Executive Summary TeleGeography s Global Internet Geography Research Service provides analysis and statistics on Internet capacity and traffic, IP transit pricing, and backbone operators. International Internet bandwidth and traffic growth has gradually slowed since the heyday of the telecom boom, but remains brisk, increasing at a compound annual rate of more than 34 percent between 2011 and 2015. After a few years of moderate declines, the pace of IP transit price erosion accelerated as prices fell precipitously in many markets. Internet Traffic and Capacity International Internet capacity growth has fallen steadily for many years, and annual growth rates have lately settled in the low-30 percent range (see Figure: International Internet Bandwidth Growth, 2011 2015). But even with the declining pace of growth, 125 Tbps of new international Internet capacity was deployed between 2011 and 2015, bringing global international Internet capacity to 180 Tbps. 1
FIGURE 1 International Internet Bandwidth Growth, 2011 2015 Notes: Data represent Internet bandwidth connected across international borders as of mid-year. Domestic routes are excluded. The Europe-United States & Canada route was the highest-capacity inter-regional route between 1999 (when TeleGeography began tracking international Internet capacity) and 2013. In 2014, the Latin America-U.S. & Canada route surpassed the Europe-U.S. & Canada route. In 2015, the Latin America-U.S. & Canada route extended its lead, expanding 40 percent to reach 17.8 Tbps (see Figure: Inter-regional Internet Bandwidth, 2015). This shift may seem surprising but Latin America s international Internet bandwidth is almost completely connected to the U.S. & Canada, whereas Asia and Europe have their interregional capacity spread among several routes. In addition, Europe and Asia maintain considerable levels of intra-regional capacity connecting countries within these regions. Finally, the considerable deployment of private network capacity particularly by large content providers across the Atlantic and Pacific appears to have dampened the growth of Internet capacity on these routes. 2
FIGURE 2 Inter-Regional Internet Bandwidth, 2015 Notes: Data as of mid-2015. Traffic on international Internet links grew faster than capacity. Global peak traffic volumes rose 37 percent overall in 2015. In years past, peak international Internet traffic connected to many regions increased in excess of 41 percent each year, a rate which implies that traffic is more than doubling every two years. But for 2015, only Africa, Latin America, and the Middle East exceeded this rate (see Figure: Peak International Internet Traffic Growth by Region, 2011-2015). 3
FIGURE 3 Peak International Internet Traffic Growth by Region, 2006-2015 Notes: Data as of mid-year. The bulk of TeleGeography s data capacity and traffic on Internet backbones describe how operators have deployed their networks, but do not reveal the origin and destination of traffic on those backbones. A link between New York and London may carry U.S. website traffic to British users, but it may also send traffic from a Russian server to a web browser in Brazil. Analyzing website server locations, an area of research new to this year s report, helps to solve this mystery. Subscribers to Global Internet Geography may browse an interactive chart to see how users in different countries reach their favorite websites, often located in other countries. Examining the website location data at the country level provides an interesting glimpse into which countries appear to be more self-reliant on Internet content. On average, only one-quarter of most countries top websites are hosted domestically. Even some large countries remain reliant on international connections to access popular Internet content. A mere 24 percent of the top 100 websites of Brazilian users are hosted in Brazil (see Figure: Location of Websites for Selected User Countries, 2015). In contrast, countries with large populations whose governments play a role in controlling or manipulating content location often have relatively high shares of domestically-hosted content. China, Iran, and Russia represent examples of these countries. The United States, which plays the role of premier global Internet content host, ranks as the country with the highest proportion of domestic content: 91 percent of U.S. users top 100 websites are hosted domestically. 4
FIGURE 4 Location of Websites for Selected User Countries, 2015 Notes: Data show location of top 100 websites requested by users in selected countries, as a share, as of April 2015. Prices After a two-year respite, global IP transit price declines have returned to form in 2015. Among a sample of primary global transit markets, prices dropped precipitously in 2012, nearly 50 percent, followed by two years of relatively mild decline, closer to 10 percent each year. In 2015, the annual price change aligned with the longer-term trend. Median 10 GigE prices in London, New York, São Paulo, and Singapore fell an average of 26 percent in 2015 and 24 percent compounded annually since 2010 (see Figure: Median 10 GigE IP Transit Prices in Major Global Cities). 5
