Discussion of IPv4 Depletion and Resource Transfer Policies

This wiki page contains discussion of IPv4 resource transfer policies as they may obtain in the wake of IPv4 free-pool depletion. If you have a point you'd like to introduce into the discussion, please either email it to Bill Woodcock woody@pch.net or Tom Vest tvest@eyeconomics.com, or use the "Login" button at the bottom of the page to create an account for yourself, and then email Bill to get the account authorized for write-access to this page.

Our method will be to add new text to the body of this page, discuss it and potential edits in footnotes, and when consensus is reached on an edit, apply the edit to this page and move both the prior text and the footnotes which refer to it to off into a new subsidiary page.

The contents of this page and any sub-pages within the "pch:public:ipv4transfer" hierarchy are free for reuse and adaptation without attribution under the Creative Commons Sampling Plus 1.0 License. None of the contents may be attributed to any individual author without their explicit permission.

Frequently-Asked Questions

Does today's limited deployment of IPv6 constitute a failure of private-sector self-regulation?

No. IPv6 offers an expanded range of addresses, and is intended to solve the problem of IPv4's limit of approximately four billion addresses. IPv6 offers no benefits other than additional address space, so there is no reason for the industry to deploy IPv6 in advance of IPv4 depletion, other than experimentation and "gaining experience with it." That said, the transition is not an instant one, particularly for large networks, so many of the largest ones are already several years into their multi-year IPv6 transition processes. The industry would accrue no benefit from switching to IPv6 "early," and in an industry in which many participants feel they must double in size each year in order to keep up with the overall growth of the Internet, the net present value of the time and energy needed to transition to IPv6 is very high. Thus, postponing the transition until the appropriate moment makes better business sense than performing it earlier than necessary.

Does a "market" in IPv4 addresses exist today?

Yes, a "black" market (by definition unregulated and not-officially-recognized) in IPv4 addresses presently exists, just as an unregulated black market in prescription drugs exists. As in any black market, evading regulation comes with a cost, both a higher monetary unit cost, and a risk of resource revocation or civil or criminal penalties.

What do IPv4 addresses cost today?

It's not possible to "own" an IP address, since it's merely a number, and its value lies in its //unique assignment// rather than being inherent to the number itself. Nonetheless, there are costs associated with the labor of performing and maintaining unique assignment, and likewise there are costs associated with evading regulation to use the black market. Today, if you were to divide those costs by the number of addresses held, this is what you would see¹

ARIN minimum allocation (/22 for US$1,250): US$1.22\ ARIN maximum allocation (/8 for US$18,000): US$0.0011 ("Flatness" ratio: 1109)

APNIC minimum allocation (/22 for US$1,484²): US$1.45\ APNIC maximum allocation (/8 for US$47,509): US$0.0028 ("Flatness" ratio: 518)

RIPE minimum allocation (/22 for US$5,016³): US$4.90\ RIPE maximum allocation (/8 for US$11,387): US$0.00068 ("Flatness" ratio: 7206)

LACNIC minimum allocation (/21 for US$850): US$0.42\ LACNIC maximum allocation (/8 for US$33,000): US$0.0017 ("Flatness" ratio: 247)

AfriNIC minimum allocation (/24 for US$2,800): US$10.94\ AfriNIC maximum allocation (/14 for US$10,300): US$0.04 ("Flatness" ratio: 274)

Black market minimum block (/24 for ~US$3,000): US$11.72\ Black market maximum block (/16 for ~US$65,000): US$0.99 ("Flatness" ratio: 12)\

What does "convexity" mean in the context of IP address pricing?

Convexity, in this context, means the property that a block of address space has a higher price in the market than would the sum of its parts. Large blocks would have a higher per-address price than small ones. A convex market would be one way of assuring that sellers of address space would prefer not to disaggregate unnecessarily, and to maximize the number of large (and therefore probably scarce) blocks available to those who would like to be able to make large aggregate announcements. Preserving aggregation is one of the conservationist regulatory goals of the RIRs. This would seem to make market convexity inherently desirable.

So how can we cause "convexity" in the market?

