What Is IP Transit? A Beginner’s Guide

6 min read
4 November 2021
Mindaugas Kubilius

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.

Internet globe with lines across it to represent IP transit.

IP transit refers to a commercial service that enables internet traffic to travel to the desired destination by moving through multiple networks. IP, in this case, stands for Internet Protocol. As you probably know already, it is one of the most important communication protocols that dictates how information travels across the internet (i.e., interconnected networks).

In essence, IP transit ensures that internal networks can connect to public networks. And it provides full access to the internet overall. That means you can connect your own network to IP transit providers’ networks. None of this would be possible without the Border Gateway Protocol (BGP), a routing protocol that ensures smooth communication between networks, even if they exist in multiple physical locations across the globe.

At first, the concept of IP transit might seem a little confusing. However, by the time you are done reading this article, you will know how it relates to internet service providers (ISPs), how it works, what the difference between IP transit and IP peering is, and how important IP transit is for internet connectivity overall. 

IP transit and internet service providers

The Internet Protocol is responsible for routing. Without BGP, this routing wouldn’t be efficient, and data would move around randomly until it finally found its destination.

Graph of the Border Gateway Protocol between three autonomous systems.
Border Gateway Protocol between three autonomous systems

Data moves across the internet 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. Two versions of the IP address – IPv4 and IPv6 – can help identify unique devices on the network. 

Every device requires such an identifier, and ISPs are responsible for assigning them. In reality, Regional Internet Registries (RIR) assign IPs, but they do not assign them to end users. Instead, they go through Local Internet Registries (LIR), and internet service providers usually are accredited LIRs. An ISP can borrow enterprise IP addresses from a network block and give them to end users, so they could enjoy internet access.

Overall, IP addressing works only 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 and how it enables access to the rest of the internet. We can also define the primary difference between IP peering and transit, two highly interconnected services that are often confused.

How does an IP transit service work?

If you want to send or receive data on the web, you need to transit through third-party networks. IP transit services are responsible for this transit, and internet service providers offer it. 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 in periodic installments or according to usage basis. 

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 service 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:

  • Internet service provider
  • Large enterprise technology company
  • Government agency
  • Educational institution (e.g., a university)

This is when BGP routing comes into play again. The entire internet routing table – a database of routes to network destinations – enables autonomous systems to communicate with each other and allow for internet transit to occur using this vital protocol. 

Autonomous systems use the Border Gateway Protocol 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 AS routing policies. 

Internet traffic between large networks wouldn’t be possible, and the Border Gateway Protocol 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 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 provider tiers

When choosing a specific IP transit service provider, you can’t simply opt for the one offering the lowest IP transit pricing. 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 entire internet. That is because each acts as a global conduit for every network online. These internet service providers 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. 

If you are interested in a Tier 1 provider’s network service, here are two internet service providers that offer Tier 1 services: 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. Most Tier 2 providers cross-connect to others in their bracket and avoid Tier 1 providers due to higher costs. 

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

Tier 3 providers

Tier 3 transit 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 for an IP transit customer. 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 

IP transit vs. IP peering: What is the difference?

In essence, there are two types of connections between internet networks: IP transit and IP 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
  • IP peering is the process that enables two networks to connect and perform a traffic exchange (customer routes)

A peering relationship is also different as it allows customers to exchange data 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. IP peering


Undeniably, IP transit is a necessary process without which the internet, as we know it, wouldn’t exist and full internet access would not exist. IP transit services offer the sorely needed internet connectivity that powers the web, and, therefore, 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.

About the author

Mindaugas Kubilius

Network Administrator

Mindaugas is a Network Administrator at IPXO with more than 15 years of experience in the IT field. He specializes in building and maintaining various network infrastructures, as well as presenting top-notch engineering solutions to the public. After work, Mindaugas spends his time in nature.
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