Burst vs Committed Rate: How to Size IP Transit Without Overpaying

IP transit is a necessary service that interconnects local and private networks to the global internet, thus allowing real-time collaboration, customer-facing applications, and access to cloud and SaaS platforms, to name a few. Although it is one of the very services that Australian companies need for their digital operations, IP transit has a much more complicated and costly structure compared to the usual flat-rate corporate internet or NBN packages.

The cost of IP Transit varies according to the use of different elaborate models that combine guaranteed capacity with burstable usage, and most of the time, it is calculated by applying the 95th percentile approach rather than a fixed monthly price. IT managers, IT directors, and infrastructure and network managers need to meet the challenge of aligning the spending with the actual traffic demand while maintaining performance and resilience. Without a clear, data-driven approach, these methods could stealthily increase the operating expenses of the network. It is necessary to understand the pricing of IP Transit and optimise it for cost-effectiveness without sacrificing reliability.

Understanding the IP Transit Pricing Models

The Guaranteed Baseline: Committed Information Rate (CIR)

The bandwidth that you purchase from an IP Transit carrier and which is guaranteed, fixed and absolute is referred to as the Committed Information Rate (CIR). It ensures a constant level of performance, which is invariably the case, as it is charged at a fixed monthly rate and paid for even when not used. To be precise, a 1 Gbps CIR port from an Australian wholesale carrier continuously assures that amount of capacity; thus, it is perfect for basic applications such as VoIP, ERP systems, basic cloud connectivity, and others where latency is critical or the system is always to be on.

CIR provides security both at the operational and financial levels. IT managers fancy it for its uniform monthly network OpEx and predictable performance, which finance teams can easily plan without being taken by surprise due to traffic fluctuations. However, this regularity comes at a cost. If CIR is overprovisioned, then the organisation pays for the unused capacity during the slow periods; this is a common situation in mixed work environments or companies with erratic traffic patterns. Instead of increasing the promised minimum, the most effective way to handle CIR is to determine it according to stable, ordinary, and customary demand and apply different pricing models to absorb the occasional peaks.

The Flexibility and Risk of Bursting

The Burst Rate is a metric that indicates the extra capacity beyond your Committed Information Rate (CIR) position which allows your network to temporarily scale up to the physical port speed of the service—usually 1 Gbps, 10 Gbps, or more. This burstable capacity provides essential flexibility to the businesses by letting them take in the sudden, temporary traffic spikes without losing their performance level, whether the cause is a new software release, migration to the cloud, a surge in e-commerce, or increased remote collaboration.

The manner in which burst usage is charged uses a financial risk. The exceeded bandwidth over the CIR is typically billed per megabit, most often using the 95th percentile method. If the bursting is only short and infrequent, then the costs are still manageable. But on the contrary, burst usage can soon lead to fluctuating and potentially large overage costs if the traffic is consistently high. Bursting may very well be the saviour for the Australian enterprises which have to deal with the supply and demand during the seasons, the end of the financial year activities, or even the case of appalling events such as DDoS mitigation traffic; however, if there are no proper monitoring and controls, it will gradually be the network's normal state of operation. Diligent management of burst capacity to actual peaks only and not as a substitute for suitably sized baseline CIR is the key to cost-effective cost management.

The 95th Percentile Method for Data-Driven Sizing

Calculation and Definition of the 95th Percentile

The 95th percentile is the most widely used measurement technique for IP Transit pricing, and to be able to control costs efficiently, a good knowledge of its technical mechanism is mandatory. Over a monthly billing period, carriers usually take samples at regular five-minute intervals to monitor your bandwidth usage. At the end of the month, all the consumption samples are ranked from the lowest to highest, and then the top 5% of the highest readings are wiped out. After that, the highest remaining value, or the 95th percentile, is used to charge your bill.

The main purpose of this method is to give a bonus to short and infrequent traffic spikes. These kinds of situations are coming from the very nature of the method you are charged by, in which the very short ups of creating software, video conferences over the whole company, and so on are often not charged or just fall within that short 5% cancellation over the top of your normal traffic; they are just added to your bill. However, such samples remain within the chargeable 95% and immediately increase your charges if heavy usage is persistent or happens frequently. The methodology effectively punishes high consumption that is continuous while ignoring outliers.

This leads the network and infrastructure teams to change their focus from optimising for absolute peak capacity to managing sustained and near-peak use. The goal is to have high traffic levels that are momentary, not to eliminate every spike. The 95th percentile approach, when rightly implemented, provides a satisfactory blend of cost-effectiveness and flexibility, but when wrongly applied, it might subtly increase IP Transit expenditure through continuous overuse.

