ANALYSIS: Addressing the peering problem

23 October 2013 |

The North American internet exchange market has a peering problem that must be addressed. And with a largely fragmented market of internet exchanges in the region that do not offer carrier or data centre-neutral services, something needs to change.

The largest internet exchange in the world, DE-CIX, has taken notice. On September 18 2013, the German company marked the start of its operations in the US with a strategy designed to take a more consolidated approach to peering.

DE-CIX is the first European internet exchange model to enter the North American market, with the launch of a carrier and data-centre-neutral internet exchange in New York.

"It has become obvious that there's some room for improvement when it comes to the internet exchange situation in some of the North American markets," said Frank Orlowski, head of marketing at DE-CIX.

The launch in New York is seen as strategic because it is lacking the ability to reach the entire ISP market, despite the number of internet exchanges operating in the city. The company established a new corporate structure last year, allowing it to expand outside of its home market. It successfully launched UAE-IX in Dubai last year, giving DE-CIX a strong platform to implement a similar change in the US.

"Players that operate these [existing] exchanges [in New York] are not neutral; they're focussed on selling other services such as data centre or carrier services. There's no peer-play internet exchange out there," Orlowski added.

That said, New York is a very different market to DE-CIX's well-established Frankfurt, and the company must prepare for obstacles ahead. There are very few purpose-built data centres in New York and the level of pricing for in-house interconnects could prove an issue.

DE-CIX's US operations have been timed to fall in with the launch of an industry group, the Open-IX initiative, which is designed to support carrier-neutral exchanges across the US. But as well as offering support, the Open-IX initiative has also opened up the US market to other competing internet exchanges – namely DE-CIX's European rival, AMS-IX.

AMS-IX has not announced a time scale for the launch, but a statement on its website confirmed rumours that it too will establish a US presence. Law firm Jones Day has prepared initial structures for the board of directors at AMS-IX and further details are to be announced in due course.

Fractured market
Despite the Open-IX initiative's intention to develop neutral and distributed exchanges in the region, AMS-IX, like its German neighbour, has highlighted a problem area.

"In the US, this is more complicated and higher priced than in Europe, where the neutral and distributed-over-more-than-one-data-centre internet exchange model, that AMS-IX also uses, is more common," the official statement on AMS-IX's website said.

Consequently, it seems the European internet exchange model ticks a lot of empty boxes for North America, and DE-CIX is not the first to notice this. But DE-CIX is unconcerned by any competition inside or outside of the US, and of AMS-IX's plans, Orlowski said that it was their choice where they want to build out to, but DE-CIX is focussing on its own activities.

The decision to start driving its US operations from New York stems from a belief that the city and New Jersey areas are the most broken markets in the US.

"A city like New York, with all the transatlantic activity coming in at the Jersey shore, deserves a little better than having a highly fragmented market and a lot of internet exchanges," Orlowski said.

And DE-CIX is not stopping at New York. There are other markets across the US in need of better internet exchange models, while foreign competition is opening up in the data centre segment, which is good news for building an internet exchange. DE-CIX will move into the San Francisco and Los Angeles data centre markets by 2014 and Orlowski said that areas of interest were those with a distributed carrier-hotel landscape.

Ultimately, DE-CIX is looking to improve the US internet exchange market, by consolidating one fragmented section at a time. A carrier or ISP should ideally be able to connect to a number of networks through one port on one peering platform, and before the end of the year, DE-CIX expects phase one in New York to do just that.

"We want to start a consolidation process which will bring down the total number of exchanges in these metro markets [in the US], in order to generate a more healthy peering environment," Orlowski said.