FIGURE 5 Median 10 GigE IP Transit Prices in Major Global Cities Notes: Each column represents the median monthly price per Mbps in the listed city. The line represents the percentage decline of the median price calculated as a three year compound annual growth rate. Prices are in USD and exclude local access and installation fees. 10 Gigabit Ethernet (10 GigE) = 10,000 Mbps. While prices have declined globally, significant geographic differences persist. For example, the median Singapore 10 GigE price has remained 4 to 5 times that in London over the past five years. Stubbornly high prices in São Paulo have driven the median 10 GigE price there from approximately 9 times the New York price in 2010 to nearly 15 times in 2015. IP transit service can be expensive outside of primary transit hubs, particularly in remote locations with limited bandwidth supply and meager competition, such as sub-saharan Africa and remote island nations. Where STM-1 transactions predominate, prices often reach $100 per Mbps per month. Where capacity is available in 10 Gbps increments, few cities remain where transit prices exceed $25 per Mbps per month. On the opposite end of the spectrum, carriers report extraordinary deals with favored buyers as low as 10 cents per Mbps per month. Provider Connectivity TeleGeography s rankings of provider connectivity includes analysis based on BGP routing tables, which govern how packets are delivered to their destinations across myriad networks as defined by autonomous system numbers (ASNs). Every network operator relies, to some extent, on others to reach parts of the Internet not served by themselves. Although there is no such thing as a ubiquitous Internet backbone provider, Level 3 s network comes closest. Level 3 was immediately upstream to a remarkable 53 percent of the world s IP addresses. Hurricane Electric, Cogent, NTT, and 6
TeliaSonera comprised the remaining top five group of upstream providers as ranked by IP address reach. TeleGeography also analyzed which upstream ISPs provide service to Fortune 500 companies, and to enterprises grouped by industry vertical (e.g., the financial or medical sectors). Traditional measures of upstream ISP connectivity often serve as poor predictors of which ISPs have a strong presence in the enterprise market. The Share versus Number of Enterprise Customers figure illustrates this finding. AT&T, Verizon, and Zayo lag behind several other Internet providers in terms of IP address share, yet all of those carriers had a large number of enterprise customers. Conversely, NTT, TeliaSonera, and GTT had relatively few enterprise customers yet held an unusually high share of IP addresses passed on to it from other types of downstream ASNs, suggesting that they were stronger in the role of backbone provider to other ISPs. Level 3 stood as the leader both in terms of worldwide share of thirdparty IP addresses and in number of non-isp/hosting sector enterprises. FIGURE 6 Share versus Number of Enterprise Customers Notes: Share reflects percent of IP addresses from downstream customers and does not include the upstream provider s own IP addresses. Enterprise customers exclude downstream connections from companies from the ISP/carrier and hosting/cdn/content/cloud services sectors. The Share versus Number of Enterprise Customers figure also helps to illustrate how mergers and acquisitions can reshape a provider s role in the market. Years ago, Level 3 focused almost exclusively on the wholesale market: it was a major provider to other backbone providers but was not a notable supplier of services to private enterprises. Level 3 s 2011 purchase of Global Crossing brought the company a stronger enterprise presence. As late as last year, Level 3 straddled the line between Stronger Enterprise Focus and Stronger Wholesale Focus, but the 2014 acquisition of tw telecom and its many enterprise customers has pushed Level 3 firmly into the enterprise focus side of the chart. In 2015, Level 7
3 also surpassed AT&T and Verizon to become the most frequently connected upstream provider to Fortune 500 companies and to enterprises in the financial and medical sectors. Outlook The combined effects of new Internet-enabled devices, growing broadband penetration in developing markets, higher broadband access rates, and bandwidth-intensive applications will continue to fuel strong Internet traffic growth. While end-user traffic requirements will continue to rise, not all of this demand will translate directly into the need for new longhaul capacity. Aggregate international capacity and traffic growth rates are slowing as the global Internet matures. Outside of some developing countries, the days of triple digit annual growth rates are long gone. A variety of factors shape how the global Internet will develop in coming years. Transport Costs IP backbone operators must make considerable investments in network capacity to keep up with rapid traffic growth, driving concerns that capacity costs will outstrip traffic revenues. As IP transit prices have eroded, the convention of expressing transactions as unit price per Mbps yields conspicuously low figures, which contributes to a sentiment that the transit price trajectory is unsustainably cheap. But as aggregate volumes increase and prices fall, a parallel effect takes place on network cost. High-capacity