May 30, 2002 -- Network interconnections will be crucial cost management tools for service providers, according to operators of Internet exchange points, who see a bright future for peering services.
But can that future get here fast enough? Share prices of interconnection providers are languishing below $1 a share, and others are in bankruptcy.
Executives of Internet exchange points say that economic pressures will compel more Internet service providers to seek tighter control over their networks.
"Netflow analysis and traffic relationships are going to become more important to the folks in the green eyeshades," said Tim Guarnieri, general manager of PAIX.net. "I think that pressure will be seen in the next 12 to 18 months."
Despite peering's potential to reduce bandwidth costs, only one out of 20 ISPs currently conduct in-depth analysis of their traffic patterns, according to William Norton, co-founder and chief technical liaison at Equinix Inc., which offers interconnections through its Internet Business Exchange (IBX) data centers.
Norton just completed a two-year research project examining ISP peering practices, and said changing user practices may persuade more providers to beef up their traffic monitoring.
Among them are the growth of Internet file sharing. Norton said several providers were seeing peer-to-peer file-sharing services like Kazaa and Morpheus account for up to 40 percent of their traffic.
"This is a fundamentally new use of the Internet that is costing these guys a lot of money," said Norton.
Interconnection providers are feeling financial pressure as well, getting beat up along with the rest of the telecom industry.
Early this year, shares of Equinix and Universal Access were showing resiliency, trading at $3.50 and $6 a share respectively. This week both are trading below 40 cents a share.
MFN, the parent of PAIX.net, announced its intention to sell PAIX.net for about $50 million, but it's not clear if MFN completed the deal before its May 20 Chapter 11 filing.
Things are worse for "pooling point" operators. Lightrade, which operated seven interconnection facilities, filed for Chapter 7 bankruptcy in March. Another significant pooling point operator was Enron Broadband Services, which shuttered its network after its scandal-plagued parent filed bankruptcy in December.
"It's challenging," said Bob Fischer, Bob Fischer, director of industry intelligence for Universal Access. "The next year's going to be a tightrope act."
But Fischer agreed that the changed environment should help companies that can help providers squeeze more dollars out of their existing networks. That bottom-line approach is reflected in his discussions with industry executives.
"What we're dealing with now is businessmen as opposed to visionaries," said Fischer. "The business people are working with a spreadsheet instead of a PowerPoint presentation."
"Exchange points are crucial to the growth and quality of the Internet," said Guarnieri of PAIX.net. "You're going to see exchange points springing up wherever you have large concentrations of providers."
The focus on interconnectivity has many carrier hotel owners beefing up their meet-me rooms. FiberNet recently completed a new meet-me room at 60 Hudson Street in New York, while Carlyle Realty Group is upgrading the meet-me rooms in its carrier hotels at One Wilshire in Los Angeles and Market Post Tower in San Jose.
Developing peering relationships can be a delicate process, Norton said, and one which ISPs must master if they hope to peer with multiple providers.
"Peering is like a singles dance," said Norton. "If you make an ass out of yourself in the first hour, no one wants to dance with you the rest of the night."