IP transit: paying for a default route
IP transit is a contractual arrangement where you pay a network operator to carry your traffic to any destination on the internet, not just destinations that carrier owns. The carrier provides you with a default route, which means your BGP router sends anything it does not have a more specific path for to the transit carrier, and the carrier handles delivery. In exchange, you pay for bandwidth capacity.
Transit is what most organisations mean when they say they “buy bandwidth.” It is universal connectivity purchased as a service. The quality of that connectivity depends on the carrier's own upstream relationships and peering agreements, which is why those details matter when evaluating a provider.
BGP peering: exchanging traffic at no cost
BGP peering is an agreement between two networks to exchange traffic directly, without payment in either direction, on the basis that the exchange is mutually beneficial. Each network advertises only its own prefixes and its customers' prefixes to the peer; neither becomes a transit provider for the other. If you are peered with Network A and your customer needs to reach a destination on Network B, the peering relationship with A does not help you unless A also has a path to B.
Settlement-free peering is the most common form. Large networks often have published peering policies that describe the traffic ratio and geographic presence requirements they expect from a potential peer. If you do not meet those requirements, the large network will ask for a paid peering arrangement or decline altogether.
Internet exchanges: the peering infrastructure
An internet exchange is a facility where many network operators connect to a shared switching fabric and establish peering sessions with each other. Rather than running a dedicated fibre between every pair of networks that wants to peer, each network connects once to the exchange and can then peer with every other member through that single connection. Exchanges like AMS-IX, DE-CIX, LINX, and NYIIX have hundreds of members each.
A carrier with presence at many exchanges has more peering options, shorter paths to more networks, and more redundancy in its routing. This is why exchange presence count is a meaningful signal when evaluating a transit provider, even for buyers who are not themselves exchange members: more exchange peering at the carrier means better paths downstream.
Private Network Interconnects
When traffic between two specific networks is large enough to justify a dedicated circuit, they may establish a Private Network Interconnect instead of or in addition to an exchange peering session. PNIs are common between large content networks and large access networks where the traffic volume is asymmetric but large enough that shared exchange capacity would be limiting. For most infrastructure buyers, PNIs are only relevant if you are operating at a scale where exchange ports become your bottleneck.
When to prioritise peering over transit
Transit is the right default for most buyers because it provides universal connectivity without requiring individual agreements with each destination network. Peering makes sense as a supplement when you have significant traffic to specific networks and the latency or cost of sending that traffic through a transit provider is a practical problem. Content delivery networks, large ISPs, and organisations that generate or receive substantial traffic to a specific market are the primary candidates for direct peering relationships.
For an enterprise buying bandwidth for a private network or a cloud application, transit from a well-connected carrier is almost always the right answer. The exchange peering credentials of your chosen transit provider are what matter, not whether you yourself are an exchange member.