IP Transit Revenues, Volumes Dependent on Peering Trends

July 08, 2014

The IP transit market generated $2.1 billion in revenues in 2013. Sales of circuits connecting customers to Internet hubs contributed an additional $2.5 billion, for a total of $4.6 billion in revenues. Data from TeleGeography’s new IP Transit Forecast Service reveal that future IP transit revenues will be largely dependent on the share of Internet traffic that is connected via transit agreements versus peering.

As Internet service providers worldwide have gradually migrated from purchasing transit to establishing mostly free peering arrangements, the share of global Internet traffic connected via transit agreements declined from 47 percent in 2010 to 41 percent in 2014. As long as this relative decline of transit continues, TeleGeography forecasts that IP transit-related revenues will fall from $4.6 billion in 2013 to $4.1 billion in 2020. If the ratios of traffic routed via transit and peering were to stabilize at current levels, IP transit revenues would increase to $5.5 billion by 2020.

Transit vs. Peering Volume Growth by Region, 2013-2020 IPTFS.png

Source: TeleGeography

TeleGeography anticipates that peering will become increasingly common at the expense of transit as regions that currently rely heavily on transit gain wider access to peering. For example, while African Internet traffic is forecast to grow 36 percent annually over the next seven years, transit volumes will increase by only 28 percent compounded annually, while peering volumes will grow 67 percent—driving down the share of traffic routed via transit from 90 percent in 2014 to 61 percent in 2020.

Whether or not transit’s share of Internet traffic volumes will decline is still a matter of speculation. “While it may seem counter-intuitive for providers to pay for transit when peering relationships have become more widely available, there are hidden costs associated with peering,” said TeleGeography VP of Research Tim Stronge. “When the fixed costs of purchasing a circuit to a peering point and paying for ports, colocation, and various equipment are taken into consideration, operators may find that for low traffic volumes, it is cheaper to simply purchase transit. Similarly, as the price of transit falls, some companies may find it cheaper to forego peering in favor of buying transit.”

TeleGeography’s new IP Transit Forecast Service provides detailed historical data and forecasts of IP transit volumes, prices, and revenues by country and region. 

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