Over the last few months, MediaNama interviewed senior executives at the country’s biggest internet exchanges (IXs), which help internet providers access data easily and cheaply. The internet exchange ecosystem is relatively nascent in the country, transporting a couple or so terabits of the country’s internet traffic at any given point — around the same as the data stored on a single hard disk, per second. We interviewed executives from Extreme Internet Exchange, DE-CIX India, and Kolkata’s IIFON community internet exchange. Here are some key takeaways from the conversations.

1. Internet Exchanges in India are small — for now

Raunak Maheshwari of Extreme Internet Exchange said that around 3% of the 25Tbps of traffic he estimated India had flowed through that IX’s network. Figures for other IXs are comparable, and added up they amount to a fraction of India’s internet traffic. The reason, Maheshwari said, was that telecom operators and larger fixed-line providers preferred peering directly with content providers like Google, Facebook and Amazon. On top of lax demand for broadband internet (due in part to the mobile data price crash in 2016), the sheer dominance of wireless telecom operators towers over the significance of exchanges.

As such, the main beneficiary of internet exchanges are small fixed-line ISPs, who are not always in a position to onboard content providers like Facebook and Google on their own. As such, the significance of IXs will only increase as broadband penetration increases and more ISPs start looking to serve more data at competitive prices.

2. Internet Exchanges reduce costs for small ISPs

When a smaller ISP buys backhaul bandwidth to connect their users to the internet, they typically buy leased lines from telecom operators. But by connecting to internet exchanges, ISPs can draw much of the data that users demand, such as YouTube and Hotstar videos, from an internet exchange that charges relatively little in comparison. This reduces the bandwidth that ISPs need to lease from their backhaul provider and results in lower costs for ISPs, which they are able to pass on to customers. “The role of an IX is, if the ISP peers there, with an incremental cost of just the port fees, [an ISP with 300 customers] will be able to service 100 more customers. That is the scale which the ISP gets,” Anupam Agrawal of IIFON said.

3. NIXI threw away its shot

The National Internet Exchange of India was set up in 2003 to improve the interconnection between internet service providers in the country. But as the years went by, NIXI faded in relevance due to rules that discouraged ISPs and prohibited content providers from joining. “Now that there are private exchanges that allow peering very easily, NIXI’s usage has gone down. Telcos also don’t prefer sending traffic through NIXI,” Maheshwari said. The ISP Excitel’s CEO Vivek Raina, asked about NIXI’s significance, responded, “Our total capacity that we deliver to customers is around 500 gigs. And NIXI is about 35 gigs from that. So you can understand the relevance.”

NIXI later removed both restrictions, but traffic on its exchanges remains low.

4. Internet Exchanges are in a legal gray area

The government’s official stand is that internet exchanges require licenses to operate. While DE-CIX has one, Extreme Internet Exchange and IIFON’s community exchange don’t. Extreme is currently making its case in court that it does not, and should not, need a license to operate. DE-CIX’s Sudhir Kunder said that IXs need to be compliant, saying “I wouldn’t be somebody who would want to go and give a certain number of hand-offs to my customers outside a datacentre, creating a dirty solution, just to ensure that the customer doesn’t need to pay for the [colocation] at the datacentre’s end.”

IIFON’s Anupam Agrawal argued that a license was not required for IXs, but said the exchange would rather shut down than get into a legal confrontation with the government. “IXs don’t really require a license — NIXI doesn’t have one. It operates as per an office order by the Department of Telecommunications. If DoT comes, we will show them this office order and say that if you think we need a license, we will not operate,” Agrawal said. He added that he got Alliance Broadband, a class A ISP, to join the exchange to give it better standing in case such a conflict arises.