Interconnection Strategies for
ISPs
William B. Norton
Co-Founder, Director of Business Development
<[email protected]>
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
Content
model comparison
Providers
Neutral Internet
Business Exchange
• Infrastructure
Model
• Neutrality
Internet Services
• Facilitation
Companies
• Players
Carriers
Direct Circuit Interconnection Strategy
Point-to-point circuits for ISP interc onnec tion
for regional presenc 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:
S
S
S
S
G
G
G
G
U
U
U
U
A
A
A
A
C
C
C
C
ISPXCCost=(n-1)*CircuitCost()/2
Exchange-Based Interconnection
Model
Direct circuits replaced with:
•OC-12 into Exchange
•Fiber cross connects
OC-12
S
S
S
S
G
G
G
G
S
OC-12
G
Cost Drivers:
OC-12
U
U
U
U
U
•Big OC-12 Direct Circuit
•Cheap Fiber Cross Connects
OC-12
A
A
A
A
A
•Aggregation Efficiency over
OC-12 (2:1,3:1)
OC-12
C
C
C
C
•RackXC Fees
C
Cost Formula:
ExchangeModelCost=BigDirectCircuit()+(n-1)*x/2+RackXCFees()
Cost Comparison at n=5
OC-12
costDCfn()=(n-1)*C/2
C=OC-3 @ $11,400
n=5
costDC=(4)*$11,400/2
costDC=$22,800/mo
S
S
S
S
G
G
G
G
U
U
U
U
A
A
A
A
C
C
C
C
S
OC-12
G
OC-12
OC-12
U
A
OC-12
C
costExchfn()=BDC+(n-1)*x/2+Racks
BDC=OC-12 @ $23,000
n=5, 1 Rack@$1500
costExch=$23,000+(4)(200/2)+$1500 More expensive to use Exchange-Based
Interconnection Strategy at n=5. N>5?
costExch=$24,900/mo
Cost Savings:Exchange-based vs.
Direct Circuit Cost Model
At low n, cost of
big circuit is greater
than half-circuit
costs.
$200,000
$150,000
$100,000
$50,000
($50,000)
# of exchange partners
Aggregation kicks in…
efficiency @ 2:1 (to 3:1)
Dynamics accelerate as BW requirements grow…
Today’s quotes->Monthly savings can get huge
64
61
58
55
52
49
46
43
40
37
34
31
28
25
22
19
16
13
10
7
4
$0
1
Monthly Cost Savings
Steps represent
incremental
circuit growth
required for
interconnection.
Cost Savings of Exchange Point Interconnection over Circuit-based
Interconnection Strategy
Exchange-based applying
DWDM over dark fiber
Facilities-based
providers win big!
Cost Savings of Dark Fiber Exchange point ISP
Interconnection
$250,000
$200,000
$150,000
$100,000
$50,000
($50,000)
Aggregation back to net
Number of Exchange Participants
61
57
53
49
45
41
37
33
29
25
21
17
13
9
$0
1
Seamlessly scale BW
within exchange to
other ISPs/CPs
$300,000
5
Seamlessly scale
BW into exchange
Cost Savings compared against direct
circuit interconnects
$350,000
Direct Circuit vs. Exchangebased Interconnection Strategies
Cost Comparison of Interconnection Strategies
$400,000
Direct Circuit-based Scaling
Exchange-based with Big Circuits
Monthly Cost of Interconnection
$350,000
$300,000
$250,000
$200,000
$150,000
Exchange-based
with Dark Fiber
$100,000
$50,000
64
61
58
55
52
49
46
43
40
37
34
31
28
25
22
19
16
13
10
7
4
$-
1
BW Scaling:
DC: Linear
BC: Stepped Linear
DF: Linear Efficient
# of participants
But this ignores a key aspect of the exchange model...
IX Revenue Generation Potential
S
S
S
S
OC-12 or
Dark Fiber
S
OC-3s
G
G
G
G
G
Transit
Customer
Large
Content
Regional
ISPs
Content
Host er
U
U
U
U
U
ISP Point of
Presence
Int ernat ional
Presence
A
C
A
C
A
C
A
A
Rack Space for
Collocation Customers
C
C
Transit Revenue Projections
Attachment
Speed for
# Transit New Transit
Sales
Customer
6 DS-3
1 OC-3
Revenue to
ISP per New
Customer
per Month
$65,000
$120,000
Monthly
Revenue
from
Participation
$390,000
$120,000
Annual
Incremental
Revenue:
Total Annual
Revenue
from
Participation
$4,680,000
$1,440,000
$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?
DSL Access Providers
Wireless Access Svc
Dial-in Modem
Operators
USENET Svcs Virtual
E-Mail Svcs
ISP
WebHost Svcs
Search
Engines Cache/Content
Distribution
Sparing
Service Providers
Internet
Service
Provider
Internet
Service
Provider
Internet
Internet
Service
Service
Provider
Provider
Carrier
Carrier
Carrier
Carrier
Carrier
Carriers
MarketPlace: Stratification of component operations, fast creation &
provisioning of packaged operations services
Implication: IXP  Content Sources, bandwidth demands
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: [email protected]
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)
Direct Circuit
Interconnect Model
S
S
S
Questions?
S
OC-12 or
Dark Fiber
Exchange-Based
Interconnection Model
S
OC-3s
G
G
G
G
G
Transit
Customer
Large
Content
Regional
ISPs
Content
Host er
U
U
U
U
U
ISP Point of
Presence
Int ernat ional
Presence
A
C
A
C
A
C
A
A
Rack Space for
Collocation Customers
C
C
White Paper: [email protected] (or Business Card)