(possible Flame bait) Backbone Building vs Transit purchasing

Fri Mar 21 00:09:09 UTC 2003

At 06:27 PM 3/21/2003 -0500, alex at yuriev.com wrote:

> > > *IS* there a common sense number or an equation (better) anyone has 
> worked
> > > out to figure whether building a backbone (national/international) to
> > > peering points (i.e. extending an existing, operational service 
> network) to
> > > improve/add peering vs continuing to buy transit?

Take a look at the financial models in:
http://arneill-py.sacramento.ca.us/ipv6mh/ABusinessCaseforISPPeering1.2.pdf

> >
> > If you are assuming that this is not about performance then surely this 
> is a
> > very simple thing to work out?
> >
> > Cost of transit T = cost of transit/committed Mbs
> > Cost of peering P = (cost of: circuits+routers+colo+nap)/Mbs of actual 
> traffic
> >

Right - the comparison can get a little tricky because
1) Transit is typically charged on the 95th percentile measure of Megabits 
per second, vs. peering, which as you will see, is a monthly recurring, not 
a Mbps.
2) Transit fees vary depending on the commit rate (50Mbps, 100Mbps, etc.) 
and terms of the agreement (6mo, 1yr, 2yr, etc.)

while peering costs are

1) Monthly Recurring circuit, colo, port and cross connect costs
<sometimes with Non-Recurring installation charges, and cheaper if you go 
for a longer contract term>, and
2) Capital (Router) costs are typically allocated across a number of 
periods based on financial standards

In "The Business Case for Peering" I ignored capital (router costs) as they 
were highly variable across the different ISPs I spoke with. Everyone had a 
different kit.

In the "Do ATM-based Internet Exchange Points Make Sense Anymore?" white 
paper I spoke with more Peering Coordinators, made some assumptions based 
on their suggestions, and added the capital costs into the equation:

http://www.deliandmarshall.com/docs/ATM-based.pdf

The good news is that transport prices have dropped like a rock, with cut 
throat competition in the metro markets. Transit has also dropped 
substantially, while IX fees seem to have remained about flat. You have to 
get your own #'s and do the math, but the above papers can give you a good 
start, and the transport/ transit/IX fee #'s in this last paper are pretty 
recent (October 2002).

> > If P>T go and push your network out to the peering point it will save 
> you money.
> >
> > Now.. at present your problem is that T is very low, and certainly 
> lower than P
> > unless you are moving quite a lot of traffic.. 1Gb is a lot of traffic, 
> so all
> > you need to do is to figure out the costs in getting to a NAP and how much
> > traffic you can shift.
>
>[skip]
>
>You are forgetting:
>
>salaries
>depreciation
>leases
>IRU
>financing expenses

As for salaries, I spoke with the Peering Coordinator community about this 
and there was some debate about this, with some claiming that once the 
peering is set up, there is very little to do, so not much staff time was 
required to care and feed for the session. The claim was that the NOC was 
capable of servicing the needs of the peering session and 2nd level support 
was already in place if they couldn't. So the salaries were already covered 
in the network engineering budget.

Others claimed that Peering is a local routing optimization, and in the 
worst case, it fails, they turn it off, and they go back to buying transit 
to reach those routes.

>...
>
>etc etc etc
>
>
>Alex