4 November 2021 | 5 min read

What Is IP Transit? A Beginner’s Guide

IP transit is a crucial service, but how does it work? And how does it differ from peering? Continue reading to learn all about this.

What is ip transit.

IP transit is a service that networks use to get access to the internet. In other words, it enables internet networks to communicate with each other across the World Wide Web. 

Through transit, your internal network can connect to other networks, move through other parties’ networks and effectively gain full internet access. 

Thanks to the Border Gateway Protocol (BGP), multiple networks have this access and can steer traffic and route information. BGP routing allows one network to communicate with another one more efficiently, regardless of their respective physical locations. IP transit services are always based on BGP. 

IP transit and the Internet Protocol

The Internet Protocol, which is the set of rules on addressing data on the entire internet, is responsible for routing. Without BGP, this routing wouldn’t be efficient, and data would move around randomly until it finally found its destination. 

Border Gateway Protocol between three autonomous systems.
Border Gateway Protocol between three autonomous systems

The data moves through the web in packets, each containing IP information. For these packets to reach their destination or end-user, every device or domain on the web has to have an IP address. It is the identifier that acts as the address for that device.

IP addressing can work because each IP address is predetermined and unique. Whenever a packet needs to go from one address to another, it must contain two pieces of information: 

  • The IP address of the sender
  • The IP address of the recipient

The connection between the two can work regardless of the type of IP address. In other words, it can either use IPv4, the older and shorter version of the Internet Protocol that still dominates the internet, or the longer, newer version – IPv6. There are other differences between the two besides length, but note that IPv6 emerged due to the shortage of IPv4 addresses

Now that we know what IP transit is, we can discuss how this service works. We can also define the primary difference between peering and transit, two highly interconnected services that are often confused. 

How does IP transit work?

If you want to send or receive data on the web, you need to transit through other third-party networks. This transit is enabled by IP transit services that are provided by Internet Service Providers (ISPs). In other words, ISP networks allow traffic to pass through them and reach their final destination. 

However, IP transit services are not intrinsic to your internet access. Instead, you have to pay for these services, and you usually pay based on your usage or in periodic installments. 

Even though this is a paid service, you need IP transit if you own a business. The good news is that you can choose a transit provider that works best for you. 

A flow chart of IP transit from customer to internet.
IP transit helps lower tier ISPs connect to the internet

Autonomous systems and ASNs

Whenever your computer or any other device wants to connect to other networks, it has to connect to an autonomous system (AS). Autonomous systems are effectively larger networks that combine to form the internet. In other words, the internet is a network of larger autonomous systems, and each AS has numerous devices and computers connected to it. 

In simpler terms, whenever you send data, it moves in packets from AS to AS until it reaches the one that contains its destination device. As you may expect, all autonomous systems have their sets of devices or IP addresses connected to them. 

Every AS on the web is operated by a specific organization, which may include:

  • An Internet Service Provider
  • A large enterprise technology company
  • A government agency
  • An educational institution (e.g., a university)

This is when the Border Gateway Protocol comes into play again. Autonomous systems communicate with each other and allow for internet transit to occur using this vital protocol. 

They use BGP to announce the information necessary for a connection to occur. This information consists of a list with IP addresses under the control of the sender AS and another list with IP addresses controlled by the receiving AS. These lists are called AS routing policies

Internet traffic between these large networks wouldn’t be possible, and BGP wouldn’t work without autonomous system numbers (ASN). Each AS has its official number that other parties use to identify that AS. You can think of these as license numbers in business licenses, for example. ASNs can be:

  • 16-bit long and contain numbers between 1-65534 (e.g., AS65534)
  • 23-bit long and contain numbers between 131072-4294967294 (e.g., AS131072)

IPXO’s autonomous system number is AS834.

IP transit providers tiers

When choosing a specific IP transit service provider, you can’t simply opt for the one offering the lowest price. Instead, you need to choose ISPs based on the IP transit provider tier they belong to. There are three tiers in total, and the lower the number, the higher the tier.

Tier 1 providers  

Tier 1 providers form the backbone of the internet as they act as global conduits for every network online. These ISPs have an expansive global reach, and there are only a handful of them in the world. They can connect directly with each other for free, but they charge a fee from providers in lower tiers that want to access their network. 

Examples of Tier 1 providers are Verizon and AT&T.

Tier 2 providers

Tier 2 providers are at a lower step in the hierarchy, below Tier 1 ISPs. However, they still hold large networks with numerous data centers and physical locations. In addition, most Tier 2 providers cross-connect to others in their bracket and avoid Tier 1 providers due to their higher costs. 

Naturally, there are many Tier 2 providers throughout the world, with notable examples including Netflix, Amazon, Vodafone and Comcast

Tier 3 providers

Tier 3 providers are the lowest in this hierarchy, and they are usually local providers with smaller client bases. In most cases, they simply buy a portion of IP transit from a Tier 2 provider at a low cost to avoid buying from expensive Tier 1 providers. 

You might wonder which tier is the best. Although higher tier providers usually offer the most direct transit routes, they are also often overbooked, which can lead to inefficiencies. Moreover, a Tier 1 customer pays much higher fees, which is why many choose Tier 2 providers. They often provide a more direct path with more stability, all at a lower price.

Tree chart of how tier 1, tier 2 and tier 3 ISPs interact.
ISP tier hierarchy 

Peering vs. IP transit: what is the difference? 

In essence, there are two types of connections between networks: IP transit and peering.

We’ve explained what transit is and how it works, but do you understand peering? The two are connected, and while many people tend to use the terms interchangeably, they are quite different: 

  • IP transit is the connection to a service or the internet in general that allows traffic to transit or move through a network
  • Peering is the process that enables two networks to connect and exchange traffic (customer routes)

A peering relationship is also different as it allows customers to exchange information without paying a third party for it, unlike with IP transit. At the same time, whereas transit is typically priced, a peering connection can be established between two services for free. 

Naturally, a peering relationship can also be paid for, but it’s still almost identical to regular settlement-free peering. Paid peering gives access to a peer’s network for a recurring monthly charge. 

Graph demonstrating how peering and transit work.
IP transit vs. peering


All in all, IP transit is a necessary process without which the internet, as we know it, wouldn’t exist. IP transit offers the sorely needed connectivity that powers the web, and, therefore, it is the gold standard of network connectivity and the whole web.

IP transit gives customers direct access to peers, but they can also benefit from the increased speed and flexibility they don’t normally get from other methods of communication. 

Now that you know what it is, how it works, and what the three tiers of providers are, you’ll have an easier time choosing the right provider for your business.