An Internet Exchange Point (IXP) is simply a physical location where different IP networks meet to exchange local traffic with each other via a switch. Copper or fibre cables interconnect equipment. Cooling systems and equipment placement help keep the IXP cool. Power is a critical factor as is security of the space.
The benefits of access to these local traffic exchange facilities are many, and are described in detail further below. IXPs are now well-recognised as a vital part of the Internet ecosystem. They are ssential for facilitating a robust domestic ICT sector. From a public policy perspective, ensuring the presence of local IXPs has become an increasingly important priority in order to make sure that online services are equally accessible to all local users, as well as to enhance competitive opportunities, and generally improve the quality and affordability of Internet services.
Despite their importance, IXPs are only present in about half of the world's countries, and even where they are present, many are not functioning to their full potential. Most regions could benefit from the presence of an IXP, but even large, highly industrial countries such as Canada only have a handful of IXPs. It turns out that IXPs are actually quite sensitive to a variety of local constraints. Initiating them and ensuring their efficient operation is not as simple as it would appear, especially in developing countries (where IXPs are even rarer). The key take away is that creating an enabling environment is critical.
IXPs are not a universal solution to Internet challenges in a country. They can complement and improve the functioning of other parts of the Internet ecosystem such by providing a more competitive environment for purchasing capacity, and offloading traffic from congested international links, but they cannot smooth over problems such as lack of competitively priced international or local capacity, non-transparent regulation, or poor energy supplies. For further details on such issues, see the ISOC report entitled Lifting Barriers to Internet Development in Africa. To help accelerate the development of IXPs this Toolkit has been created to describe best practices for setting up an IXP and supporting the growth and enhancement of existing IXPs.
The Internet is not a single entity, but is made up of tens of thousands of independent networks that communicate with each other using a common protocol (TCP/IP). As such, the key task of a network operator is to ensure that its users are cost-effectively, rapidly, and securely interconnected with any other point on the Internet – be it a web site on their own network or a user connected to another network in the same city, or in a distant part of the world.
In the quest for the shortest (fastest) and lowest cost routes between two local points on the Internet, the most effective strategy for networks which exchange traffic is to set up direct physical links between each other. When many networks are in the same location, establishing direct links would be an expensive process, both in terms of capital and human resource costs for maintaining separate links to each network. This constraint has led to the emergence of shared hubs , usually called Internet Exchange Points, through which local networks are able to connect with each other simply by establishing a single physical link to the exchange point, as shown in Diagram 1, directly below .
To illustrate this further, we can use the following example. As shown in Diagram 2 below, three local networks connected to the Internet are able to pass traffic between each other via the 'upstream' Internet.
But if two of the networks are close to each other in the same city or country, it is usually better to use a separate connection for local traffic between the two networks rather than pay for transit and international links, as shown below for
ISP A and B in Diagram 3
However, when there are at least three local networks that exchange traffic with each other, it is more efficient to set up a hub (the IXP) to which each network can connect. The diagram below, Diagram 4, shows how three ISPs would use a local IXP to route their local traffic. An IXP can thus be viewed as the centre of a group of local networks that makes it possible for local traffic to traverse through a single connection from each network to the hub.
 See for example, the OECD's recent report on Internet Traffic Exchange: http://www.oecd-ilibrary.org/science-and-technology/internet-traffic-exchange_5k918gpt130q-en
 ASN data indicates that there were over 44,000 active autonomous networks in mid-2013. See http://www.potaroo.net/tools/asn32/