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4 reasons why regional Internet Exchanges will lead to economic growth

Ivo-Ivanov

By Ivo Ivanov, CEO, DE-CIX International

In today’s digital business world, especially when it comes to business processes, interconnection requirements are increasing in parallel with the growth in digital and cloud-based services. According to a study conducted by the OECD, the global Covid-19 pandemic has accelerated the need for stable, fast, and efficient Internet for millions of employees and employers who already take advantage of the option of working from home and are more likely to do so in the future. These employees depend on video calls, stable VPN connections, and fast access to work-related material. Because of the importance of digital applications to businesses and people, every millisecond counts. This is where latency, the time it takes for data to travel to its destination for processing and back again, plays a major role. High latency causes the lag we experience, for example, when we encounter performance problems on video conferencing software. All digital applications used in offices, the manufacturing sector, and all other industries today are extremely latency sensitive, as they need to deliver high performance without delays to guarantee a better digital experience.

Big cities, with their large populations and strong economies, tend to lead the way in offering good quality connectivity. To ensure that regional connectivity is as good that available in major hubs, data needs to travel efficiently and avoid long distances. An expansion of local interconnection is therefore necessary to meet the demands of businesses and people in regional locations. Regions outside of the major metropolitan hubs need to invest in local digital infrastructure, such as expanding high-speed broadband networks and establishing Internet Exchanges, to maximize the potential for success, achieve low-latency connectivity, and ultimately better serve their citizens. Ivo Ivanov, CEO of DE-CIX International, has identified four benefits of interconnection infrastructure in the form of regional Internet Exchanges (IXs), contributing to a positive development of regional digital economies.

Local Interconnection improves the connectivity and performance of digital applications

In our digital age, most companies need high-performance and secure interconnection to do business. Establishing a regional Internet Exchange will not only achieve that, but in addition offer tremendous growth opportunities for cities and their economies. Local IXs reduce latency between connected enterprises and enhance the speed of connectivity because data is not forced to travel further to be exchanged in larger digital hubs. Local interconnection also increases resilience, and leads to a more stable network. This provides better performance overall for applications such as cloud computing, VoIP connections, video conferencing and online collaboration. The applications on which our digital future will be based will require extremely low latency. Smart IoT and critical applications that require real-time responses, such as autonomous driving, require latencies in the 1-3 millisecond range and will therefore need to be performed within a range of 50-80 km from the user. This means that connectivity between the data centers where this data is processed and stored needs the shortest path to where the data is consumed. In turn, this allows companies in the region to interconnect with each other at the lowest possible latency. In order to max out and future-proof the growth potential of economic areas and second/third-tier cities away from major metropolitan hubs, in addition to good broadband infrastructure, data centers are needed that act as the core of regional networking. These data centers can provide access to a distributed Internet Exchange or interconnection platform, which offers various interconnection services for Internet service providers (ISPs) and enterprise networks.

Connectivity to clouds and content improves growth potential

According to the World Bank, more than 80% of global GDP is now generated in cities. Encouraging migration to your region through making it attractive to citizens is decisive for building the local economy. Current trends, however, favor working from out of the home office. In a recent survey conducted by Paulsen and Audience Audit, many Americans said they would consider moving to a rural or suburban home. For 67% of respondents, however, one factor would be the deciding one: Internet access. Investments in this area are not only profitable, but also make a positive contribution to regional economic development and the remote workforce who is dependent on this. More specifically, local businesses will be able to accelerate and grow their business potential through direct connectivity to clouds, content and enterprise-grade applications such as Microsoft 365, and skilled workers are more likely to migrate to cities with good connectivity. How can this be achieved? A regional IX not only facilitates local data exchange, but is ideally also connected to larger IXs in major, (inter)national hubs, where many of the global players can be found, such as AWS, Microsoft, and Google. Shorter, direct pathways to clouds and digital resources increase security and performance. This results in an increase in the overall quality of the Internet, making a region more attractive for people escaping major hubs, while at the same time attracting new business investments.

Cities and regions with a highly developed digital economy are more competitive

The digital economy has become the backbone of economic growth for the future, and no sector can afford not to be on the path to digitalization. This is why the development of local digital infrastructure is crucial to strengthening the local economy and thus creating a better quality of life for citizens. According to a study by the Leibniz Centre for European Economic Research (ZEW), cities with a highly developed digital economy are more competitive and grow faster than their more analog peers. The researchers were also able to prove that not only the region in question benefits from a good broadband infrastructure, but also neighboring, less well-connected regions. Therefore, as each region individually fortifies its own connectivity and digital infrastructure, the flow-on effects will be felt more broadly. This is the proof that, by working in concert, cities and regions can create something greater than simply working alone. The establishment of regional IX infrastructure can thus support national rollout strategies, helping bring more and more of a country’s population online with high-performance connectivity, able to participate in digital economies across city, state, and national borders.

Regional Internet Exchanges create business opportunities for network operators and data centers

A regional Internet Exchange is not only a defining competitive advantage for the city in question, but also a major business opportunity for the infrastructure players housing it. Therefore, ISPs, city carriers, and regional data center operators can benefit from being involved in establishing and/or operating an IX. If they do not have the in-house interconnection knowhow to do this themselves, they can develop their interconnection business in partnership with an existing expert, such as DE-CIX. The DE-CIX as a Service (DaaS) program, for example, offers professionally managed IXs, built to the partners’ desired dimensions. The IX can be shipped to the doorstep as “DE-CIX in a Box”, based on DECIX’s award-winning Apollon technology and offering DE-CIX’s multi-service interconnection platform.

A regional Internet Exchange offers various interconnection services for local carriers or data center operators – which they can sell on to their local enterprise customers. The IX will also attract more businesses to the region, which are potential customers for the infrastructure providers. These can offer modern interconnection services such as direct connection to global hyperscale clouds – directly on site via a regional data center. The result: A wellfunctioning distributed ecosystem with great economic potential as part of the local digital economy.

Conclusion

Growing data traffic on the Internet, increasingly latency-sensitive applications, and rising security requirements call for stronger regional networking and new Internet Exchanges. Latency can be reduced, and data transfer accelerated. Economic areas outside major metropolitan regions can generate growth in their local economy and build the attractiveness and competitiveness of their location.

A great example for the benefits of a strong IX is Frankfurt, a magnet for the digital economy. The city is a major hub not only for finance and trade fairs, but also for the world’s biggest tech companies, such as Google, who has chosen to invest in Frankfurt as a location due to its proximity to one of the world largest Internet Exchanges – DE-CIX Frankfurt. A similar development of this kind on a smaller scale in secondary markets is what city and regional decision makers should aim for. Stronger digital infrastructure and a growing digital economy will also attract a skilled workforce to a city or region and accelerate the overall growth. The development of local digital infrastructure through an IX should also be a top priority for local infrastructure providers, such as city carriers and data center operators, who can reap the rewards of this business opportunity. Not only is investment in digital and interconnection infrastructure necessary to strengthen and future-proof regional economies, but it is also highly profitable

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