Unordered Notes

Bill's basic principles:

• Any address space received by someone who cannot justify it on the basis of actual use ⁴ is, by definition, removed from the pool of usable addresses.
• Having the maximum number of usable addresses available benefits the industry, and Internet users.
• Having addresses available at a low cost benefits the industry, Internet users, and growth of the Internet.
• Maximizing the degree to which any money which changes hands in association with allocation of, or transfer of, addresses stays within the industry for reinvestment benefits the industry, and ultimately Internet users.
• People who cannot qualify as recipients on the basis of need are, by definition, not in the industry.
• People who cannot qualify as recipients on the basis of need, and are attempting to purchase IP addresses are, by definition, speculators.
• Speculators engage in their trade, buying low and selling high, for the purpose of maximizing the positive differential between the buying and selling prices.
• If speculators are maximizing the amount of money they charge utility users, and they are by definition not in the industry themselves, they are maximizing the degree of cash extraction from the industry. This harms the industry, as it minimizes the amount of money available for reinvestment, growth, et cetera, while maximizing the costs that customers pay for service.
• Speculators withhold commodities from the marketplace in order to maximize demand and resale price. This removes them from the pool available to utility users.
• The RIRs' constituency is the Internet, Internet users, and the Internet service provision industry. Speculators outside the Industry are not within the RIRs' constituency. The RIRs' allegiance is owed to the Internet, and the RIRs must therefore work to maximize the availability of IPv4 addresses to actual use on the Internet, and work to minimize the cost of those addresses to the industry and ultimately to Internet users.
• The higher the ratio of sellers to buyers in a market, the higher availability is, and the lower costs will fall. ⁵
• The lower the ratio of sellers to buyers in a market, the lower availability is, and the higher costs will rise.
• For the good of the Internet, it is the RIRs' responsibility to maximize the number of sellers in the market, and minimize the number of buyers.
• Restrictions placed upon potential sellers of addresses serve to dissuade them from bringing their addresses to market, and are thus anathema.
• Restrictions placed upon potential recipients of addresses serve to minimize the number of buyers, and are thus ultimately beneficial for availability and price, benefiting the Internet.
• RIRs presently have a highly-evolved, bottom-up, publicly, transparently, and democratically-developed regime of regulatory restrictions upon the recipients of address space. A public policy development process obtains, which is entirely sufficient to modify or fine-tune those restrictions, if need arises.
• No need has been demonstrated to modify the restrictions upon address recipients in the wake of IPv4 depletion.
• No need has been demonstrated to place restrictions upon offerors of address space in the wake of IPv4 depletion.
• A need exists to maintain aggregateability in the address blocks routed on the Internet.
• This need dictates that large contiguous address blocks be favored wherever possible.
• This need dictates that a market be "convex," to use Ben's term, such that sellers are more highly rewarded for selling whole contiguous blocks, than for breaking them up into small pieces and selling those individually.
• This is a progressive pricing model, as opposed to the regressive pricing model which currently exists. That is, in the future, in order to maintain a degree of aggregation, large blocks of addresses must cost more //per address// than small ones, whereas the reverse is presently true.

Tom's random responses:

• The atomic elements upon which Bill's principles are based -- i.e., "industry members" and "speculators" -- seem a bit problematic, in that they make it difficult to characterize some anticipated high-probability, real world situations. If I'm reading correctly, the definition of "industry member" incorporates needs-based delegation criteria, but those criteria either did not apply to the first 50%+ of IPv4 address resources that were delegated, or else the criteria changed so much post CIDR/RIRs that the previous delegations would no longer qualify.⁶ Do institutions that continued to retain resources in excess of "need" still qualify as "in the industry"? Do they qualify as "speculators"?⁷ What about network service providers that possess/seek an excess of addresses with no regard for overall address resource buy/sell price dynamics, and no intention to resell ever, but merely to eliminate potential competition for other network services?⁸⁹The history of, e.g., bandwidth, dark fiber, et al., clearly demonstrates that such behavior is all too common in the industry any time/place when alternative suppliers can be effectively excluded from a defined market. ¹⁰¹¹ Perhaps this suggests that an additional category (e.g., "hoarders") needs to be added to Bill's taxonomy (?). ¹²

• Related to the above, there is an unacknowledged tension between Bill's "third" (keeping prices low) and "fourth" principles (keeping transfer-related revenues within the industry), to wit: is there any price point at which the overall cost to the industry of keeping transfer-related revenues in-house would exceed the benefits? Once one acknowledges the possibility of "hoarders" and/or "within-industry speculators", it follows that prices for resource transfers are vulnerable to manipulation. If that happens and resource pricing rises to problematic levels (e.g., it becomes a substantial barrier to new entry), at what point does that cease to be a virtue and start to become an anti-competitive concern? ¹³¹⁴