still at the top of the Internet hierarchy? Question 6: What are the constraints on Internet backbones?

4 Question 1: What is the history of IP interconnection? The commercial Internet is relatively young The National Science Foundation Network (NSFNET) Service was decommissioned in favor of the commercial Internet on April 15, w The NSFNET was used by regional networks to exchange traffic w In its place, four Network Access Points (NAPs) across the country were designated for traffic exchange w Interconnection was not regulated in its place commercial arrangements known as peering and transit were negotiated between different providers The Internet was very different on that day w Netscape had just been introduced w AOL was the largest ISP in the US and still charged hourly fees w The DOCSIS standard had not yet been released w The NSFNET backbone was just 45Mbit/s Since 1995 the Internet has been characterized by two constants w Unforeseeable changes that have impacted every aspect of the networks and services w that are continuously accommodated commercially by all types of providers

5 Question 2: What is peering? Peering is a bilateral arrangement between two peers for the exchange of their customers traffic 5 Content provider & aggregator The backbones may all cover the same geographic area and compete for the same customers 1 3 sends traffic from ISP 1 and ISP 4 to 2 for termination with ISP 2 and ISP 3 and vice versa End-user ISP 1 ISP ISP 4 ISP 3 Internet Access Transit Peering

6 Question 2: What is peering? that involves a number of costs 6 Peering is a commercially negotiated decision between two providers to exchange traffic between their customers (ISPs, content providers, enterprises, and end-users) s will not deliver traffic from one peer to another peer w 2 will not convey traffic from 1 to 3 1 w As a result, many peering connections are needed Peering is often, but not always, settlement-free w When the costs dedicated to a peering arrangement are roughly the same, such as when transport mileage and traffic ratios are roughly balanced, the peers may not pay settlements. 3 peering 2 w Otherwise, an alternative might be paid peering s must dedicate resources to each peering connection w Ports in routers w Capacity throughout the network to the point of interconnection w Setup and maintenance costs

7 Question 3: What is transit? Transit is a customer relationship providing the buyer with access to the entire Internet 7 3 will deliver all of ISP 1 s traffic in both directions through this transit relationship Content provider & aggregator 1 End-user ISP 1 ISP ISP 4 ISP 3 Internet Access Transit Peering

8 Question 3: What is transit? Peering is a wholesale input into the sale of transit 8 A backbone s position evolves as it grows Transit costs w From position 1 with no peering, it increasingly qualifies for peering (as it expands its geographic coverage, increases the traffic it carries, etc.) and thereby lowers its transit costs through position 4 at right w At position 5, it has enough peering relationships that it can begin to become a net seller of transit services 6 5 Number of peers Peering and transit have different functions w Peering is a bilateral relationship exchanging customer traffic, while transit is a customer relationship offering access to the entire Internet Transit revenues w While a customer only needs one transit arrangement to have access to the Internet, the provider needs multiple peering arrangements to offer transit service

9 Question 4: How are peering decisions made? Peering decisions are far from arbitrary and are mainly meant to avoid cost-shifting between peers 9 Many providers have publicly available peering policies detailing the conditions under which they will peer These policies typically have two relevant sections w Network requirements. This refers to the geographical scope of the network, to ensure that both networks will be able to share the load of carrying traffic to all parts of the world. w Peering requirements. This refers to the location of traffic exchange and the amount of traffic exchanged, again to ensure a fair balance of resources devoted to the peering relationship Many of these requirements are meant to avoid cost-shifting between peering partners in traffic exchange, such that the customers of one partner do not effectively subsidize the delivery costs of the other

10 Question 4: How are peering decisions made? Traffic between peers is typically exchanged via hotpotato routing 4 As a greater volume of traffic is sent back to the end-user, the ratio of traffic exchanged will rise and 1 will face increasing costs of carrying 2 s customers content 10 End user /ISP 1 1 IXP 1 IXP 2 3 /ISP 2 Content provider 2 which may be addressed using cold-potato routing delivering traffic close to the end-user. This reduces the mileage over which the receiving backbone carries content, but does not necessarily eliminate the cost imbalance

11 Question 5: Are backbones still at the top of the Internet hierarchy? The early Internet was a hierarchy with Internet backbones at the top 11 Representation of relationships between Internet players in 1995 Content provider & aggregator 1 All traffic passes through the backbone providers, which carry the traffic between the ISPs End-user ISP 1 ISP 2 - NAP 3 2 ISP 4 ISP 3 Internet Access Transit Peering Source: Analysys Mason

