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A Core Group of Specialists are Serving Most of the IP Transit Market

Pricing

By Brianna BoudreauOct 10, 2017

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IP transit providers face a formidable mix of unrelenting price erosion, peering alternatives, and brisk volume growth with evolving traffic patterns.

This has shaken all but the most committed operators out of the market, beyond a few opportunities that present a clear competitive advantage or complement other lines of business.

The result? A core group of specialists are serving most of the market.

One approach to sustaining an IP transit business is to embrace the large scale and growth required to keep unit costs on pace with price erosion, particularly in global transit hubs where prices are lowest. Another is to leverage global network access or local competitive advantage to serve emerging markets where prices are higher.

Owning a robust transport network underlies both of these approaches, as internet traffic ultimately traverses transport links and comprises a large proportion of transit cost in markets that “backhaul” to transit hubs for global internet access.

One approach to sustaining an IP transit business is to embrace the large scale and growth required to keep unit costs on pace with price erosion.

Another challenge for the transit market is substitution for peering.

Although settlement-free peering isn’t without cost, it reduces transit spending, and affords a direct connection with the peer’s internet users. The price of paid peering likely will yield a more compelling value than reaching the peer’s users via transit. An irony of transit price erosion is that it yields low prices that are competitive with peering costs. Customers with very large purchase volumes or traffic profiles that complement the supplier’s network operation garner the lowest transit prices. These customers are also the most likely peering candidates.

In addition, an increasing share of traffic is destined for a small number of content providers. ISPs are able to directly connect to these content providers to handle large tranches of traffic rather than reach them via transit suppliers.

Beyond the largest content network operators, however, the total cost and flexibility of transit remains a compelling option versus the operational and capital costs of self-provisioning and managing a global network. 

Beyond the largest content network operators, however, the total cost and flexibility of transit remains a compelling option versus the operational and capital costs of self-provisioning and managing a global network. Particularly for those companies seeking high performance transit with little appetite to take on the business of network operation in house.

More content companies will continue to multiply and grow, seeking more transit before considering self-provisioned networks. For the time being, IP transit remains an essential means for ISPs and content providers around the world to achieve global connectivity.

 

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Brianna Boudreau

Brianna Boudreau

Brianna is a Senior Analyst at TeleGeography. Brianna is part of our pricing team and specializes in pricing analysis for international private line, IP Transit, and Enterprise products.

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