rfc1744.txt

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Network Working Group                                          G. Huston
Request for Comments: 1744                                        AARNet
Category: Informational                                    December 1994


                   Observations on the Management of
                       the Internet Address Space

Status of this Memo

   This memo provides information for the Internet community.  This memo
   does not specify an Internet standard of any kind.  Distribution of
   this memo is unlimited.

Abstract

   This memo examines some of the issues associated with the current
   management practices of the Internet IPv4 address space, and examines
   the potential outcomes of these practices as the unallocated address
   pool shrinks in size.  Possible modifications to the management
   practices are examined, and potential outcomes considered.  Some
   general conclusions are drawn, and the relevance of these conclusions
   to the matter of formulation of address management policies for IPv6
   are noted.

1.  Introduction

   The area explicitly examined here is the allocatable globally unique
   IPv4 address space.  Explicitly this includes those address groups
   uniquely assigned from a single comprehensive address pool to
   specific entities which are then at liberty to assign individual
   address values within the address group to individual hosts.  The
   address group is handled by the technology as a single network
   entity.

   At present these addresses are allocated to entities on a freely
   available, first-come, first-served allocation basis, within the
   scope of a number of administrative grounds which attempt to direct
   the allocation process to result in rational use of the space, and
   attempt to achieve a result of a level of equity of availability that
   is expressed in a sense of multi-national "regions" [1].

   In examining the current management policies in further detail it is
   useful to note that the IPv4 address space presents a number of
   attributes in common with other public space resources, and there are
   parallels in an economic analysis of this resource which include:





Huston                                                          [Page 1]

RFC 1744          Management of Internet Address Space     December 1994


    - the finite nature of the resource

      This attribute is a consequence of the underlying technology
      which has defined addressed entities in terms of a 32 bit address
      value.  The total pool is composed of 2**32 distinct values (not
      all of which are assignable to end systems).

    - the address space has considerable market value

      This valuation is a consequence of the availability and extensive
      deployment of the underlying Internet technology that allows
      uniquely addressed entities the capability to conduct direct end-
      to-end transactions with peer entities via the Internet.  The
      parameters of this valuation are also influenced by considerations
      of efficiency of use of the allocated space, availability of end
      system based internet technologies, the availability of Internet-
      based service providers and the resultant Internet market size.

    - address space management is a necessary activity

      Management processes are requires to ensure unique allocation and
      fair access to the resource, as well as the activity of continuing
      maintenance of allocation record databases.

   Increasing rates of Internet address allocation in recent years imply
   that the IPv4 address space is now a visibly finite resource, and
   current projections, assuming a continuation of existing demand for
   addresses predict unallocated address space exhaustion in the next 6
   - 12 years (rephrasing current interim projections from the IETF
   Address Lifetime Expectancy Working Group).  There are two derivative
   questions that arise from this prediction.  Firstly what is the
   likely outcome of unallocated address space exhaustion if it does
   occur, and secondly, are there corrective processes that may be
   applied to the current address management mechanisms that could allow
   both more equitable allocation and potentially extend the lifetime of
   the unallocated address space pool.  These two issues are considered
   in the following sections.

2. Outcomes of Unallocated Address Space Exhaustion - No change in
   current Address Management Policies

   As the pool of available addresses for allocation depletes, the
   initial anticipated outcome will be the inability of the available
   address pool to service large block address allocation requests.
   Such requests have already been phrased from various utility
   operators, and the demand for very large address blocks is likely to
   be a continuing feature of address pool management.  It is noted that
   the overall majority of the allocated address space is very



Huston                                                          [Page 2]

RFC 1744          Management of Internet Address Space     December 1994


   inefficiently utilised at present (figures of efficiency of use of
   less than 1% are noted in RFC 1466, and higher efficiency utilisation
   is readily achievable using more recent routing technologies, such as
   Variable Length Subnet Masks (VLSM) and disjoint subnet routing).
   Given the continuing depletion of the unallocated address pool, and
   the consequent inability to service all address allocation requests,
   it is a likely outcome of interaction between those entities with
   allocated address space and those seeking address allocation that
   such allocation requests could be satisfied through a private
   transaction. In this situation an entity already in possession of a
   sufficiently large but inefficiently utilised allocated address block
   could resell the block to a third party, and then seek allocation of
   a smaller address block from the remaining unallocated address space.
   The implication is that both address blocks would be more efficiently
   utilised, although it is the entity which has large blocks of
   allocated address space which would be the primary beneficiary of
   such transactions, effectively capitalising on the opportunity cost
   of higher efficiency of address block use.

