In April I joined the 14th edition of the Global Peering Forum (“GPF”) in Montreal. This is a conference where about 300 representatives from internet service providers, content providers (hosting companies, hyperscalers, content delivery networks), internet exchanges and data centers come together to discuss how to further improve and lower costs of IP interconnection (the way internet traffic is exchanged and routed between networks). The 3-day conference is a combination of presentations, formal 30-minute meetings and informal “socials” (cocktail receptions where the real decision making and exchange of market updates take place).
Consolidation and exploding traffic volumes
A significant trend influencing IP interconnection is consolidation. In most countries there are only 2 or 3 major providers left, both in the markets for mobile and fixed internet access services. On the content side, there is also a lot of concentration: over 80% of the internet content traffic is now generated by less than 10 companies (Netflix, Google/YouTube, etc.).
This consolidation drives the trend that traffic between those networks is increasingly exchanged via private peering (or PNI’s – Private Network Interconnections) – where the networks of the large content providers are connected directly to the large access networks, bypassing internet exchanges and avoiding the use of Tier 1 internet backbones. This trend comes hand-in-hand with an attempt of the large access networks to have content providers pay them for the (exploding video) traffic that their end users have requested – in an effort to have the content providers co-finance the capacity upgrades in the access networks.
It is especially the large access networks that have invested big time in global internet backbones that play this game (e.g. the largest German telecom company), resulting in the fact that streaming a movie to their end users is > 5 times more expensive than serving the same movie to any other European citizen. And if the company that hosts or owns the content is not willing or able to pay that price, the end user experience of that content will be significantly worse (so no HD video and “lag” in your games…).
Other large access networks with global backbones seem to have slowly moved away from this attitude (e.g. the large French, Spanish and Italian telecom companies), doing their end customers a big favor. On the other end of the scale, we see access networks that previously had open interconnection policies (peering on internet exchanges, open to private peering) gradually forcing content providers to pay. This is done either by selling access to their networks (e.g. a large Pan-European cable company) or by forcing parties to connect to an internet exchange that they happen to own (e.g. the largest Dutch telecom company which also happens to own an Internet Exchange; at the same time they are moving away from the neutral membership based AMS-IX – Amsterdam Internet Exchange).
At Leaseweb we pursue an open peering policy – and we are open to peer with any network where it contributes to better quality and/or lower costs, either through private peering or through public peering via the 35 internet exchanges to which we are connected.
The changed role of the internet exchange
With large access and content networks moving towards private peering, internet exchanges are moving towards serving “the long tail”: the medium and small size access networks and content providers. This trend, in combination with continued aggressive price decline for IP Transit services (“the alternative for peering”), puts pressure on the business model for these exchanges – especially for the larger ones (e.g. AMS-IX, DE-CIX, LINX), who in the past 10 years had got used to double–digit annual growth without an aggressive sales or cost focus.
Some exchanges address these challenges by becoming a distributed exchange, connecting networks in different cities in a country (e.g. France-IX, now connecting Paris and Marseille, or DE-CIX) or even connecting networks in different countries (e.g. NL-IX – who seem to be sharpening their focus on Netherlands, Belgium, France, Germany and Denmark). AMS-IX has taken another approach: at GPF it announced a cooperation with Batelco in Bahrein (in which Batelco outsources operations of a new Internet Exchange to AMS-IX, deploying the AMS-IX “IX-as-a-Service” offering). Right after GPF AMS-IX announced a partnership with Epsilon Telecommunications for its activities in the US, in which Epsilon takes over the AMS-IX US customers and infrastructure, but outsources the operation of those activities to AMS-IX (also using the IX-as-a-Service offering). AMS-IX‘ efforts to lower effective cost of operation by increasing scale with standardized offerings, without owning the commercial risk of operating in many geographies, seems to be paying off here.
Another battle for the established internet exchanges is the entry of new exchanges in established markets, either from small players with innovative low-cost automated platforms (e.g. Astroid) or from established data center players who try to lock their customers into their data centers with an increased focus on interconnection services (including internet exchanges – e.g. Equinix). At Leaseweb we aim to stay as independent as possible, so we only use the interconnection services of a data center if there is no other choice, which works well in Europe – but is a challenge in the US and APAC.
US Net Neutrality developments
In the same week as GPF, the House of Congress in the US passed the “Save the Internet Act” bill that aims to restore the Obama-era net neutrality rules of 2015, which was repealed by the FCC (Federal Communications Commission) in 2017 – under direction of the Trump administration.
These net neutrality rules included “no blocking”, “no throttling” and “no paid prioritization” guidelines for internet access providers and put the obligation to ensure sufficient interconnection capacity (peering, transit) with these access networks (especially the large cable networks and telecommunication companies like Comcast, AT&T and Verizon). At the time this resulted in significant improvements in the end user experience and a significant decrease in the costs for content providers.
It is expected that the US Senate, where Republicans are in control, will not pass the bill (although a growing number of Republicans support net neutrality) and, even if they would, the White House has already declared that president Trump would veto the bill if it would pass the Senate. This hasn’t dissuaded net neutrality advocates from encouraging people to contact their senators though.
At Leaseweb, we closely follow these developments and we stay in close touch with the Tier 1 backbones that provide us with IP Transit services that we use to reach the large US access networks. Most of them seem to have contracts in place to ensure timely capacity upgrades, but we have a longer–term concern that we may return to the pre-2015 era, resulting in higher costs and lower quality for content served to US consumers.
Global subsea capacity expansion – who pays the bill
As not everyone may know, the majority of intercontinental internet traffic is exchanged through subsea cables (so not via satellite). One of the presentations at GPF provided an interesting update about investments in subsea cable systems around the world – by TeleGeography.
Up to 5 years ago, the large Tier 1 internet backbones (CenturyLink/Level 3, Telia) were the major investors in (or customers of) new cable systems, it is now the hyperscalers and social networks that dominate usage and the investments. It is mind–boggling how much capacity is being built across the Atlantic to exchange data between the server farms of e.g. Google and Microsoft. According to TeleGeography, 83% of the current Transatlantic capacity is used by these large content providers (and 54% of all global subsea capacity….).
There are continued investments across the Pacific and Atlantic (e.g. Google deploying its 250 Tbps “Dunant” cable between France and the US), but also between Africa and Latin America, Europe-Middle East-Asia, along the East coast of Latin America and the US. There’s only a small amount of investment so far along the west coast of Africa and Latin America.
The Global Peering Forum conference gave us good insight into global developments and provided us with the information we need to make the right choices in IP interconnection – enabling us to keep our leading position of providing the best performance at the lowest possible costs.
Bart van der Sloot is Managing Director of Leaseweb Network – the team that manages all IP Interconnection activities at Leaseweb. In addition to this, he is the Chair of the Executive Board of the AMS-IX (Amsterdam Internet Exchange). Views and opinions are mine and may not reflect Leaseweb’s or AMS-IX’s positions.