GLOBAL INTERNET GEOGRAPHY EXECUTIVE SUMMARY

Executive Summary
TeleGeography’s Global Internet Geography Research Service provides analysis and statistics on
internet capacity and traffic, IP transit pricing, and backbone operators. International internet
bandwidth and traffic growth has gradually slowed in recent years, but remains brisk, increasing at
a compound annual rate of more than 30 percent between 2013 and 2017. IP transit price declines
continue globally, but significant regional differences in prices persist around the world.

Internet Traffic and Capacity

International internet capacity growth rates have fallen steadily for many years, and annual growth
rates have lately settled in the low-30 percent range (see Figure: International Internet Bandwidth
Growth, 2013–2017). But even with the declining pace of growth, 196 Tbps of new international
internet capacity was deployed between 2013 and 2017, bringing global international internet capacity
to 295 Tbps.

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FIGURE 1
International Internet Bandwidth Growth, 2013–2017

Notes: Data represent internet bandwidth connected across international borders as of mid-year. Domestic routes are
excluded.

Source: TeleGeography © 2017 PriMetrica, Inc.

Of the 295 Tbps of international internet capacity, 98 Tbps was inter-regional, while 196 Tbps
connected countries within each of the major world regions. Since TeleGeography began tracking
international internet capacity in 1999, the highest-capacity inter-regional route had always been
Europe-United States & Canada. This changed in 2013 as capacity on the Latin America-U.S.
& Canada route exceeded the Europe-U.S. & Canada route. In 2017, the Latin America-U.S. &
Canada route extended its lead, expanding 28 percent to reach 29 Tbps (see Figure: Inter-Regional
Internet Bandwidth, 2017). This shift may seem surprising, but Latin America’s international internet
bandwidth is almost completely connected to the U.S. & Canada, whereas Asia and Europe have their
inter-regional capacity spread among other routes, in addition to considerable levels of intra-regional
capacity. Also, the considerable deployment of private network capacity by large content providers
across the Atlantic and Pacific appears to have dampened the growth of internet capacity on these
routes.

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FIGURE 2
Inter-Regional Internet Bandwidth, 2017

Notes: Data as of mid-2017.

Source: TeleGeography © 2017 PriMetrica, Inc.

The pace of new international internet capacity deployments varies by region. Africa experienced
the most rapid growth of international internet bandwidth, growing at a compound annual rate of
44 percent between 2013 and 2017 (see Figure: International Internet Bandwidth Growth by Region,
2013-2017). The Middle East was just behind Africa, rising at a 42 percent compound annual rate
during the same period.

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FIGURE 3
International Internet Bandwidth Growth by Region, 2013-2017

Notes: Data as of mid-year.

Source: TeleGeography © 2017 PriMetrica, Inc.

In recent years, a small group of content providers have captured an increasing share of traffic and
migrated it to their own international networks. Content networks have grown faster than internet
backbones, and account for their slowing growth. This impact is most acute on the trans-Atlantic
and trans-Pacific routes, but also within Asia and Europe. Content providers have been particularly
aggressive in increasing their presence at major peering locations as they expand their global
networks. Amazon, Facebook, Google, and Microsoft offer public or private peering in a wide array of
regions. As a result, many internet backbone operators are focused on bolstering capacity to locations
such as Marseille and Singapore where they can connect directly to content providers’ networks.

Prices
IP transit prices continued their downward trajectory in 2017, and prices in high-growth, high-price
markets converged with more established hubs. In London, New York, São Paulo, and Singapore, 10
GigE prices fell an average of 29 percent between Q2 2016 and Q2 2017, and 28 percent compounded
annually since Q2 2014. Price reductions were most significant in high growth markets such as São
Paulo and Singapore, with 10 GigE prices dropping 36 and 33 percent, respectively, compounded
annually since 2014. In well-established internet hubs such as London and New York, price erosion
was less pronounced, with 10 GigE prices declining 22 percent compounded annually since 2014.

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FIGURE 4
Weighted Median 10 Gbps IP Transit & Wavelength Prices on Major
International Routes, Q2 2017

Notes: Each line represents the weighted median monthly lease price for an unprotected 10 Gbps wavelength on an
individual route. Each circle represents the weighted median monthly price per Mbps for a 10 GigE IP transit port in the
listed city. Routes and cities are shaded corresponding to price, from least expensive in blue to most expensive in red.
Prices are in USD and exclude local access and installation fees. 10 Gbps & 10 GigE = 10,000 Mbps.

Source: TeleGeography © 2017 PriMetrica, Inc.

While prices have declined and converged globally, significant geographic differences persist. Prices
are lowest in Europe and the U.S., which serve as critical international traffic hubs (see Figure:
Weighted Median 10 Mbps IP Transit & Wavelength Prices on Major International Routes, Q2 2017).
Transit is more expensive in regions that remain largely dependent on long-haul links to Europe or
the U.S. to gain access to international connectivity, the additional cost of transport. For example, 10
GigE prices in São Paulo, from where internet traffic is ultimately exchanged in Miami, remain six
times the price of comparable ports in the United States. In Singapore, a primary hub for regional
traffic exchange within Asia, prices are now just twice those in Europe or the United States, compared
to 4 times in previous years.

IP transit service can be even more expensive in remote locations with limited bandwidth supply
and meager competition, such as sub-Saharan Africa and remote island nations. Where STM-1
transactions predominate, prices often reach $75 per Mbps per month. Where capacity is available in
10 Gbps increments, few cities remain where transit prices exceed $25 per Mbps per month. On the
opposite end of the spectrum, unit prices for the largest deals are pressing the $0.10 per Mbps per
month threshold.

