IP transit revenue threatened by peering

Dylan Bushell-Embling
telecomasia.net

Annual global IP transit revenues could fall by around $500 million by 2020 if the trend towards “free” peering arrangements continues, TeleGeography estimates.

Total IP transit revenues were $2.1 billion in 2013, the firm said. Sales of circuits connecting customers to internet hubs contributed an additional $2.5 billion, for a total of $4.6 billion.

But the share of global internet traffic delivered via transit arrangements has declined from 47% in 2010 to 41% this year.

If this decline continues, IP transit related revenues will fall to $4.1 billion in 2020. But should the ratios of traffic routed via transit and peering stabilize at the current level, IP transit revenues will instead grow to $5.5 billion by this time.

Despite the clear trend towards adopting peering arrangements, a fall in IP transit revenues is not a sure thing, TeleGeography VP of research Tim Stronge commented.

“While it may seem counter-intuitive for providers to pay for transit when peering relationships have become more widely available, there are hidden costs associated with peering,” he said.

“When the fixed costs of purchasing a circuit to a peering point and paying for ports, colocation, and various equipment are taken into consideration, operators may find that for low traffic volumes, it is cheaper to simply purchase transit.”

The price of IP transit is also continuing to shrink, meaning operators may soon find it cheaper to forego peering altogether, Stronge added.

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