« Another subtlety is that when you buy transit wholesale you typically only pay for traffic coming in (“ingress") or traffic going out (“egress”) of your network, not both. Generally you pay which ever one is greater.
CloudFlare is a caching proxy so egress (out) typically exceeds ingress (in), usually by around 4-5x. Our bandwidth bill is therefore calculated on egress so we don't pay for ingress. This is part of the reason we don't charge extra when a site on our network comes under a DDoS attack. An attack increases our ingress but, unless the attack is very large, our ingress traffic will still not exceed egress, and therefore doesn’t increase our bandwidth bill.
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In CloudFlare's case, unlike Netflix, at this time, all our peering is currently "settlement free," meaning we don't pay for it. Therefore, the more we peer the less we pay for bandwidth. Peering also typically increases performance by cutting out intermediaries that may add latency. In general, peering is a good thing.
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While transit is priced similarly to North America, in Europe there is a significantly higher rate of peering. CloudFlare peers 50-55% of traffic in the region, making the effective bandwidth price $5/Mbps. Because of the high rate of peering and the low transit costs, Europe is the least expensive region in the world for bandwidth.
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In Europe, and most other regions outside North America, these and other exchanges are generally run as non-profit collectives set up to benefit their member networks. In North America, while there are Internet exchanges, they are typically run by for-profit companies. The largest of these for-profit exchanges in North America are run by Equinix, a data center company, which uses exchanges in its facilities to increase the value of locating equipment there. Since they are run with a profit motive, pricing to join North American exchanges is typically higher than exchanges in the rest of the world.
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In North America the combination of relatively cheap transit, and relatively expensive exchanges lowers the value of joining an exchange. With less networks joining exchanges, there are fewer opportunities for networks to easily peer. The corollary is that in Europe transit is also cheap but peering is very easy, making the effective price of bandwidth in the region the lowest in the world.
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Compared with the benchmark of $10/Mbps in North America and Europe, Asia's transit pricing is approximately 7x as expensive ($70/Mbps, based on the benchmark).
There are three primary reasons transit is so much more expensive in Asia. First, there is less competition, and a greater number of large monopoly providers. Second, the market for Internet services is less mature. And finally, if you look at a map of Asia you’ll see a lot of one thing: water. Running undersea cabling is more expensive than running fiber optic cable across land so transit pricing offsets the cost of the infrastructure to move bytes.
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To peer traffic in Latin America you need to either be in a "carrier neutral" data center — which means multiple network operators come together in a single building where they can directly plug into each other's routers — or you need to be able to reach an Internet exchange. We've also worked out special arrangements with ISPs in Latin America to set up facilities directly in their data centers and peer with their networks, which is what we did in Medellín, Colombia.
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Australia is the most expensive region in which we operate, but for an interesting reason. We peer with virtually every ISP in the region except one: Telstra. Telstra, which controls approximately 50% of the market, and was traditionally the monopoly telecom provider, charges some of the highest transit pricing in the world — 20x the benchmark ($200/Mbps). Given that we are able to peer approximately half of our traffic, the effective bandwidth benchmark price is $100/Mbps.
To give you some sense of how out-of-whack Australia is, at CloudFlare we pay about as much every month for bandwidth to serve all of Europe as we do to for Australia. That’s in spite of the fact that approximately 33x the number of people live in Europe (750 million) versus Australia (22 million).
If Australians wonder why Internet and many other services are more expensive in their country than anywhere else in the world they need only look to Telstra. What's interesting is that Telstra maintains their high pricing even if only delivering traffic inside the country. Given that Australia is one large land mass with relatively concentrated population centers, it's difficult to justify the pricing based on anything other than Telstra's market power.
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While we peer nearly 40% of traffic globally, we only peer around 20-25% in North America.
Like in Europe, CloudFlare peers 50-55% of traffic in Asia. However, transit pricing is significantly more expensive.
While today our peering ratio in Latin America is the best of anywhere in the world at approximately 60 percent, the region's transit pricing is 8x ($80/Mbps) the benchmark of North America and Europe. That means the effective bandwidth pricing in the region is $32/Mbps, or approximately the same as Asia. »
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