ports afford lower unit traffic costs than low-capacity ports. Technological and economic advancements in transport infrastructure have lowered capacity costs for IP traffic. For example, 100 Gbps transmission can transport traffic at a lower cost per bit than 10 Gbps. Although 100 GigE ports pose higher cost and traffic topology hurdles at layer 3 than at the transport layer, the industry will eventually overcome these barriers, yielding continued reduction in cost per bit and greater efficiency in network architecture. Traffic Localization In addition to deploying infrastructure that achieves the lowest unit cost, network operators must also optimize their network topology and peering relationships. Many participants in emerging Internet markets that rely on pipe and port would like to exchange more traffic locally. However, viable regional hubs for Internet traffic exchange depend on several factors, including a robust transport infrastructure and reliable and business-friendly venues for traffic exchange. By definition, a hub requires sufficient participants with which to exchange traffic in order to make establishing a PoP in the location worthwhile. Media companies want to distribute content from points closer to end-users to enhance user experience with low-latency network performance, and Internet backbone providers want to reach new, unsaturated markets for broadband Internet access. Until content providers conclude that the benefit of enhancing access to new markets justifies the cost and risk of the investment, they can continue to serve those markets remotely from established global hubs. Whether transit transactions occur locally or in a pipe and port model, many parts of the world will continue to incur a significant transport cost, affecting transit prices for the foreseeable future. 8
Traffic Exchange Both content providers and carriers have an interest in optimizing the link between consumers and content, and will invest accordingly. But aligning interest and investment between the parties is complex (and sometimes contentious). Financial compensation for traffic exchanged between ISPs and content companies reflect this complexity, resulting in a variety of transaction types, settlement terms, and IP transit prices. Content providers and cloud providers are expanding their deployments of private network capacity rather than relying heavily on IP backbone operators. The rapid growth of capacity data replication and mirroring among data centers are key reasons for the rapid growth of private network capacity. As a result, the rise of private network capacity appears to be having a major impact on the growth of Internet capacity requirements on some routes, particularly the trans-atlantic. The increased use of private network capacity on major interdata center routes seems likely to slow the need for new Internet capacity by IP backbone operators. Carriers buying decisions are shaped not just by the price of IP transit in a major network hub city, but also by the cost of transport to that market, and by considerations of network diversity and performance. Consequently, while IP transit prices in Asia and Latin America remain several times higher than in the U.S. and Europe, prices in these regions do not need to reach parity for carriers to shift where they buy transit. Data Location The impetus to push content closer to end-users serves as an important factor against international traffic growth. In recent years, increased reliance on content delivery networks and caches to distribute video content has had a clear, dampening effect on long-distance Internet traffic growth. As a result, some of the most popular video services, such as Netflix, have virtually no impact on international Internet traffic. Increased localization of traffic is likely to continue, given the dominance of video traffic. In addition to efficient delivery of content and management of traffic flow, the location of data stored in the cloud has become a sensitive issue for a number of reasons. These include legal jurisdictional issues, taxation, and surveillance revelations (in particular those dealing with the United States National Security Agency.) Many governments are considering laws dealing with data storage location, such as requiring sensitive data like financial and medical records to stay in-country. As a result, the adoption of cloud computing may lead to more rapid demand for domestic Internet capacity with limited impact on international Internet capacity requirements. 9
The content on the preceding pages is a section from TeleGeography's Global Internet Geography The work is based on sources believed to be reliable, but the publisher does not warrant the accuracy or completeness of any information for any purpose and is not responsible for any errors or omissions. This work is for the confidential use of subscribers. Neither the whole nor any part of this publication may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopied, recorded or otherwise, without prior written consent from PriMetrica, Inc. All rights reserved. TeleGeography A Division of PriMetrica, Inc. Washington, D.C. / San Diego / Exeter U.S. tel: +1 202 741 0020 / U.K. tel: +44 1392 315567. www.telegeography.com 10