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Network Working Group                                          G. HustonRequest for Comments: 1744                                        AARNetCategory: Informational                                    December 1994Observations on the Management ofthe Internet Address SpaceStatus 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 veryHuston                                                          [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 inRFC 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 aHuston                                                          [Page 3]

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 renumberingHuston                                                          [Page 4]

RFC 1744          Management of Internet Address Space     December 1994   from time to time to accommodate longer term address usage trends).   It is also reasonable to predict a strengthening market for dynamic   address translation technologies, as an alternate client strategy to   the purchase of large address blocks from the trading market (this   scenario is the use of a private, potentially non-unique address   space within the client network, and the dynamic translation of end   host addresses into a smaller unique Internet routed address pool to   support external end-to-end sessions), and also the strengthened   market for firewall boundary technologies which also admit the use of   private address space within the client domain.   While it is not possible to accurately predict specific outcomes, it   would appear to be the case that increasing overall efficiency of   address utilisation will be most visible only after unallocated   address pool exhaustion has occurred, as there is then a consequent   strong economic motivation for such activity across all the entire   Internet address space.   As perhaps a cautionary comment regarding evolutionary technologies   for IPv4, it would also appear to be the case that evolutionary   technologies will not assume a quantum increase in economic viability   simply because of unallocated address pool exhaustion.  Such   technologies will only lever additional advantage over IPv4 once the   marginal cost of increased IPv4 address space deployment efficiency   exceeds the marginal cost of deployment of new technologies, a   situation which may not occur for some considerable time after   unallocated address pool exhaustion.3. Modification of Current Internet Address Management Policies   The three major attributes of the current address allocation   procedures from the unallocated pool are "first come first served"   (FCFS) and allocation on a "once and for all" (OAFA) basis, and the   absence of any charge for address allocation (FREE).   As noted above, the outcomes of such a process, when constrained by   the finite quantity of the resource in question, ultimately leads to   a secondary market in the resource, where initially allocated   resources are subsequently traded at their market valuation.  This   secondary trade benefits only those entities who established a   primary position from the unallocated pool, and it is noted with   concern that the optimal behaviour while the unallocated pool exists   is to hoard allocated addresses on the basis that the secondary   market will come into existence once the pool is exhausted.  Such a   market does not benefit the original address management operation,   nor does it necessarily benefit the wider community of current and   potential interested parties in the Internet community.Huston                                                          [Page 5]

RFC 1744          Management of Internet Address Space     December 1994   It is also noted that the outcome of a free address allocation policy   is the vesting of the management of the address space to the larger   Internet Service Providers, on the basis that in the absence of end   client address allocation charging policies which have the capability   of ensuring an independent address management function, those   entities who have the greatest vested interest in the quality of the   address allocation and registration function will inevitably fund   such an operation in the absence of any other mechanism.  The risk   within this scenario is that placing the major asset of any   communications medium into the sphere of interest of the current   entities trading within that medium acts to increase the risk of   anti-competitive monopolistic trading practices.   An alternate address management strategy is one of allocation and   recovery, where the allocation of an address is restricted to a   defined period, so that the allocation can be regarded as a lease of   the resource.  In such an environment pricing of the resource is a   potential tool to achieve an efficient and dynamic address allocation   mechanism (although it is immediately asserted that pricing alone may   be insufficient to ensure a fair, equitable and rational outcome of   address accessibility and subsequent exploitation, and consequently   pricing and associated allocation policies would be a normative   approach to such a public resource management issue).   It is noted that pricing as a component of a public resource   management framework is a very common practice, where price and   policy are used together to ensure equitable access, efficient   utilisation and availability for reallocation after use.  Pricing   practices which include features of higher cost for larger address   blocks assist with equitable access to a diversity of entities who   desire address allocation (in effect a scarcity premium), and pricing   practices can be devised to encourage provider-based dynamic address   allocation and reallocation environments.   In the same fashion as a conventional lease, the leasee would have   the first option for renewal of the lease at the termination of the   lease period, allowing the lease to be developed and maintain a   market value.  Such pricing policies would effectively imply a   differential cost for deployment of a uniquely addressed host with   potential full Internet peering and reachability (including local   reachability) and deployment of a host with a locally defined (and   potentially non-unique) address and consequent restriction to local   reachability.   It is also observed that pricing policies can encourage efficient   address space utilisation through factors of opportunity cost of   unused space, balanced by the potential cost of host renumbering   practices or the cost of deployment of dynamic address allocation orHuston                                                          [Page 6]