Strategic Placement of the CIR Threshold

After determining your earlier 95th percentile consumption, you can make a strategic decision about where to place your Committed Information Rate (CIR). This decision directly determines the trade-off between financial efficiency and cost predictability.

Setting a higher CIR means that you will have the same, predictable monthly prices every month and that there will be less risk of burst charges. This method is best when the company is more concerned with performance than costs, but it can lead to paying for unused capacity during low-usage periods. On the contrary, a lower CIR will lead to a lower fixed cost but, on the other hand, will expose the company to the possibility of regular operational peaks, such as patching, backups, or busy collaboration windows, causing consumption to soar. Such frequent peaks may raise variable charges and affect the 95th percentile.

In practice, quite a few of the Australian businesses aim for a CIR that is slightly lower than their historical 95th percentile. This way, fixed expenses with baseline demand are kept up to date, and at the same time, controlled bursting is allowed during normal peaks. Looking back at a minimum of six months of traffic data and positioning the CIR at 70 to 90 percent of the recorded 95th percentile is a very common practice. If downtime or performance risk is unacceptable, the CIR should be set higher; if savings are the biggest concern, it should be set lower. This kind of strategy greatly rides on the accurate data, constant visibility, and proactive network usage control to ensure burst usage does not become the norm.

Mitigating Overage Risk and Future-Proofing

Traffic Monitoring and Alerting for Overage Prevention

The reduction of IP Transit costs in an effective manner calls for very strict and continuous monitoring of traffic. The tools that are based on NetFlow or sFlow provide the most detailed and an instant view of network traffic usage, thus identifying the applications that are consuming the most bandwidth, the times when this is happening and the users involved. With such a high level of information, IT departments can correlate the traffic patterns with the company’s activities, detect unusual behaviour at an early stage, and tell the difference between actual growth and temporary spikes.

The taking advantage of automatic notifications is of equal importance. The network teams should be given sufficient time to respond, and therefore the thresholds should be set well in advance of the traffic reaching the calculated 95th percentile, which is usually between 70 and 80%. Early alerts enable proactive mitigation measures like traffic shaping, rate limitation, rescheduling non-critical workloads or rerouting traffic through alternative paths before prolonged usage turns into billing. The teams are forced to respond after the cost impact has been firmed up without this buffer.

The network and infrastructure managers should not consider the monitoring of usage as a reactive troubleshooting method but rather should make it part of the capacity planning and regular reporting process. The constant monitoring in conjunction with the operational dashboards and alerting systems transforms the burst capacity from an uncertain financial risk into a controlled and quantifiable part of the network architecture, thus assuring that performance is not compromised while incurring unnecessary overage charges.

Strategic Traffic Shaping and Policy Enforcement

By doing proactive bandwidth management, organisations can manage their IP Transit costs even without the use of a higher CIR. One of the most efficient approaches is traffic shaping, which is the direct control of network traffic at the border based on policy to reduce the impact of bandwidth usage during peak times.

Through the use of traffic shaping and QoS (Quality of Service), the teams can assign top priority to their most important communication, such as voice, ERP systems, payment platforms, financial transactions, and other applications requiring low latency. This maintains satisfactory performance even in periods of high network demand. The traffic that is considered non-critical or bulk, such as heavy file downloads, software updates, backups, and test workloads, can be slowed down, given lower priority, or scheduled for off-peak hours. Such actions would help keep the measured 95th percentile low and also reduce the prolonged use during the vital times.

Traffic shaping plus ongoing monitoring and alerts turns bandwidth control from a reactive solution to a proactive discipline. The network teams will be able to protect the critical services, manage the usage according to the business needs and smooth out the traffic patterns instead of increasing the CIR to cope with the sporadic surges. Thus, it is possible to have the long-term IP Transit cost optimisation without having to incur the permanent raising of guaranteed capacity, while still protecting the user experience in the most important areas.

The most effective IP transit is not about the choice of fixed or burstable bandwidth, but rather, finding the ideal combination of the predictable costs of the Committed Information Rate (CIR) and the flexibility of the Burst Rate. The primary tool of this method is the 95th percentile, which is used as the main sizing and measuring method that links network expenses to long-term, real demand instead of the short-lived peaks.

Utilising the method of historical traffic data analysis, proper determination of CIR, and constant monitoring of the usage, companies in Australia can not only eliminate wastage but also stop unexpected burst rate overage charges and make a network that expands together with the company’s needs through the application of smart traffic shaping.

In case you are evaluating your IP Transit plan or desire to manage costs more effectively without giving up performance, contact the Nexthop team, and we will create a data-driven strategy for your network that corresponds with your needs.