Now let's have a look at a network operators goal. Network operators want to minimize the cost of operating the business. It's only natural. If you're a commercial ISP, the more it costs to operate the business, the more expensive it is for an end user. For an academic and research network operator similar applies-- the more costs for operating the network infrastructure, the more cost it is for the universities and the research institutions or for the funding entities. Ttransit means that the network operator has to pay for the circuit whether it's international or domestic. They usually have to pay for the data. Under that is usually a cost per megabit per second and this has to be repeated for every transfer provider the operator subscribes to and it is a significant cost of being a service provider. Peering,on the other hand, the network operator would share the circuit cost with the peer if it's a private peer or runs infrastructure to the public peering point which is a one-off cost-- there's no need to pay for any data. It reduces the transit data volume and therefore reducing the transit cost. So let's look at how transit works. Suppose we have a small access provider providing Internet access for a city's population. It could be a mixture of dial-up, we still have that, Wireless and fixed broadband, possibly some business customers, possibly also some internet cafes. So how do their customers get access to the rest of the Internet? Well, the operator will buy access from one, two or more larger ISPs who already have visibility of the rest of the internet and this is transit. They are paying for the physical connection to the upstream and for the traffic volume on the link to the upstream. As for peering, if two network operators are of equivalent sizes, they generally have equivalent network infrastructure coverage, equivalent customer size and numbers, similar content volumes to be shared with the internet and potentially similar traffic flows to each other's networks. And this makes them good peering partners even if they are competitors, even if they're trying to serve the same customer base. If they don't peer with each other, then they both have to pay an upstream provider for access to each other's network, to each other's customers and to each other's content. So the only one who benefits from this is the upstream provider because they make money from the two ISPs funding the transit costs.

© Produced by Philip Smith and the Network Startup Resource Center, through the University of Oregon.

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