   Such reselling / trading opportunities which involve the use of the
   unallocated address pool would in all likelihood be a short term
   scenario, as the high returns from this type of trading would
   increase the allocation pressure from the pool and act to increase
   depletion rates as more pressure is placed to claim large address
   blocks for later resale once such blocks are no longer available from
   the unallocated pool.

   Following exhaustion of the unallocated address pool a free trading
   environment in address blocks is a probable outcome, where address
   blocks would be bought and sold between trading entities.  The
   consequent market, if unregulated, would act to price address space
   at a level commensurate with the common expectation of the market
   value of addresses, trading at a price level reflecting both the
   level of demand, the opportunity cost of more efficient address use,
   and the opportunity cost of deployment of additional or alternate
   internetworking technologies to IPv4.  It is interesting to note that
   within such an environment the registry (or whatever takes the place
   of a registry in such an environment) becomes analogous to a title
   office, acting to record the various transactions to ensure the
   continued accuracy of "ownership" and hence acts as a source of
   information to the purchaser to check on the validity of the sale by
   checking on the validity of the "title" of the vendor.  This impacts
   on the characteristic features of Internet address registries, which
   effectively become analogous to "titles offices", which typically are
   structured as service entities with "lodgement fees" used to fund the
   action of recording title changes.  Whether existing registries adapt
   to undertake this new function, or whether other entities provide
   this function is a moot point - either way the function is a



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RFC 1744          Management of Internet Address Space     December 1994


   necessary adjunct to such a trading environment.

   It is also anticipated that in an unregulated environment the trade
   in address blocks would very quickly concentrate to a position of
   address trading between major Internet providers, where a small
   number of entities would control the majority of the traded volume
   (market efficiency considerations would imply that traders with large
   inventories would be more efficient within this trading domain).  It
   is also reasonable to expect that the Internet service providers
   would dominate this trading area, as they have the greatest level of
   vested interest in this market resource.  This would allow the
   Internet service provider to operate with a considerably greater
   degree of confidence in service lifetime expectation, as the service
   provider would be in the position of price setting of the basic
   address resource and be able to generate an address pool as a hedge
   against local address depletion for the provider's client base.
   There is of course the consequent risk of the natural tendency of
   these entities forming a trading cartel, establishing a trading
   monopoly position in this space, setting up a formidable barrier
   against the entry of new service providers in this area of the
   market.  Such a scenario readily admits the position of monopoly-
   based service price setting. Compounding this is the risk that the
   providers set up their own "title office", so that in effect the
   major trading block actually controls the only means of establishing
   legitimacy of "ownership", which in terms of risk of anti-competitive
   trading practices is a very seriously damaged outcome.

   Assuming a relatively low cost of achieving significantly higher
   efficiency address utilisation than at present, then the resultant
   market is bounded only by the costs of agility of renumbering.  Here
   renumbering would be anticipated to occur in response to acquisition
   of a different address block in response to changing local address
   requirements, and the frequency of renumbering may occur in cycles of
   duration between weeks and years.  Markets would also be constrained
   by deployment costs, where local address trading within a provider
   domain would have little cost impact on deployment services (as the
   aggregated routing scenario would be unchanged for the provider and
   the provider's peers) whereas trading in small sized blocks across
   provider domains would result in increased operational service cost
   due to increased routing costs (where efforts to create aggregated
   routing entries are frustrated by the effects of address leakage into
   other routing domains).

   In examining this consequent environment the major technical outcome
   is strong pressure for dynamic host address assignment services,
   where the connection and disconnection of hosts into the Internet
   environment will cause a local state change in allocated addresses
   (which may in turn trigger consequent extended dynamic renumbering



Huston                                                          [Page 4]