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The impact of Internet exchange points in emerging markets

Michael Kende Senior Adviser, Consulting

Analysys Mason's new report shows how IXPs in Kenya and Nigeria are booming and contributing to the growth of the surrounding Internet ecosystem in several ways.

As the Internet becomes increasingly globalised, the interconnection between networks, content providers and users becomes more critical to creating the 'network of networks' that is the Internet. At the centre of this globalisation are Internet exchange points (IXPs) – facilities where all Internet players can interconnect to one another, improving quality of service and reducing transmission costs.

IXPs have already played a key role in the development of an advanced Internet ecosystem across Asia, Europe and North America. The number of IXPs is increasing in Africa, despite the relatively challenging economic and telecoms environment in this region. Analysys Mason has written a paper, in conjunction with the Internet Society, which details the impact that such IXPs have had in two emerging markets: Kenya and Nigeria.

The evolution and benefits of IXPs

IXPs typically evolve over time. Early in the Internet development cycle in most countries, Internet service providers (ISPs) often use their international Internet connections to exchange domestic traffic – a process known as 'tromboning'. Tromboning is the result of unilateral action, whereby each ISP independently concludes that it is more cost effective to use its international connections for domestic traffic exchange than to connect to every other ISP separately. However, this tromboning can be eliminated if ISPs adopt a co-operative approach to create a local IXP where domestic traffic can be exchanged.

The establishment of an IXP not only enables local ISPs to save on international transit costs, but also reduces latency by avoiding sending domestic traffic overseas for exchange, and the resulting better performance can increase usage. To the extent that the IXP begins to build critical mass, involving most or all of the ISPs, it will also begin to attract content providers, along with business, academic and government users, and thereby become the centre of a vibrant Internet ecosystem in the country. Further, the IXP can also begin to attract international content and connectivity providers, becoming a regional hub for Internet traffic.

Quantifying the benefits of IXPs in Kenya and Nigeria

Our paper shows how IXPs in Kenya and Nigeria are booming and contributing to the growth of the surrounding Internet ecosystem in the following ways.

  • In Kenya, the Kenya Internet Exchange Point (KIXP) localises more than 1Gbps of peak traffic, dramatically reducing latency (from 200–600ms to 2–10ms on average), while allowing ISPs to save almost USD1.5 million per year on international connectivity. The IXP also:
    • increases mobile data revenue by an estimated USD6 million for operators, having generated at least 100Mbps additional traffic of per year1
    • helps the localisation of content in the country, including from Google
    • is critical to raising government tax revenue
    • increasingly acts as a regional hub for traffic from neighbouring countries.
  • In Nigeria, the Internet Exchange Point of Nigeria (IXPN) localises 300Mbps of peak traffic with corresponding reductions in latency, and allows national operators to save over USD1 million per year on international connectivity. The presence of the IXP induced Google to place a cache in Nigeria as the first step in plans to build out Google infrastructure to Lagos, and is at the centre of a partnership to improve communications between universities. The IXP also helped repatriate previously externalised financial platforms for online banking services.

These effects are summarised in Figure 1.

Figure 1: Summary of key benefits of IXPs in Kenya and Nigeria [Source: Analysys Mason, 2012]

Benefit KIXP (Kenya) IXPN (Nigeria) Summary
Latency reduction From 200–600ms
to 2–10ms
From 200–400 ms
to 2–10ms
Noticeable increase in performance for end users
Local traffic exchange 1Gbps peak 300Mbit/s peak Savings on international transit of over USD1 million per year in each country
Content Google network present locally, along with rehoming of domestic content Same as in Kenya Increase in usage and corresponding revenues for mobile data traffic
E-government Kenya Revenue Authority gathers taxes online Usage by education and research networks Social benefits from e-government access to IXPs
Other An increasing amount of regional traffic exchanged at KIXP Financial platforms hosted locally Further economic benefits resulting from IXPs

Within their respective regions, Kenya and Nigeria are in a strong position with regard to Internet access and usage. This is a reflection of a number of interdependent variables:

  • a positive macro-economic environment
  • a liberalised telecoms environment led by a widely respected regulator
  • a significant and increasing amount of international capacity
  • a strong and competitive mobile sector.

However, this mix must also include the IXPs, which is driven by these other variables, but also helps to fuel them.

An IXP helps to deliver the benefits of liberalisation – lower prices and greater usage – which in turn can provide support and credibility for further efforts to liberalise and develop the sector. IXPs can also help to improve connectivity between neighbouring countries, further increasing Internet usage and benefits. As a result, we believe that policymakers should help to promote the establishment and development of IXPs by adopting sector reforms when necessary and offering targeted support when possible, as advanced IXPs ultimately benefit the entire ecosystem.

1 This figure represents the total cumulative additional revenue for mobile operators having increased their total traffic by 100Mbps thanks to the presence of the IXP, over an estimated total traffic of 1Gbps. We believe that this estimate is very conservative.