Hi,

If you own a server and want to connect to the Internet, there are companies that will handle the connection for you. This service is known as colocation. Companies that want to have complete control over their server configuration often choose the colocation route. The difference between a colocated server and a dedicated server is that in a dedicated environment the web hosting.

Before deciding if colocation is right for you, there are several factors to consider. First, you must look carefully at the fee structure. Colocation, unlike dedicated servers, requires payment of both rental and connection fees. You will pay a rental fee for the physical space your server will occupy at the host company.

Colocation providers base connection charges on averages instead of the total number of gigabytes transferred during the month. The first is to divide the amount of bandwidth used by the number of seconds in the month. The second method looks at the 95th percentile. To determine transfers using this method, bandwidth is measured every five minutes. At the end of the month, the highest five percent of the readings are dropped.

I agree with above post