Internet transit is the service of allowing network traffic to cross or "transit" a computer network, usually used to connect a smaller Internet service provider (ISP) to the larger Internet. Technically, it consists of two bundled services:
The advertisement of customer routes to other ISPs, thereby soliciting inbound traffic toward the customer from them
The advertisement of other ISPs' routes (usually but not necessarily in the form of a default route or a full set of routes to all of the destinations on the Internet) to the ISP's customer, thereby soliciting outbound traffic from the customer towards these networks.
In the 1970s and early 1980s-era Internet, the assumption was made that all networks would provide full transit for one another. In the modern private-sector Internet, two forms of interconnect agreements exist between Internet networks: transit, and peering. Transit is distinct from peering, in which only traffic between the two ISPs and their downstream customers is exchanged and neither ISP can see upstream routes over the peering connection. A transit free network uses only peering; a network that uses only unpaid peering and connects to the whole Internet is considered a Tier 1 network. In the 1990s, the network access point concept provided one form of transit.
Pricing for the internet transit varies at different times and geographical locations. The transit service is typically priced per megabit per second per month, and customers are often required to commit to a minimum volume of bandwidth, and usually to a minimum term of service as well, usually using a 95e percentile burstable billing scheme. Some transit agreements provide "service-level agreements" which purport to offer money-back guarantees of performance between the customer's Internet connection and specific points on the Internet, typically major Internet exchange points within a continental geography such as North America. These service level agreements still provide only best-effort delivery since they do not guarantee service the other half of the way, from the Internet exchange point to the final destination.
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Internet exchange points (IXes or IXPs) are common grounds of IP networking, allowing participant Internet service providers (ISPs) to exchange data destined for their respective networks. IXPs are generally located at places with preexisting connections to multiple distinct networks, i.e., datacenters, and operate physical infrastructure (switches) to connect their participants. Organizationally, most IXPs are each independent not-for-profit associations of their constituent participating networks (that is, the set of ISPs which participate at that IXP).
A Tier 1 network is an Internet Protocol (IP) network that can reach every other network on the Internet solely via settlement-free interconnection (also known as settlement-free peering). Tier 1 networks can exchange traffic with other Tier 1 networks without paying any fees for the exchange of traffic in either direction. In contrast, some Tier 2 networks and all Tier 3 networks must pay to transmit traffic on other networks. There is no authority that defines tiers of networks participating in the Internet.
In computer networking, peering is a voluntary interconnection of administratively separate Internet networks for the purpose of exchanging traffic between the "down-stream" users of each network. Peering is settlement-free, also known as "bill-and-keep," or "sender keeps all," meaning that neither party pays the other in association with the exchange of traffic; instead, each derives and retains revenue from its own customers.
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