The world is demanding more and more public and private interconnections. However, network-dense interconnection facilities are not easily replicated. Still, global competition among colocation interconnection providers is increasing in both small and large markets. The 451 Research report, “Interconnection 101” looks back at how much what they term “interconnection facilities” have grown up and the trends fueling their future expansion.
451 Research points out that interconnection facilities have come a long way from the vendor-neutral “carrier hotels” and “meet-me-rooms” where national telecom providers handed off international traffic to global carriers and network service providers (NSPs) that could physically hook up. These facilities grew into epicenters for Internet service providers (ISPs) to expand their international footprint, adopt new interconnection methods and business arrangements for transferring data between networks (e.g., cross connects, Internet transit and exchanges, private and public peering), and leverage data center services (cooling, power, physical security, disaster recovery, etc.).
Today, cloud service providers (CSPs) are the new kids on the block, taking over primary interconnection real estate and creating dense cloud ecosystems, making it easier for customers to create hybrid and multi-cloud infrastructures. Exchanges, such as the Equinix Cloud Exchange, are now enabling businesses to access multiple clouds faster than it took to initially create a single network connection. For example, more than 50% of the traffic going through trans-Pacific undersea cables is now coming from mega-scale cloud providers, such as Google and Amazon, in order to bypass the public Internet and improve customer interconnection performance.
According to 451 Research, interconnection has become a compelling business, and network-dense facilities are gaining in value. As this market sector matures, it is also in the process of consolidating to increase its worldwide NSP, ISP and CSP density. Those facilities in multiple global markets have a competitive advantage, especially if their customers can monitor everything from a single portal under the same contract.
Network neutrality is also impacting the interconnection business. Primarily a country-specific regulatory issue, the concept that all traffic running over a network should be treated equally, without giving priority to content providers or customers that pay higher rates, seems extremely democratic. However, some ISPs feel that they are carrying too much traffic for particular partners (e.g., streaming video content providers such as YouTube and Netflix), and this imbalance has led big broadband providers (e.g., Verizon, AT&T, etc.) to charge for unregulated, private peering ports.
The evolution of interconnection – trends and disruptors
451 Research sees a number of factors driving the evolution of interconnection within the digital economy, including:
- Continued growth of Internet and cloud traffic, but with the added requirement of high- performance and secure interconnection
- Increased numbers of people, companies and things interconnecting via various devices and accessing dynamic applications and rich media content on demand
- Growing requirements for lower-latency, high-performance connectivity at the “edge” from the Internet of Things, mobile, content delivery, and services such as PaaS, IaaS and SaaS
- Software-defined networking and network function virtualization providing more innovative network services through programmable network services, reducing the need for a large number of physical interconnections
451 Research also believes interconnection services that deliver network speed and reliability will increase and the demand for interconnection facilities will continue to grow globally, especially as content gets pushed further to the edge of the Internet. They see some important business model shifts coming, particularly as the cooperative, non-privatized European interconnection model grows in popularity in the United States. As these and many other trends continue to evolve, 451 sees the interconnection business continuing to grow and multitenant data center providers justifying the cost premium for their added-value services.