Tier 1, 2, and 3 Networks

The Internet has a caste system.

Tier 1 networks sit at the top. They can reach every destination on the Internet without paying anyone for the privilege. Below them, Tier 2 networks pay for some connectivity and peer for the rest. At the bottom, Tier 3 networks—including your home ISP—pay for everything.

Money flows upward. Data flows everywhere. Understanding this hierarchy explains why some networks hold power over others, how your traffic actually reaches its destination, and why companies like Netflix have bent the old rules entirely.

The Core Distinction

The tier system comes down to one question: Do you pay for connectivity, or does connectivity pay you?

Tier 1 networks don't pay anyone. They achieve global reach solely through settlement-free peering—agreements to exchange traffic without money changing hands. When AT&T and NTT peer, neither pays the other. Both benefit from direct access to the other's customers.

Tier 2 networks pay some and peer some. They're large enough to negotiate peering with similar networks but must purchase transit from Tier 1 providers to reach the whole Internet.

Tier 3 networks pay for everything. They're customers, not peers. Your home ISP almost certainly falls here, buying connectivity from a larger regional or national provider.

Tier 1: The Peering Aristocracy

There are perhaps a dozen true Tier 1 networks globally:

• AT&T (United States)
• Verizon Business (United States)
• Lumen Technologies, formerly Level 3 (United States)
• GTT (Europe/Americas)
• NTT Communications (Japan/Asia)
• Tata Communications (India/Asia)

These networks have invested billions in global infrastructure: transcontinental fiber, submarine cables, Points of Presence in every major city, high-capacity routers at exchange points worldwide.

The investment isn't optional. Tier 1 status requires maintaining settlement-free peering with every other Tier 1 network. If your infrastructure coverage shrinks or your traffic becomes too asymmetric, other Tier 1 networks might demote you—converting your settlement-free relationship into paid transit. You'd fall from the aristocracy.

Tier 2: The Middle Kingdom

Tier 2 networks live on strategic calculation. They peer where it saves money and buy transit where it doesn't.

Some are regional powerhouses with extensive infrastructure in specific areas—peering heavily within their territory but buying transit for other continents. Others are national networks that handle domestic traffic through peering but purchase international connectivity. Some focus on specific segments like content delivery, peering heavily with content providers while buying transit for other destinations.

The economics drive every decision. Building infrastructure costs money. So does transit. Tier 2 networks constantly evaluate which approach is cheaper for reaching any given destination.

Tier 3: The Customers

Tier 3 networks purchase all their connectivity from upstream providers. This includes most small and medium ISPs, corporate networks, universities, and organizations with Internet connections.

Tier 3 doesn't mean inferior quality. Some Tier 3 networks deliver excellent service. The tier simply describes their position in the economic hierarchy: they're buyers, not sellers, of connectivity.

Transit: Paying for Global Reach

Transit is the commercial relationship where one network pays another to carry its traffic everywhere. When you buy transit, you're buying a promise: give us any destination IP address, and we'll find a path to deliver it.

Pricing depends on committed bandwidth, typically measured as the 95th percentile of usage over a billing period. Small customers might pay tens of dollars per megabit per month. Large customers with multi-gigabit connections negotiate below one dollar per megabit through volume discounts.

Transit costs have fallen dramatically over decades. What once cost thousands per megabit now costs single digits. This price collapse has reshaped the economics of the entire tier system.

Peering: Trading Traffic as Equals

Peering is an agreement to exchange traffic without payment. Networks peer when they believe the mutual benefit is roughly equal.

Settlement-free peering means neither side pays. Both networks gain direct connectivity that's typically faster and more reliable than routing through intermediaries.

Peering happens two ways:

Public peering occurs at Internet Exchange Points—shared facilities where many networks connect. Two networks establish a BGP session across the exchange infrastructure.

Private peering uses dedicated connections between two networks, typically for very high traffic volumes where shared infrastructure would be insufficient.

Not all peering requests succeed. Networks evaluate potential peers on traffic ratios, geographic coverage, network quality, and strategic value. Peering is negotiated, not automatic.

Money Flows Up, Data Flows Everywhere

The tier system creates a clear economic hierarchy:

• Tier 3 networks pay Tier 2 networks
• Tier 2 networks pay Tier 1 networks
• Tier 1 networks pay no one

But data doesn't follow the hierarchy so neatly. A Tier 3 network might peer directly with a content provider, bypassing its transit providers entirely for that traffic. The payment hierarchy is strict; the data paths are opportunistic.

Content Providers: The New Aristocracy

Google, Meta, Netflix, and Microsoft have bent the traditional system.

These companies generate traffic so valuable that other networks want to carry it—because their customers demand access to this content. This leverage lets content providers negotiate peering terms that rival or exceed what traditional Tier 2 networks achieve.

Content providers deploy infrastructure globally, peer extensively at exchange points, and sometimes build their own submarine cables. They don't fit the traditional tiers. They're not Tier 1 (they don't sell transit). They're not clearly Tier 2 or 3 either.

They've created a parallel hierarchy based on content value rather than infrastructure investment. The old aristocracy was about cables and routers. The new aristocracy is about eyeballs and engagement.

Multi-Homing: Hedging Your Bets

Larger networks rarely rely on a single upstream provider. Multi-homing—using multiple transit providers simultaneously—offers three advantages:

Redundancy: If one provider fails, traffic fails over automatically.

Performance: Different providers offer better paths to different destinations. Traffic can be engineered to use optimal routes.

Leverage: Having alternatives provides negotiating power on pricing and terms.

Multi-homing requires sophisticated routing policies to manage traffic distribution and handle failover gracefully, but the benefits usually justify the complexity.

How Routes Propagate

When you connect a new network, you advertise your IP address ranges to your transit provider via BGP (Border Gateway Protocol). Your provider announces these routes to its peers and upstream providers.

Tier 2 and Tier 3 networks advertise selectively—announcing their own customers' routes but not routes learned from other providers. This prevents them from accidentally becoming transit for traffic they're not being paid to carry.

Tier 1 networks announce routes globally through their peering mesh. Once any Tier 1 network learns your route, other Tier 1 networks learn it through peering. Global reachability follows automatically.

Path Selection in Practice

When data travels between two networks, the path depends on relationships:

If source and destination both use the same Tier 1 network, traffic flows directly through it.

If they use different Tier 1 networks, traffic crosses one peering connection between them.

If they're on different Tier 2 networks with different Tier 1 providers, traffic might traverse: Tier 3 customer → Tier 2 provider → Tier 1 provider → Tier 1 peer → Tier 2 provider → Tier 3 destination.

Networks prefer customer routes over peer routes over provider routes. This preference creates predictable traffic patterns and ensures networks prioritize the relationships that generate revenue.

The System Is Evolving

The traditional tier hierarchy is under pressure:

Internet Exchange Points have made peering more accessible. Smaller networks can now peer directly rather than relying solely on transit.

Transit pricing has collapsed. The cost advantage of peering has diminished when transit is cheap.

Content providers have gained influence that doesn't fit traditional classifications.

Regional variation means the tier system looks different in different parts of the world.

Despite these changes, the fundamental logic holds: someone has to pay for global connectivity, and your position in the hierarchy determines whether you're paying or receiving.