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Economic Factors in the Allocation of IP Addresses

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Economic Factors in the Allocation of IP Addresses Economic factors in the allocation of IP addresses Dr. Milton Mueller, Syracuse University School of Information Studies, USA and XS4All Professor, Technische Universiteit Delft, Netherlands. With the assistance of Youngseek Kim, Ph.D. candidate, Syracuse University School of Information Studies 1 SUMMARY This study reviews the economic rationale for IP allocation policies and argues that conservation is still a valid concern for IPv6 due to the large basic unit of IPv6 allocation. According to the study, current RIR policies provide few incentives to reclaim unused or under-utilized resources. The study concludes that it is possible to have a much more liberal policy for the initial stage of IPv6 allocation, provided it is associated with efficient reclamation policies and incentives, which incentives should be economic. After analysis of the IPv6 fee structure charged by the RIRs and brief discussion of the routing scalability issue of IPv6, the paper proposes a Transferable Address Block Lease (TABL) model as a market-oriented allocation mechanism. The TABL model employs two economic techniques: (1) fees related to the size of the IPv6 address blocks and (2) transferability. TABLs would be an additional option, not a replacement for needs-based allocations, and confined to the mid range of IP address blocks (/48 - /32). The paper discusses auctions as a method of making initial allocations and concludes that they would not be advisable. The chief advantage of TABL is that it makes addresses available to anyone who wants them in the quantity they need, thus increases end users’ control over their own network destiny and reduce their switching costs to change providers. However, the market mechanism embedded in this model doesn’t directly address the latecomers’ fairness concerns. The concern that the absence of needs assessment might lead to wasteful allocation or inefficient usage of IPv6 resources is answered as follows: charging fees related to the size of the block would provide the right conservation incentives, and the number of TABL blocks any one organization/entity could lease would be limited. Moreover, the combination of fees and transferability would facilitate shifting resources to their most highly valued uses. The concern that TABL could result in larger routing tables is avoided by restricting disaggregation of the TABL blocks. Practical issues in implementing this model include setting the initial allocation fees and the rate at which fees would rise based on size. However, the study concludes that these problems could be solved through an incremental approach and it suggests to use the RIR fee structure as a reference point and choose a fee structure that makes a TABL slightly more expensive but still attractive. The study suggests that ITU could play a constructive role in a possible implementation of TABL. With its experience and expertise in international legal and regulatory frameworks, ITU could develop a model framework for the TABL contract. TABL could be implemented by ITU on a global basis or it could be implemented in countries who wish to adopt this model for their national allocations under the CIR model. 2 Final version (2.2), 9/17/2009 Contents 1. Techno-economic features of IP addressing/routing .................................................. 4 1.1. General observations........................................................................................... 5 1.2. Common pool regimes........................................................................................ 6 1.2.1. Rival consumption ...................................................................................... 8 1.2.2. Exclusion..................................................................................................... 8 1.2.3. Need for appropriation limits...................................................................... 9 1.2.4. Reclamation and reuse.............................................................................. 10 1.3. Routing and addressing..................................................................................... 11 1.3.1. Routing tables ........................................................................................... 11 1.3.2. Externalities in inter-domain routing........................................................ 12 2. The techno-economic features of IPv6 ..................................................................... 14 2.1. IPv6 and conservation....................................................................................... 14 2.1.1. Allocation policy for ipv6......................................................................... 14 2.1.2. Does conservation even matter? ............................................................... 17 2.1.3. RIR fees and IPv6 ..................................................................................... 21 2.2. IPv6 and routing economics.............................................................................. 25 3. Introducing economic factors ................................................................................... 27 3.1. The initial allocations problem ......................................................................... 27 3.2. Auctions? .......................................................................................................... 28 3.3. The Transferable Address Block Lease (TABL).............................................. 31 3.3.1. Route aggregation and TABLs ................................................................. 33 4. Pros and Cons of the proposal .................................................................................. 34 4.1. Benefits ............................................................................................................. 34 4.1.1. TABLs vs. Needs Assessment .................................................................. 35 4.1.2. End user control ........................................................................................ 37 4.1.3. Conservation and reclamation................................................................... 38 4.1.4. Latecomers/fairness .................................................................................. 38 4.2. Costs, questions associated with TABLs.......................................................... 39 4.2.1. How to set the fees? .................................................................................. 40 4.2.2. Fees and IPv6 incentives........................................................................... 41 4.2.3. Where would the money go? .................................................................... 41 4.2.4. Can the market be cornered?..................................................................... 42 4.3. Role of the ITU ................................................................................................. 43 4.3.1. Model contractual/legal framework and fees............................................ 43 4.3.2. ITU as IR................................................................................................... 43 5. Appendix 1: Outline of the evolution of IPv4 institutions and policies ................... 45 5.1. Legacy classful allocations (1981 – 1990)........................................................ 45 5.2. First response to scaling problems (1991 – ~1997).......................................... 46 5.3. Maturation of the RIR regime (~1998 – 2007)................................................. 46 5.4. Response to impending exhaustion of free pool (2008 – ongoing) .................. 47 6. Appendix 2: Aggregation fees .................................................................................. 48 7. References................................................................................................................. 50 3 Economic factors in the allocation of IP addresses This report analyzes the potential for market forces to supplement or substitute for certain RIR functions. The purpose of this exercise is not necessarily to advocate market- oriented policies, but simply to gain a better understanding of what options exist and what implications they might have for address management. The discussion is divided into four sections. The first section analyzes the techno-economic characteristics of IP addresses and their interaction with routing in abstract terms. The second section focuses on the IPv6 address space. It analyzes the IETF recommendations, RIR policies and fee structures pertaining to IPv6, and identifies key questions about scarcity, routing and allocation policy. The third section explores how this newly-emerging IPv6 institutional regime might be changed to employ economic factors (pricing and markets) in the allocation of address space. The last section assesses the possible advantages and disadvantages of the proposal in relation to the status quo, and the possible role the ITU might play in facilitating or implementing such changes. 1. Techno-economic features of IP addressing/routing This section links the analysis of IP address policy to the established vocabulary and concepts of institutional economics. Addressing and routing are usually discussed in technical terms, yet embedded in this highly technical discourse are a number of critical economic concepts, such as scarcity, externalities, tragedy of the commons, and the distribution of costs. Aside from the pioneering work of Geoff Huston, an Internet engineer who makes occasional forays into the engineering economics
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