Private Interconnection bandwidth is growing at a 45% CAGR

In reading the Q2 financial reports of leading global carrier, cloud companies, semiconductor fabricators and network equipment vendors, one might be tempted to think that we are in a period of single-digit growth overall, except for certain hot areas, like the public cloud or AI-enhanced anything. On a financial level, this might be the case but in terms of network traffic the industry is still booming.

Cisco’s 2017 Visual Networking Index (VNI), which is widely seen as a leading source for tracking network usage, recently predicted that global IP traffic will increase three-fold from 2016 – 2021, reaching an annual run rate of 3.3 zettabytes by 2021, up from 1.2 zettabytes in 2016, representing a compound annual growth rate (CAGR) or 24%. A year earlier, the same study predicted that global IP traffic would grow at a CAGR of 22% over the 2015-2020 period as more than a billion new Internet users come online and new applications take hold.

Whether a 24% or 22% CAGR, it’s clear from the Cisco study that significant growth continues – and perhaps is even accelerating – in overall Internet traffic.
Equinix, the world’s leading co-location data centre operator, is now predicting that Interconnection Bandwidth will grow at a 35% CAGR – notably faster than Internet traffic as a whole. Specifically, the first release of the Equinix Global Interconnection Index, predicts that by 2020 Interconnection Bandwidth between private enterprises will grow to over 5,000 Tbps, a fourfold increase from 2016 with double-digit growth across all industries and use cases.

Defining Interconnection Bandwidth

Equinix defines Interconnection Bandwidth as the total capacity provisioned privately to directly exchange traffic with other parties at distributed IT exchange points. In practical terms, this means cross-connects in a colocation or Internet exchange facility, or private connections between companies either over a private-line provisioned by a carrier or dark fiber.

Equinix, which operates a fleet of 182 co-location data centres in 44 markets worldwide, is in a prime position to measure interconnection bandwidth given its long list of Fortune 1000 clients. Its Global Interconnection Index summarizes data from its own operations as well as from other carrier-neutral colocation data center providers.

For Service Providers specializing in enterprise networking, the study provides food for thought. While interconnection bandwidth is predicted to have a 35% CAGR, the predicted growth for MPLS is only 4%. If Equinix is correct, companies in 2020 will be using private interconnections for exchanging much of their data rather than asking the MPLS provider to provision spurs to their partners.

Key trends at Equinix

In its Q2 financial report, Equinix posted quarterly revenues of $1,066 million, up 18% year-over-year and up 11% year-over-year on a normalized and constant currency basis. Operating revenues were $185 million, an 11% increase over the previous quarter.

During Q2, Equinix completed its acquisition of Verizon’s 29 data centers. The transaction, which was valued at $3.6 billion in cash, included over 1,000 customers, of which over 600 were new to Equinix, and approximately three million gross square feet of data center space. The 29 data centers are located across 15 cities in North and Latin America, three markets of which are new to Equinix (Bogota, Culpepper and Houston). This brought Equinix’s total global footprint to approximately 17 million gross square feet.

Significantly, Equinix boasts that it now serves 42% of the Fortune 500 and 30% of the Global 2000. Furthermore, Equinix said its interconnection revenues in Q2 grew 24% year-over-year and 17% year-over-year on a normalized and constant currency basis, significantly outpacing colocation revenues. Cross-connects between customers increased to over 242,000. The Equinix Cloud Exchange continues to expand with connections into AWS, Microsoft Azure and Salesforce from new markets.

Some highlights of the Equinix Global Interconnection Index

Regional trends