16.03.2016, Luanda

The Impact of Peering on Global Internet Developments

» Peering Characteristic

» Peering Rationales

» Peering versus Transit

» Impact on Global Internet Development

Agenda

3

Digital Infrastructures, the foundation of the Internet

» digital infrastructures provide the means for Internet usage, used daily, automatically

» the technology is called digital, the result as well

» digital infrastructures have local footprints, therefore the Internet too

» everything is fully dependent upon power supply quality

» supply security and resilience is mandatory

» useful supply 24/7 is key

Foreword (1/1)

4

Definition

» It is a business relationship whereby two companies reciprocally provide access to each other’s customers, fundamental part of a digital (network) economy

Concept

» Business community connects to an Internet eXchange Point (IXP),building a digital hub for the national digital economy

» Commercial service: Settlement free peering or paid peering

Reasons

» Local traffic stays local

» Improves and shorten local latencies

» Improves network qualities

» Facilitate traffic growth

» Reduces purchase costs for IP transit

» Pulls international content networks investments into a country

Peering Characteristics

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5

Peering Rationales

# peering partners

100

50

% Cost / destination

0

Buyer

0 10

# peering partners

100

50

%Capacity utilization

0

Seller

0 10

6

10.03.16 14:28The Business Case for Peering

Seite 3 von 5http://drpeering.net/core/ch5-Business-Case-for-Peering.html

Now let’s generalize the analysis.

Generalized Analysis

Four key peering metrics describe the effectiveness of peering:

The Peering Break-Even Point answers the question, “How much traffic do I have to peer for free to save enough money to cover the cost ofpeering?”The Effective Peering Bandwidth answers the question, “What is the maximum amount of traffic I can realistically push through the peering

infrastructure?”The Effective Peering Range answers the question, “Where is the peering sweet spot—the peering bandwidth range where peering is financially

rational?”

The Minimum Cost for Traffic Exchange answers the question, “What is the best possible unit cost for peering?”

I will walk through each of these peering vs. transit calculations in turn.

The Peering vs. Transit Economics

The Peering Break-Even Point

To determine if peering makes sense, we need to identify the point at which the cost of peering equals the cost of transit. At this point, an ISP is indifferent

between peering and simply sending that traffic through a transit provider. To calculate this metric, we first add the costs of peering and allocate those costsacross the capacity of the peering infrastructure. The result is the curve in the Peering Break-Even graph shown in Figure 5-2.

Figure 5-2 The Peering Breakeven Point

In this graph we also plotted the cost of the next-best alternative for offloading that same traffic, the market price of Internet Transit. (We assume for

simplicity that the price of transit is fixed, not tiered.)

The point at which these two lines intersect is called the Peering Break-Even Point.

Definition: The Peering Break-Even Point is the point at which the unit cost of peering exactly equals the unit price for Internet Transit.

To calculate the Peering Break-Even Point, we allocate the monthly costs of peering across the market price for transit.

PeeringBreakEvenPoint = MonthlyCostofPeering/UnitPriceofTransit

Beyond the Peering Break-Even Point (see Figure 5-2), the ISP peers more than enough traffic to completely cover the cost of peering. The monthly transit

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Transit Price

Level 1

Transit Price

Level 2

Peering Cost Elements, per month

» Equipment cost

» Transport cost to IXP

» Colocation fee at IXP facility, if any

» Cross connect fee at IXP facility, if any

» Peering port fee

Transit Cost Elements, per month

» Equipment cost

» Transport cost to Transit supplier

» Colocation fee at IXP facility, if any

» Cross connect fee at IXP facility, if any

» IP Transit purchase price x volume

Learnings

» The higher the Transit Price Level,the earlier the Peering Break-Even Point, the higher the Return on Peering

Peering versus Transit (1/2)

7

14.07.15 17:00IP Transit Forecast Service

Seite 2 von 3ht tps: / /www.telegeography.com/research-services/ ip- t ransit - for ecast-service/ index. html

Geographic Coverage

Volume, price, and revenue projections cover 148 countries and 7 major world regions (Europe, Africa, Asia,

Middle East, Oceania, U.S. & Canada, Latin America & Caribbean).

Forecasts are updated twice annually based on a range of factors, including:

IP traffic growth in each country

Wholesale pricing trends

Peering versus transit trends

GROWTH IN TRANSIT VERSUS PEERING, 2014-2021

Forecast Findings Report

The service includes a report highlighting key forecast findings and trends, which is updated twice annually.

Recent topics covered include:

The impact of transport on IP transit revenues

The effect of transit versus peering on IP transit traffic and revenues

Analysis of IP transit volume increases versus price declines

Differences in regional IP transit prices and revenue potential

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Wholesale Bandwidth Pricing Database

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230 routes worldwide, from 1998 to present.

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14.07.15 17:04IP t ransit p rice and peering t rends yield regional revenue d ivide

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IP transit price and peering trendsyield regional revenue divide9 Jul 2015

International

According to new data from TeleGeography’s IP Transit Forecast Service, global IP transit revenues are forecast to

fall 6% compounded annually between 2014 and 2021, from USD4.9 billion to USD3.2 billion. However, despite

widespread declines, revenues will not fall evenly among all regions.

