Peering into the future: peering and transit are the two most established methods to exchange internet traffic over different carrier networks. But another method is now emerging to challenge the old order—'advanced peering'

Telecommunications International, August, 2003 by John Williamson

Everyone wants to keep their costs down and internet-related companies are no exception. Due to cut-throat competition and pressure on prices and margins, considerable industry attention is focused on simplifying the logistics and reducing the cost of exchanging internet traffic between ISPs, cable operators, content providers and other interested parties.

The two best-established models for internet traffic exchange are peering and transit. Peering is settlement-free, where the traffic exchanged between the parties is deemed to be of equal value. Transit, on the other hand, is paid for--usually on the basis of the traffic volume carried or the capacity provided.

While peering has the advantage of being payment-free, it does have a number of disadvantages. "Negotiating agreements can be difficult with peering, particularly with the larger, more desirable peering partners. And don't forget the fact that peering often has to take place over public peering points which cannot offer service guarantees," observes Keith Mitchell, CTO of European metro area interconnect services specialist XchangePoint.

Herbert Goetsch, director of product management (global IP services) for international IP carrier, Level 3 Communications, argues that the actual cost structure that can be achieved with traditional peering is highly dependent on traffic volume and mix. Taken to the extreme, this type of peering can produce reverse economies of scale through the replication of resources and infrastructure. Goetsch also maintains that the participating networks operate at lower speeds than would otherwise be the case because traffic is spread across many networks. This has the effect of retarding the deployment of higher bandwidth technologies, such as Multi-Protocol Label Switching (MPLS).

Tony Marson, research director at Probe research, suggests that the contractual conditions imposed on the smaller players by the larger ones can be quite onerous, if not impractical, and there's the requirement to co-locate where the partners you want to do business with are. "The smaller players who cannot actually get peering agreements with the larger players will normally have to buy transit," he says.

Transit has a number of things in its favour. Mitchell points out that transit services are usually backed up by formal service-level agreements and that entry-level costs can be quite low. Marson suggests that the interconnect logistics are simplified, too.

On the downside, transit does cost money; and, the price barriers to entry may not be that Low where there is a dominant transit provider in a particular geographic market. Mitchell also reasons that the international transit routing obtained may not be optimal from the customer's standpoint.

It's the way that you do it

Options for peering and transit traffic exchange models include:

* paid peering, which involves fixed connection fees or recurring charges;

* settlement-based peering, where the sender of the largest volume of traffic bills the other party. ; and

* partial routing-based transit, when there is agreement to deliver traffic only to specified parts of the internet.

In partnership with select ISPs, cable operators and content providers, US-based Level 3 has developed a fourth option it calls 'advanced peering'. This is similar to the internet exchange model in which there are virtual links between peers over a shared ATM or ethernet switching fabric. In this case, however, the shared switching fabric is Level 3's MPLS network. In operation, each ISP, cable operator or content company connects to this network wherever convenient. Given the geographic reach of its inter-city and metro network infrastructure, Level 3 says that these connections will likely be fibre-based.

Once connected, each user determines who they want to peer with and enters into bilateral agreements in the same way as with traditional peering. Users then establish virtual links across the MPLS backbone and begin to exchange traffic. Multiple applications and traffic types--internet and non-internet--can be supported by this network.

According to Level 3, advanced peering delivers a number of benefits over traditional models. On the macro 'industry health' level, for example, it's much more efficient to concentrate traffic across fewer networks and achieve higher utilisation levels. These efficiencies, asserts the carrier, will act to accelerate the development and deployment of high bandwidth IP technologies, a phenomenon that in turn fosters further IP unit cost reduction and fuels the growth of additional high-bandwidth applications.

Not advanced pricing

Of perhaps more immediate consequence to ISPs and content providers--on the micro level--is that advanced peering is said to offer lower per transit costs than conventional peering. There are a number of components to this. One is a reduction in access infrastructure. Goetsch offers the example of European ISPs needing to peer with a US partner. "The advantage is they [European ISPs] don't need to set up a peering infrastructure network," he says. "They just need an access port in, say, Frankfurt or London or wherever, and Level 3 connects them to the access port of the peer, say, in San Jose. They don't need a port in San Jose, just a virtual connection to the network. "