AsK DrPeering
Ask DrPeering
Ask Dr. Peering
Dr Peering -
I see that Hurricane Electric advertises $1.50/Mbps for Internet transit now. The price of transit is approaching $1/Mbps in some markets for significant commitments. The rumors are that Google, Microsoft, and others are paying towards 25 cents/Mbps with large commits, and that these guys are peering away towards 75% of their traffic for free.
My question is....At $1/Mbps or less, why bother peering? Where if anywhere does peering make sense?
Serge Valero
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Serge -
The price of transit and cost of peering are key metrics that prudent network architects and planners watch. Why?
Most ISPs and large content providers purchase Internet Transit services. Then they look to peering to lower the aggregate price per Mbps by blending in some free peering for as much of the peerable traffic as possible. The more you can peer away for free, the lower the cost per bit transferred.
As you can see below, when the unit cost of peering (shown in yellow) is higher than the metered price of transit (shown in red) peering doesn’t make sense financially. Where the lines cross is where the cost of peering exactly equals the price of transit. This is called the “Peering Breakeven Point” ; it is the point where one is indifferent between peering and transit for offloading traffic.
Stated another way, for peering to make sense financially, one has to peer away enough traffic for free to offset the cost of peering. Beyond that is gravy.
Predictions on the future of peering.
Emerging Markets for Peering?
Monday, April 19, 2010
So let’s plug in your numbers from the field and do some simple peering math.
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1)Assume the market price for transit is $1/Mbps.
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2)Assume the alternative is to go into an IX and buy a 10G port for $2500/month
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3)Assume the cost of colocation, circuit and IX membership fees are $2500/month
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4)Assume there are no other incremental expenses.
The Peering Break Even Point is where you can peer enough traffic to make the unit cost for peering equal the unit price of transit as shown in the equation below.
So from this we see that an ISP will save money if they can peer more than 5Gbps (5000Mbps), and peering will continue to save money up to the maximum usable capacity of the peering interconnect.
As always, the Business Case for Peering is all about the traffic volume. And yes, there are of course other non-financial reasons for peering.
As for your second question .... Where does Peering Make Sense?
Here are three areas for peering growth over the next five years:
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1)Peering generally makes sense when you can peer enough traffic away for free to cover the cost of peering at the IX. We showed a Peering Break Even Point of 5Gbps today... What traffic type reaches traffic volumes this high? Video. I believe that those who aren’t peering a lot of video traffic will fall out of the Peering Community over the next couple years. Conversely I see a whole new emerging peering ecosystem dominated by those who peer a lot of video traffic.
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2)Peering generally makes sense when the price of transit is high, and there is enough potential peering such that the market peering break even point is reached. Look to places with artificially high transit prices, like South Africa, Australia and New Zealand, and emerging Internet Ecosystems in parts of Eastern Europe.
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3)Peering generally makes sense when a company can extend network into a foreign Internet peering ecosystem IX and peer enough traffic to offset the cost of peering there. Examples: Eastern European, African and Middle East ISPs building into the DECIX.
Dr Peering
PS - What happens when the price of transit actually becomes $0/Mbps? Hint: There must be $ revenue from some other source.
This is a fun answer to work through.
N E W
The Internet Peering Playbook: Connecting to the Core of the Internet
ISBN: 978-1-937451-00-4
Available Now in print, and as a kindle book on Amazon.com and as an ePub on lulu.com and on the Apple iBookStore.
