Ask DrPeering

Ask Dr. Peering

DrPeering -

What is the best possible unit cost of traffic exchange I can realize with 100G Peering?

Julie Tinklenberg

----------------------------
The question was also asked at NANOG 49 a few months back and here is a back-of-the-envelope analysis we did at the table to determine the best possible cost for peering exchange.

The Business Case for Peering at 100G (port only)

I asked a couple of IX operators at NANOG what 100G port pricing might be for their planned 100G service.

One IXP said maybe $25K/mo, but maybe as low as $15K/mo. Another IXP said they probably couldn't sell it at $15K and maybe $10K/mo was the likely pricing. The latter IXP said that the pricing of peering ports tends to be 4x the cost for 10x the bandwidth. So with $2500/mo being the market price for 10G ports today, one could expect the price of 100G ports to settle down to about $10K. We will consider each of these prices and continue with simplifying assumptions to facilitate discussions.

Assumptions
Let’s assume that the 100G transport into an IX colocation center is already in place for either transit or for peering. (Remember - we were asked for the best case scenario.)
Let’s assume the 100G IX switch is available and there is plenty of bandwidth.
3) Let’s further assume that the next best alternative to peering at this time is paying a
metered transit rate of $0.63/Mbps (Just for illustration but perhaps not totally unreasonable based on the Transit Pricing Historical and Projected estimates and NANOG discussions.)
4) We will also assume there is enough peering traffic to fill the 100G port.

The model we are working with is shown in Figure 1 below.

Figure 1 - 100G Peering Costing Model

So let’s consider the three price points:
A) 100G peering port is priced to $25,000 per month,
B) 100G peering port is priced to $15,000 per month, and
100G peering port is priced to $10,000 per month.

(We are ignoring the cost of colo, equipment, transport to the IX,
etc. for now - add whatever you like for your modeling.)

With these assumptions we see the (relatively) narrow windows where 100G peering makes sense financially. There are those who are quick to point out the other benefits to peering (better performance, more control over end user experience, marketing benefits, operations impact, etc.), and they are correct.

Figure 2 - 100G Peering Analysis Table

In these case, the Peering Break Even Point is where as ISP is financially indifferent
between sending traffic to its upstream ISP(s) at $0.63/Mbps or
sending that traffic to a peering port with at a fixed aggregate
monthly fee of $25,000, or $15,000, or $10,000 per month.

The Effective Peering Range is the range of peering traffic volume where peering provably makes financial sense. This is a useful metric since, based on the table above, we can say:

“If you can peer 39.7Gbps, I can prove to you that peering at 100G makes sense when the cost of peering is $25,000 per month. Then you can additional traffic, up to 70Gbps, on that peering port and save money doing so.”

“If you can peer 23.8 Gbps, I can prove to you that peering at 100G makes sense when the cost of peering is $15,000 per month. Then you can additional traffic, up to 70Gbps, on that peering port and save money doing so.”

“If you can peer 15.9 Gbps, I can prove to you that peering at 100G makes sense when the cost of peering is $10,000 per month. Then you can additional traffic, up to 70Gbps, on that peering port and save money doing so.”

What is the best cost of peering I can hope for if I fully utilize a
100G peering port?

To answer this question, the best case scenario is that 100G peering costs $10,000 per month, and let's say you can push 70Gbps at the 95 percentile.

So the lowest unit cost is $10,000 per month / 70,000 Mbps = $0.14/Mbps

On the DrPeering Google Groups message board and private discussions, one reviewer said :
“If the best I could do with 100G peering was costing me 25% of the cost of transit, then I would not go the public peering route. I need to save a lot more given the cost and the risk. You should do the private peering analysis as well.”
Yes - if this is really your criteria than you should add to the cost of peering some of the other costs. If you are attending the DECIX Anniversary meeting in Frankfurt August 31, you would like the “100G Peering - Public vs. Private Peering” analysis that we will share.
Another Reviewer said:
“I don't think any analysis without a hardware estimate depreciated over time for their port cost is valid.”
I agree it would be a good analysis to do. We need the find the cost of for 100G Peering kit, and maybe while we are at it, the cost of 100G transport into an IX.
We did this type of analysis for several previous white papers including Business Case for Peering in 2004, The Video Internet: The Next Wave of Massive Disruption to the U.S. Peering Ecosystem and The Great Public vs Private Peering Debate. You know what we found? The amortized cost of the equipment was a pretty small cost component compared to the cost of everything else (transport, transit fees, colocation space, staff, etc.) but we need to do this analysis next.

One final reviewer said :
“Asked a friend how much transit was and he said $0.63 is way below market, that $5 is a good price today, and that is with pretty large volumes - this ISP might be in the camp exploring 100G peering.”
This is a good example of how wide the transit prices range as we mentioned in the Transit Pricing Historical and Projected white paper. If the price of transit is higher, Internet Peering of course looks more attractive. The nice thing about models is that you can easily adjust the numbers to your situation and immediately see the results.

Dr Peering
DrPeering@DrPeering.net
PS -
Another study that might be worth doing would be to compare the case where the service provider in question is NOT already in an IX. One reviewer indicated that in this case the transit pricing of $0.63 is about right but would include the transport circuit to their facilities, while the peering option really needs to include the 100G transport into the IX.The results can be estimated by simply adding the cost of the 100G transport to the port pricing shown above.

Acknowledgements
Thanks to Dave Temkin, Jay Sjoholm, Lane Patterson, Job Witerman, Chris Malayter, Pete Cohen, Joel Hanicott, Pat Bennet-Ramsey, and Alan Hannan for their conversations and insights.

The 100G Internet Exchange Point is coming soon.

When does peering make sense at 100G? What is the best possible cost of traffic exchange? In this article we take a stab at these questions.

Wednesday, August 4, 2010

A 100G Peering Break Even Point Analysis

N E W

The Internet Peering Playbook: Connecting to the Core of the Internet

ISBN: 978-1-937451-00-4

Available Now in print, and as a kindle book on Amazon.com and as an ePub on lulu.com and on the Apple iBookStore.

Abstract: One can understand the protocols, the technologies, and the routing algorithms, but that doesn't tell the story. The Internet is a global ecosystem of cooperating and competing networks, strategically interconnected to maximize performance and minimize costs. If you are operating a growing Internet service, it is essential that you understand how the Internet Peering Ecosystem works at the core.

“...destined to be the Internet Peering Bible” – Jeff Turner, InterStream

“Essential Reading.” – Martin Sanne, SEACOM

“Great foundation in understanding the basis for ISP peering,

their interactions, and provides insight into where those relationships are heading.”

– David Mandel, Cisco Systems

“...the benchmark of the most useful technical workshop ever.”–Jaco Muller

Next