While revenues in more developed markets will remain relatively static over the next seven years, those in

developing regions will fall significantly. For example, IP transit revenues in North America will increase 1%

compounded annually, while those in Europe will fall by 1% per year. In contrast, revenues in Africa and the Middle

East will decline 9% and 11% per year, respectively.

Two factors are driving this regional divergence – differences in the rate of price declines and differences in the

share of Internet traffic exchanged via transit agreements. Although overall Internet traffic is growing fastest in

emerging markets, internet service providers in these areas are migrating from purchasing transit to establishing

mostly free peering arrangements more quickly than those in Europe and North America, where peering is already

common. For example, TeleGeography forecasts that the share of African internet traffic exchanged via transit will

fall from 84% this year to 62% by 2021.

IP transit is much cheaper in the more developed markets of North America and Europe, and it often makes

economic sense for ISPs in these regions to pay for transit rather than incur the cost of building infrastructure

required to peer. Consequently, the share of US Internet traffic exchanged via transit is expected to fall only

moderately over the longer term, from 44% in 2015 to 39% in 2021.

In addition to significant IP transit volume declines, developing countries will see steeper price reductions than

more mature markets, further driving down revenue. The monthly price per Mbps for a 10Gbps Ethernet (10 GigE)

port in Africa, Latin America, and the Middle East is projected to fall between 27% and 29% compounded annually

through 2021, while declines in North America and Europe will be more modest, at 20% compounded annually.

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The majority of African ISPs is interconnected with their peers abroad, still

This leads to high costs for Internet services, high latencies, bad user

experience

Peering versus Transit (2/2)

8

Source: DOMO Report 08/15, volume per brand and minute, http://www.blogdumoderateur.com/une-minute-internet-aout-2015/

0%

10%

20%

30%

40%

50%

60%

70%

Africa Asia Europe LatinAmerica

NorthAmerica

Oceania /Australia

share of population per continent, 2015

share of Internet users per continent, 2015

Spread of World Internet Users

Historical data about Internet users globally

» 40 million Internet users reached by 1995

» 400 million Internet users reached by 2000

Impact on Global Internet Development (1/5)

9

Peering is a facilitator of an economy to become a digital one

Internet peering infrastructures drive the growth of a digital economy

» EUR 3.2 trillion USD in the G-20 economies, contributing up to 8 % GDP,

» powering economical growth and creating jobs;

» Build redundancies and resiliencies into national setups and improve national security measures

» over 75% of the value added created by the Internet is in traditional industries, due to higher productivity gains.

Impact on Global Internet Development (2/5)

0% 10% 20% 30% 40% 50% 60%

mobile technology

business intelligence

cloud computing

social media

Digital Megatrends

Figure: Greatest positive impacts of Internet on business users

until 2020, Oxford Economic, 12/2015

10

Attention economy, todays driver of the global Internet

» We all look into our smartphones and tablets – „attention“; usage per device is forecast to more than triple by 2020; all business out of it is called the „attention economy“

» Android has an 84% share of smartphones, and 72% of tablets.

» Application volume growth: over1 million apps available, downloaded more than 100 billion times.

Impact on Global Internet Development (3/5)

2.000.000 25 billion USD 190

674.000 9 billion USD 100

Available Rooms Current Enterprise Value Countries

11

Attention economy, a transformation period towards a digital economy with

Impact on Global Internet Development (4/5)

1995 2005 20252015

Revenue

Bubble

Economy

Digital

Economy

Attention

Economy

New global market add on per year : 1 trillion USD

12

Impact on Global Internet Development (5/5)

Attention economy, increased market capitalization TOP 15

by more than 144 times13

„…The main thing in peering in general is that it improves quality which is noticeable. Having access to good peering improves overall IP offering of a telco both retail and wholesale...“

Hussein Al NajraniSaudi Telecom Company STC

„…The existence of IXP’s allow Tier-2 wholesale IP Transit providers to create an offering which is not based on buying bulk Tier-1 transit and reselling. Furthermore the presence at IXP’s gives visibility in the market...“

Eric LoosBICS

„…Yes, being present on an IX certainly (usually) provides a more stable platform for continuous and predictable interconnectivity with certain networks.

If you are a content provider and you care about serving eyeball networks IXs can be a great way to connect with ISPs that have a useable peering program and ensure your connectivity between you and them is consistent and direct ...“

Adam LaFountainTwitter

Summary: Quotes Capacity Middle East, 2016

14

Gerd Simon

Senior Project Consultant

DE-CIX International AG

gerd.simon@de-cix.net

With over 20 years of senior management experience in European ICT companies, Gerd Simon acts as a trusted advisor and business scout in the Internet industry, his assignments covered mission critical market segments in mainland Europe, U.K or Middle East, Asia and Africa. This includes hosting & cloud transformation, cloud & datacenter audits, Internet Exchange Point (IXP) development and M&A consulting.

Before he started his consulting carrier, Gerd held executive roles at Euro-Log, Ascom, Steria, and was co-founder and managing director of the first German network neutral Internet datacenter in the 90's, Interxion Germany.

Credentials

15

DE-CIX International AG

Lindleystr. 12

60314 Frankfurt

Germany

Phone +49 69 1730 902 0

info@de-cix.net

Thank you.