How Service Providers are Using Interconnection to Go Digital

Bill Long
How Service Providers are Using Interconnection to Go Digital

Digital transformation is not just hitting enterprises, it is also impacting the service providers that support them. For network, cloud, SaaS, content and other service providers to best meet the needs of their enterprise customers, they must stay ahead of the digital curve. This means it’s important to access business ecosystems that support a productive digital supply chain, as well as directly and securely connect to customers, to deliver the highest quality of service (QoS).

The Global Interconnection Index, a market study published by Equinix, shows how service providers are leveraging private interconnection to enable digital businesses across all industry segments to connect to each other. It also indicates how vital interconnection is for digital businesses to exchange traffic to scale their business. This new data on how service providers are anticipated to harness interconnection will help them better target specific industries and plan ways to expand and grow their businesses around the world.

Enterprise and service providers interconnection use cases

Service providers should be heartened by the findings from the Global Interconnection Index. They illustrate high growth rates in enterprises interconnecting to service providers solutions by measuring the estimated installed Interconnection Bandwidth capacity between 2016 – 2020. Interconnection Bandwidth is defined as the total capacity provisioned to privately and directly exchange traffic with a diverse set of counterparties and providers at distributed IT exchange points.

The total installed Interconnection Bandwidth capacity for enterprises connecting to service providers by 2020 is estimated to be as much as 2,926 terabits (Tbps), with a 57% compound average growth rate (CAGR). Network and cloud and IT service providers stand to gain the most enterprise business, with Interconnection Bandwidth capacity between enterprises and these providers is expected to grow annually at 52% (network) and 160% (cloud and IT). By 2020, 68% of the total interconnections established by enterprises are expected to be with network service providers (NSPs).

When you look at what service providers are interconnecting to, you see some trends they have in common with the enterprises they support (see diagram below). For example, the top service provider interconnection use cases are:

  • NSPs extending network coverage and scaling for digital. As with enterprises, interconnection between service providers and NSPs could make up the biggest percentage of interconnection use cases by 2020, at a 71% CAGR.
  • Cloud and IT service providers gaining cloud-native digital services. This is expected to be the fastest growing service provider interconnection use case, at a 70% CAGR by 2020.
  • Content providers enabling rich digital experiences for their customers. As digitization is transforming the content production and distribution value chain, this is estimated to be the next fastest growing service provider use case at a 49% CAGR, with an Interconnection Bandwidth capacity growing to 170 Tbps by 2020.
  • Financial services providers digitally transacting or exchanging payments, and interacting with supply chain partners. Increasingly, financial services firms are digitally collaborating with these business counterparties in real time, growing Interconnection Bandwidth capacity at an estimated 34% and 33% CAGR, respectively, by 2020.

What Service Providers are Interconnecting to Between 2016 – 2020

The industry mix for service providers

Digital is disrupting all industries, forcing companies to transform their business and IT infrastructure strategies to compete. This means that service providers need to look to interconnection within every industry to make inroads to sell their digital services. For example, the diagram below illustrates the top five industry installed Interconnection Bandwidth capacity trends for service providers by 2020:

  • Banking and insurance is anticipated to be the largest growth area at 61% CAGR, reaching 955+ Tbps.
  • Telecommunications and cloud and IT services are expected to grow 27% and 39% CAGR, respectively, and reach 826 and 820 Tbps.
  • The manufacturing sector is estimated to grow 54% per annum to 540 Tbps.
  • Securities and trading could grow as much as 41% annually to 474 Tbps.

Emerging high-growth segments include business & professional services, energy, retail and healthcare, and these are expected to grow their use of Interconnection Bandwidth capacity by an average of more than 66% by 2020.

How service providers can harness an interconnection-first strategy

Any service provider needs proximity to business ecosystems of partners, suppliers and customers to deliver a high QoS for its digital services. However, connecting to other digital services and customers in distant locations is a requirement for a service provider’s growth and survival in today’s global digital economy, even if the service provider wants be remain in a specific geography.

Service providers can accomplish both proximity to business partners via low-latency connections and expand their global presence for greater growth by deploying an interconnection-first approach, such as the one prescribed by an Interconnection Oriented Architecture™ (IOA®) strategy. An IOA strategy is a proven and repeatable architectural framework that both enterprises and service providers can leverage to directly and securely connect people, locations, clouds and data. Unlike rigid, siloed legacy architectures, an IOA framework is dynamic and distributed and relies on more agile interconnection technologies, such as software-defined networking (SDN).

Our Equinix Cloud Exchange™ (ECX) Fabric, deployed on Platform Equinix™, is an example of an IOA-based platform. It provides service providers and enterprises with lower-latency, SDN-provisioned virtualized connections to dynamically connect IT infrastructures across Equinix North America and EMEA locations, or connect to customers on the Equinix global platform.

The ECX Fabric gives services providers access to opportunities and global markets that were previously out of reach. In fact, service providers can gain on-demand, consistent connectivity to existing and new customers and partners through Platform Equinix, which currently spans more than 190 IBX data centers in 48 markets and includes 9,500+ of the world’s leading businesses.

Read more about how your digital business can take advantage of new opportunities through interconnection by downloading the Global Interconnection Index.

You may also be interested in reading more about our Equinix Cloud Exchange™ (ECX) Fabric and how to deploy an IOA strategy for your digital business by going to our IOA Knowledge Base.