Internet Exchange Questions

Tue Mar 19 03:53:04 UTC 2002

On Mon, 18 Mar 2002, Jon Bennett wrote:

> I am a business school student studying the state of the telecom sector
> and specifically the Internet infrastructure. I am currently trying to
> understand the role the IX such as PAIX, Equinix, Telehouse, etc.. will
> play in the future where the number of service providers is drastically
> reduced relative to the environment they were created in. I think PAIX
> is a good example of this. MFN announced today that they were selling
> off PAIX. I would be interested in hearing thoughts on why anyone would
> want to buy PAIX and if there is a way to continue to make money selling
> cross connects in the future.

Good question ;-)

You will likely get a lot of different answers to your questions,
depending on who answers, and their experiences in dealing with IX
operators.

My thoughts on the subject are:
1) While the number of service providers (ISPs, MSPs, ASPs, <insert letter
for marketing buzzword>SPs, etc) appears to be on the the decline, it
stands to reason that the amount of traffic present at an exchange point
should remain relatively constant on average, and probably grow.  This is
because as service providers go out of business or are acquired by other
organizations, the traffic that a given provider was carrying either gets
displaced by customers taking their traffic/business elsewhere, or the
traffic gets borged into the network of the acquiring provider.

I base this on empirical observation from my viewpoint as a network
engineer at a mid-sized service provider, not on actual observation.
Anyone that has done such observation feel free to chime in ;-)

2) The profitability of an IX is tied to the equipment and design
methodology in use, and of course the amount of traffic provider X can
move on the exchange when they join.  Bigger IXs with larger member lists
can equate to better business drivers for providers trying to decide where
and with whom to peer.  Also keep in mind that not all providers peer
equally, and some peer more equally than others.  Sounds stupid, but it's
true.

Some of the larger, older exchange points, such as the MAEs (not the old
MAEs, mind you), the AADS NAP in Chicago and the PacBell NAP in the Bay
Area are based on ATM.  Many newer exchange points are based on Ethernet
(LINX, Equinix, NYIIX/Telehouse, etc).  The cost per Ethernet port in
my experience tends to be much cheaper than the cost per ATM port.  This
can make setting up an Ethernet-based exchange less costly to set up and
operate.

3) As time passes, more providers either understand the benefits of
peering at an exchange point versus paying ${UPSTREAM} to provide transit
for all of their traffic, or their traffic levels grow to the point (see
point 1) where peering at ${EXCHANGE} begins to make financial sense.
Most providers lack the levels of traffic or the geographic footprint to
peer with the big guys (UUNET, Sprint, AT&T, CW, Genuity, etc), who
typically build private interconnections with each other in multiple
geographically diverse areas.  Private interconnects are normally not cost
effective for service providers who don't satisfy those criteria, so for
them, peering at exchange points is more financially/technically
attractive.

As for your question re: PAIX, it is a well-engineered exchange point that
has been around for a long time, with an extensive member list.  That,
plus whatever revenue stream PAIX has would probably make an attractive
acquisition for several companies.

The bottom line here is that I think that exchange points will continue to
be technically viable - the Internet traffic that crosses them is substantial,
and not likely to go away any time soon.

hope this helps
jms