IP Transit Over An Exchange Explained
Different computer networks connect to one another to make up the Internet as a whole. These connections often happen in specific physical locations. These locations are usually buildings that have historically been a place where networks could easily connect to multiple other networks. These networks either connect to each other directly or they do so through an Internet exchange point (IX).
An exchange point can be as simple as a switch. The exchange owns and operates the switch. Sometimes the exchange is a neutral third party. Other times the exchange is owned and operated by one of the networks.
The IX provides a layer 2 switch. Different networks connect to the switch and are able to use the switch to connect to each other. This allows a network to peer with many other networks using a single port and a single cross connect. This is cheaper and easier to maintain than running a private peering connection to every other network.
Using BGP these different networks can share traffic with one another. Generally the traffic is peering traffic. This means a network only sends out its own customer routes. It also only receives the routes of its peer's customer's. This is a smaller amount of routes than the whole Internet. This is what a standard peering agreement looks like.
IP transit is just like standard peering, except the transit provider sends more routes. One network is the customer and the other is the provider. The customer network pays money to the provider to get all the routes for the whole Internet. The transit provider sends their customer routes + their non-customer routes to this customer. The customer can use their IP transit provider to reach any address on the Internet.
IP transit is usually sold over a private cross connect between two networks. A private cross connect allows the two networks to directly control all layer 1, layer 2 and layer 3 aspects of the connection. This is the most common way of buying IP transit.
IP transit over the exchange uses the exchange's Layer 1 and Layer 2 for the connection. The two networks are connecting using the switch that the exchange provides. The only thing that the two networks control is layer 3.
Buying IP transit over an exchange is great because it allows networks to use less ports and save money on costly cross connect fees. At the same time, the exchange is now a third party in the connection, which means that if there is a problem with the exchange, the transit will also be affected.