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Provider Connectivity
TeleGeography’s rankings of provider connectivity includes analysis based on BGP routing tables,
which govern how packets are delivered to their destinations across myriad networks as defined by
autonomous system numbers (ASNs).

Every network must rely on other networks to reach parts of the internet that it does not itself
serve; there is no such thing as a ubiquitous internet backbone provider. In 2017, Hurricane Electric
overtook Level 3 to become the most-connected provider as ranked by two metrics, overall number
of connections, and IP address reach. Organic growth (or decline) in connectivity resulted in far
more change than corporate mergers during the 2016/2017 period. Of the noteworthy mergers,
Vocus’ acquisition of fellow Australian ISP NextGen in Q3 2016 bumped up Vocus’ IP address
share modestly. GTT’s Q2 2017 purchase of Hibernia Networks helped bring in an additional 290
connections to GTT.

In addition to examining overall connectivity, TeleGeography compared upstream provider

connections to downstream broadband ISPs, weighting connections by the number of downstream
broadband ISPs’ subscribers. Most of the carriers that ranked highly in connecting downstream ASNs
of all forms also ranked highly in connecting downstream broadband ISPs, but this analysis highlights
other connectivity patterns. For example, Hurricane Electric ranked as the second-best-connected
provider to all downstream ASNs, in general, and the top provider to the broadband ISP segment,
specifically. Tata ranked as the second-largest upstream provider to broadband ISPs, yet it ranked
only 11th largest in the world among downstream ASNs of all types. A common finding in many
countries is that the incumbent carrier has a strong overall reach given its entrenched position as
primary ISP, yet holds only a small upstream share of competing broadband ISPs’ connectivity. For
example, Swisscom had an overall 53 percent reach to IP addresses in Switzerland, but had only a
0.03 percent share of IP addresses from other Swiss broadband ISPs.

TeleGeography also analyzed which upstream ISPs provide service to Fortune 500 companies, and to
enterprises grouped by industry vertical. Traditional measures of upstream connectivity often serve as
poor predictors of which ISPs have a strong presence in the enterprise market. The figure (Number
of Enterprise versus ISP Customers) illustrates this finding. AT&T lags behind several other internet
providers in terms of ISP customers connected, yet it harbors a large number of enterprise customers.
Conversely, Hurricane Electric and Telia Carrier had proportionately fewer enterprise customers
than AT&T, but played a strong role of backbone provider to other ISPs. In past years, Level 3
straddled the line between “Stronger Enterprise Focus” and “Stronger Wholesale Focus,” but its 2014
acquisition of TW Telecom and its many enterprise customers has pushed Level 3 firmly into the
enterprise side of the chart.

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FIGURE 5
Number of Enterprise versus ISP Customers

Notes: Enterprise customers exclude downstream connections from companies from the ISP/carrier and hosting/CDN/
content/cloud services sectors.

Source: TeleGeography © 2017 PriMetrica, Inc.

Outlook
The combined effects of new internet-enabled devices, growing broadband penetration in developing
markets, higher broadband access rates, and bandwidth-intensive applications will continue to fuel
strong internet traffic growth. While end-user traffic requirements will continue to rise, not all of
this demand will translate directly into the need for new long-haul capacity. Aggregate international
capacity and traffic growth rates are slowing as the global internet matures. Outside of some
developing countries, the days of triple digit annual growth rates are long gone. A variety of factors
shape how the global internet will develop in coming years.

Transport Costs

IP backbone operators must make considerable investments in network capacity to keep up with rapid
traffic growth, driving concerns that capacity costs will outstrip traffic revenues. As IP transit prices
have eroded, the convention of expressing transactions as unit price per Mbps yields conspicuously
low figures, which contributes to a sentiment that the transit price trajectory is unsustainably cheap.
But as aggregate volumes increase and prices fall, a parallel effect takes place on network cost. High-
capacity ports afford lower unit traffic costs than low-capacity ports.

Technological and economic advancements in transport infrastructure also have lowered capacity
costs for IP traffic. For example, 100 Gbps transmission can transport traffic at a lower cost per bit
than 10 Gbps. Although 100 GigE ports pose higher cost and traffic topology hurdles at layer 3 than at
the transport layer, the industry will eventually overcome these barriers, yielding continued reduction
in cost per bit and greater efficiency in network architecture.

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Persistent Price Erosion

It is not a bold prediction that IP transit prices will continue to fall globally, as they always have. The
rate of decline will be greatest in emerging markets with high prices that have greater potential to fall
due to increases in volume and local traffic exchange that improve economy of scale. Prices will also
fall in the established hubs of internet traffic exchange, enabled by escalating volume and declining
unit cost. Although 10 Gbps price declines are mitigating in major hubs, the shift to 100 Gbps ports
will usher in another step in aggregate unit price decline.

Content Delivery Networks and Caching

The increased reliance on direct connections to content providers and the use of caching will continue
to have a localizing effect on traffic patterns and dampen international internet traffic growth. As
demand for content and applications grows in new locations, CDN nodes and caches will be deployed
into these areas. While the increase in broadband users and access rates will continue to drive traffic
growth in access networks, much of this growth may be managed locally within a network and may
not lead to proportional increases in traffic on international links.

Content Provider Networks

The largest content providers’ private networks are having a major impact on the growth of internet
capacity requirements, particularly on the highest capacity routes. As the content providers extend
their networks into new locations, backbone operators optimize their topologies in response. As a
result, the pace of international internet capacity and traffic growth appears likely to continue a pattern
of broad deceleration.

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The content on the preceding pages is a section from TeleGeography's Global Internet Geography

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