Interconnection Strategies for ISPs

William B. Norton

Co-Founder, Director of Business Development

<wbn@equinix.com>

NANOG 16 - Eugene, Oregon 24-May-99 © Equinix, Inc. 1999

Research Focus

• Interconnection Strategies :

Direct Circuit Interconnect Model vs.

Exchange-based Interconnection Model

• When do each of these make sense?

• Based on current practices, existing or soon to exist technology

• White Paper & Financial Model

Neutral Internet Business Exchange Model

• Basis for Exchange-based model comparison

• Infrastructure

• Neutrality

• Facilitation

• Players

Carriers

Internet Services Companies

ContentProviders Neutral Internet

Business ExchangeModel

Direct Circuit Interconnection Strategy

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Po int-to -p o int c irc u its fo r ISP inte rc o nne c tio nfo r re g io na l p re se nc e

Cost drivers:•Circuit sizes (c)•Circuit miles (m,loc)•CircuitCost=fn(c,m,loc)•# of participants (n)(1/2 cost paid by each party)

Direct Circuit Cost Function:

ISPXCCost=(n-1)*CircuitCost()/2

Exchange-Based Interconnection Model

Direct circuits replaced with:•OC-12 into Exchange•Fiber cross connects

Cost Drivers:•Big OC-12 Direct Circuit•Cheap Fiber Cross Connects•Aggregation Efficiency over OC-12 (2:1,3:1)•RackXC FeesCost Formula:

ExchangeModelCost=BigDirectCircuit()+(n-1)*x/2+RackXCFees()

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OC-12

OC-12

OC-12

OC-12

OC-12

Cost Comparison at n=5

costDCfn()=(n-1)*C/2 C=OC-3 @ $11,400n=5costDC=(4)*$11,400/2costDC=$22,800/mo

costExchfn()=BDC+(n-1)*x/2+Racks BDC=OC-12 @ $23,000n=5, 1 Rack@$1500costExch=$23,000+(4)(200/2)+$1500costExch=$24,900/mo

More expensive to use Exchange-BasedInterconnection Strategy at n=5. N>5?

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OC-12

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Cost Savings:Exchange-based vs.

Direct Circuit Cost ModelCost Savings of Exchange Point Interconnection over Circuit-based

Interconnection Strategy

($50,000)

$0

$50,000

$100,000

$150,000

$200,000

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# of exchange partners

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At low n, cost ofbig circuit is greaterthan half-circuitcosts.

Steps representincremental circuit growthrequired for interconnection.

Aggregation kicks in…efficiency @ 2:1 (to 3:1)

Dynamics accelerate as BW requirements grow…Today’s quotes->Monthly savings can get huge

Exchange-based applying DWDM over dark fiber

Cost Savings of Dark Fiber Exchange point ISP Interconnection

($50,000)

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61

Number of Exchange Participants

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Facilities-basedproviders win big!

Seamlessly scaleBW into exchange

Seamlessly scale BWwithin exchange toother ISPs/CPs

Aggregation back to net

Direct Circuit vs. Exchange-based Interconnection Strategies

BW Scaling:DC: LinearBC: Stepped LinearDF: Linear Efficient

Cost Comparison of Interconnection Strategies

$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

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# of participants

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Direct Circuit-based Scaling

Exchange-based with Big Circuits

Exchange-based with Dark Fiber

But this ignores a key aspect of the exchange model...

IX Revenue Generation Potential

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O C -3s

O C - 1 2 or D ark F iber

TransitC ustom er

LargeC ontent

RegionalISPs

C ontentH oster

ISP Po in t o fPresence

Internat ionalPresence

R ac k S p ac e fo r C o llo cation C us to m ers

Transit Revenue Projections

# Transit Sales

Attachment Speed for New Transit Customer

Revenue to ISP per New Customer per Month

Monthly Revenue from Participation

Total Annual Revenue from Participation

6 DS-3 $65,000 $390,000 $4,680,0001 OC-3 $120,000 $120,000 $1,440,000

Annual Incremental Revenue: $6,120,000

Financial Model Assumptions •65 participants (5 carriers, 10 Autonomous Content Providers, 50 ISPs)•Revenue & Projections figures based on interviews and participation modeled from PAIX•Assuming zero growth in bandwidth demand through period•Sufficient bandwidth into exchange to accommodate load

The Point: Incremental Revenue Generation not possible with Direct Circuit Model

Source: Dave Rand Interview (DS3:UUNet=$65,000/GTE=$70,000/mo), UUNet Src: OC-3=~$120K/mo

Future of the IXP?

MarketPlace: Stratification of component operations, fast creation & provisioning of packaged operations servicesImplication: IXP Content Sources, bandwidth demands

DSL Access Providers

Dial-in Modem Operators

E-Mail SvcsUSENET Svcs

WebHost SvcsSearch Engines Cache/Content

DistributionCarrier

InternetServiceProvider

Carriers

Carrier

CarrierInternetServiceProvider Carrier

CarrierInternetServiceProvider

Service Providers

InternetServiceProvider

Wireless Access Svc

VirtualISP

Sparing

Conclusions• Direct Circuit Interconnection Strategy makes sense for

interconnection among ~5 or fewer parties• Aggregation and Optical efficiencies lead to tremendous cost

efficiencies by using big circuits into exchange• Facilities-based providers win big applying DWDM into exchange

• Large bandwidth (OC-12) for interconnections and/or large # of participants exhibit good scaling properties for exchange-based

model • Incremental transit sales possible in exchange-based model• White paper available -- comments welcome Business Cards or e-

mail to: wbn@equinix.com

Special Thanks To:Ted Hardie (Equinix)

Bill Woodcock (Zocalo)

Pat Binford-Walsh (UUNET)

Lauren Nowlin (______)

Vab Goel (Qwest)

Joe Payne (IXC)

Jeff Rizzo (Equinix)

Bill Manning (USC/ISI)

Jeff Payne (Real Networks)

Bill Maggs (Inktomi)

My Mom

Peter Lothberg

Rodney Joffe (Centergate)

Dave Rand (AboveNet)

Steve Feldman (WorldCom)

Paul Vixie (M.I.B.H., LLC)

Dave O’Leary (Juniper)

Tony Bates (Cisco)

Ian Duncan (Nortel)

Stephen Stuart (M.I.B.H., LLC)

David Conrad (ISC)

Doug Humphrey (SkyCache)

Questions?SSS

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O C -3s

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TransitC ustom er

LargeC ontent

RegionalISPs

C ontentH oster

ISP Po in t o fPresence

Internat ionalPresence

R ac k S p ac e fo r C o llo cation C us to m ers

Direct Circuit Interconnect Model

Exchange-Based Interconnection Model

White Paper: wbn@equinix.com (or Business Card)