12 Question 5: Are backbones still at the top of the Internet hierarchy? Over the past decade content traffic has grown in response to consumer adoption of broadband 12 Growth in broadband subscribers in the US Consumer Internet traffic forecasts % 12,000 Millions Q3 DSL Residential FTTB Broadband penetration Cable modem Broadband FWA 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Penetration as % households. PB per month 10,000 8,000 6,000 4,000 2, Web and File Sharing Internet Gaming Internet Voice Internet Video com. Internet Video to PC Internet Video to TV The increase in broadband adoption and usage supported higher bandwidth services with lower latency The explosion of web-based devices such as tablets and smartphones has further fueled this demand Peer-to-peer (P2P) file sharing grew quickly as a means of exchanging content between users According to Sandvine, Netflix video alone accounts for almost 30% of download traffic during peak times Source: Analysys Mason Research Source: Cisco Visual Networking Index

13 Question 5: Are backbones still at the top of the Internet hierarchy? and IP interconnection has evolved accordingly 13 The early NAPs grew out of favor w The NAPs were used for public peering by backbone providers, and the public switches soon congested w The operators of the NAPs such as MCI WorldCom also competed with the other backbones, leading to concerns over neutrality Internet Exchange Points (IXPs) emerged in their place w A wide variety of activities are possible, including direct peering and the sale of transit w These are large data centers open to all parties. including ISPs and content providers w In the US, these tend to be commercial but operated by neutral parties such as Equinix A wide variety of interconnection agreements were facilitated by these common locations w Secondary peering, between ISPs exchanging their end-users traffic, notably peer-to-peer traffic w Paid peering, for content providers to deliver content directly to ISPs for distribution across their networks to end-users w The result is that ISPs and content providers increasingly only purchase partial transit from backbone providers from whom they formerly relied entirely on transit

14 Question 5: Are backbones still at the top of the Internet hierarchy? and as a result former transit customers increasingly bypass backbone providers 14 Representation of relationship between Internet players today Customers have reduced their reliance on backbones for connectivity Content provider & aggregator 1 ISP 2 End-user 3. 2 IXP ISP 4 ISP ISP 3 Internet Access Transit Partial transit Peering Secondary peering Paid peering Source: Analysys Mason

15 Question 5: Are backbones still at the top of the Internet hierarchy? Content delivery networks (CDNs) deliver content to ISPs, directly or indirectly 15 Regional ISP Content Delivery Network Mobile operator Regional ISP network A network B Content provider Aggregation & Access Aggregation & Access End-user CDNs offer high quality delivery of content via a network of caching servers connected to ISPs The largest third-party CDNs include Akamai and Limelight, while some large content providers are building their own CDNs to deliver their content Source: Analysys Mason

16 Question 6: What are the constraints on Internet backbones? The constraints on internet backbones increasingly come from their former customers As discussed above, traditional backbone customers increasingly arrange their own connectivity at IXPs at the expense of transit demand w Secondary peering between ISPs w Paid peering between content providers and ISPs The 2009 Annual Report of the ATLAS Internet Observatory highlights other. 10 alternatives for ISPs and content providers w Content delivery network. According to Atlas, CDNs represent close to 10% of Internet traffic w Self-supply. Google has largely built its own CDN, and now accounts for 6% of all Internet traffic w Growth. Over the past few years, Comcast grew from a traditional MSO to be the sixth largest carrier of traffic by volume USD per Mbps Median transit prices per M/bits Chicago Houston Los Angeles Miami New York San Francisco Median transit prices have fallen significantly in reflection of the increased demand and supply options available to the entire Internet ecosystem 16 Source: Atlas Internet Observatory, 2009 Annual Report Source: Telegeography

17 Conclusion 17 Question 1: What is the history of IP interconnection? The NSF commercialized the Internet backbone on April 15, 1995, leaving providers to negotiate their own interconnection arrangements. The resulting peering and transit arrangements have evolved over the years, but remain commercial, rather than regulated, agreements. Question 2: What is peering? Peering is a bilateral agreement to exchange customer traffic. While it is often settlements-free, all peering partners must commit network resources to transport the traffic from the other network, which implies significant (and theoretically similar) costs for each of the peering partners, including transport, connection ports, operation and maintenance costs Question 3: What is transit? Transit is a retail service. providing access to the entire Internet; peering is an input used by backbones to create this service Question 4: How are peering decisions made? Many backbones have publicly available peering policies, outlining the conditions under which they consider peering to be mutually beneficial. Question 5: Are backbones still at the top of the Internet hierarchy? This may have been the case 15 years ago, but now ISPs and content providers frequently interconnect directly with one another at Internet Exchange Points in order to lower their reliance on transit. Question 6: What are the constraints on Internet backbones? ISPs and content providers can directly interconnect with one another to bypass backbones; in addition, they can build their own network or use a third-party for content delivery.

18 18 Michael Kende Analysys Mason Limited 818 Connecticut Avenue NW Suite 300. Washington DC 20006, USA Tel: (202) Fax (202) Registered in England No

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