On Mon, 18 Mar 2002, Jon Bennett wrote:
I am a business school student studying the state of the telecom sector and specifically the Internet infrastructure. I am currently trying to understand the role the IX such as PAIX, Equinix, Telehouse, etc.. will play in the future where the number of service providers is drastically reduced relative to the environment they were created in. I think PAIX is a good example of this. MFN announced today that they were selling off PAIX. I would be interested in hearing thoughts on why anyone would want to buy PAIX and if there is a way to continue to make money selling cross connects in the future.
Good question ;-) You will likely get a lot of different answers to your questions, depending on who answers, and their experiences in dealing with IX operators. My thoughts on the subject are: 1) While the number of service providers (ISPs, MSPs, ASPs, <insert letter for marketing buzzword>SPs, etc) appears to be on the the decline, it stands to reason that the amount of traffic present at an exchange point should remain relatively constant on average, and probably grow. This is because as service providers go out of business or are acquired by other organizations, the traffic that a given provider was carrying either gets displaced by customers taking their traffic/business elsewhere, or the traffic gets borged into the network of the acquiring provider. I base this on empirical observation from my viewpoint as a network engineer at a mid-sized service provider, not on actual observation. Anyone that has done such observation feel free to chime in ;-) 2) The profitability of an IX is tied to the equipment and design methodology in use, and of course the amount of traffic provider X can move on the exchange when they join. Bigger IXs with larger member lists can equate to better business drivers for providers trying to decide where and with whom to peer. Also keep in mind that not all providers peer equally, and some peer more equally than others. Sounds stupid, but it's true. Some of the larger, older exchange points, such as the MAEs (not the old MAEs, mind you), the AADS NAP in Chicago and the PacBell NAP in the Bay Area are based on ATM. Many newer exchange points are based on Ethernet (LINX, Equinix, NYIIX/Telehouse, etc). The cost per Ethernet port in my experience tends to be much cheaper than the cost per ATM port. This can make setting up an Ethernet-based exchange less costly to set up and operate. 3) As time passes, more providers either understand the benefits of peering at an exchange point versus paying ${UPSTREAM} to provide transit for all of their traffic, or their traffic levels grow to the point (see point 1) where peering at ${EXCHANGE} begins to make financial sense. Most providers lack the levels of traffic or the geographic footprint to peer with the big guys (UUNET, Sprint, AT&T, CW, Genuity, etc), who typically build private interconnections with each other in multiple geographically diverse areas. Private interconnects are normally not cost effective for service providers who don't satisfy those criteria, so for them, peering at exchange points is more financially/technically attractive. As for your question re: PAIX, it is a well-engineered exchange point that has been around for a long time, with an extensive member list. That, plus whatever revenue stream PAIX has would probably make an attractive acquisition for several companies. The bottom line here is that I think that exchange points will continue to be technically viable - the Internet traffic that crosses them is substantial, and not likely to go away any time soon. hope this helps jms