Understanding the game of bandwidth pricing
I thought about this long back - “Who pays to whom in case of internet bandwidth?” I have been working in this domain from sometime and so far I have learnt that it’s really complex. I will try to put a series of blog post to give some thoughts on this subject. Firstly we have to understand that when we talk about “bandwidth price” it’s often layer 3 bandwidth which you buy in form of capacity over ethernet GigE, Ten-GigE and so on (or STMs if you are in India). As we know from back school class in networking - layer 3 works over layer 2 and so to deliver “bandwidth” on layer 3, one needs layer 2 physical circuit. Price paid by companies on layer 2 Vs layer 3 varies significantly based on their location, type of business, their target goal etc. E.g a content heavy company like Google pays hell lot of money on layer 2 circuits while it is strongly believed among networking community that Google is a tier 1 network and hence a “transit free” zone and they do not pay any amount on layer 3. In general the trend is pretty much as big networks have larger network footprint and connected “PoPs” over layer 2 (leading to a higher layer 2 bill) while relatively lower layer 3 bill while small networks depend significantly just on transit bandwidth (in form of layer3) and have very low layer 2 footprint.