RFC 1744          Management of Internet Address Space     December 1994   translation technologies.   There are a number of anticipated outcomes of a management mechanism   which including pricing elements for the IPv4 address space   Firstly current address space utilisation projections (anticipated   useful lifetime for the pool of unallocated addresses) would extend   further into the future due to the factors of cost pressure for more   efficient address utilisation, and the additional cost of issuing a   local resource with a globally unique address and the opportunity   cost of extravagant use of global addresses with purely local   domains.   Secondly dynamic host address binding technologies, and dynamic   network address translation technologies would be anticipated to be   widely deployed, based on the perceived cost opportunities of using   such technologies as an alternative to extensive static host address   binding using globally unique addresses.  Use of such technologies   would imply further extension of the lifetime of the address pool.   Such pricing practices could be applied on a basis of all future   address allocations, leaving those entities with already allocated   address blocks outside of the lease mechanism.  Alternatively such   previous allocations could be converted to leases, applying a single   management policy across the entire address space and accordingly   levering the maximal benefit from such pricing policies in terms of   maximising the lifetime of the address space and maximising the value   of the address space.  In such a situation of conversion some level   of recognition of previous implicit OAFA allocation policies can be   offset through delay of conversion to lease and also through   conversion of such previously allocated addresses to the lease,   waiving the lease purchase costs in such cases.4. Internet Environment Considerations   Pricing for IPv4 addresses as a component of the overall address   management framework is by no means a novel concept, and despite the   advantages such pricing policies may offer in terms of outcomes of   efficiency of utilisation, fair and equitable access, security of   allocation and consequent market value, and despite the address pool   exhaustion time offsets such policies offer, it is the undeniable   case that no explicit pricing policies have been successfully   introduced into the Internet address allocation processes to date.   There are two predominate reasons offered in this analysis.  The   first is the somewhat uncertain nature of the exact origin of primary   ownership of the IPv4 address space, and the unallocated address pool   in particular.  The address pool has been administered according toHuston                                                          [Page 7]

RFC 1744          Management of Internet Address Space     December 1994   policies drafted by the Internet Assigned Numbers Authority (IANA).   The policies drafted by IANA are effectively policies which are the   outcome of the same consensus seeking approach used within the   Internet Standards process, and it is noted that within such an   environment unilateral declarations of ownership and related   assertions of policy control have difficulty in asserting an   effective role within the Internet community and such declarations   are generally incapable of gathering consensus support (It can be   argued that "ownership" is not a relevant concept within this domain,   as the essential attribute of such address elements are their   uniqueness within the global domain, and such an attribute is only   feasible through common recognition of a coordinated and reliable   management environment rather than the historical origin of the   resource in question).  Secondly there is no formal recognition of   the address space as being a shared international resource which sits   within the purview of national public resource management policies   and administrative entities of each nation, nor is there a   recognition of the address space as a private resource owned and   administered by a single entity.   Recent policy changes, whereby large segments of the unallocated   address pool have been assigned to international bodies on a regional   basis, with further assignment to bodies within national contexts,   have been undertaken with a constant address allocation policy of   FCFS, OAFA and FREE, and although some effort has been made to   increase the deployment efficiency through explicit allocation policy   enumeration, the general characteristics of address allocation are   unchanged to date (those characteristics being of course FCFS, OAFA   and FREE).   One potential scenario is to speculate that pricing processes imposed   by the address allocation agency are not feasible within the current   Internet environment to the extent that any such policies could   significantly motivate increased address deployment efficiency to the   levels required for longer term unallocated address pool lifetime   extension.  The lack of capability to employ pricing as a managerial   mechanism, even to the extent of cost recovery of the allocation and   subsequent registry maintenance function has a number of possible   longer term outcomes:    a) such functions will be restructured and operated from duly       authorised national administrative bodies for each nation.       Here the observation that the address pool delegation sequence       within the current Internet environment has not to date been       aligned with recognised national public communications resource       administrative entities is an expression of the major problem       that the unallocated address pool is not recognised as being       intrinsically the same public resource entity as the radioHuston                                                          [Page 8]

RFC 1744          Management of Internet Address Space     December 1994       spectrum or the telephone number space.  The consequence of       this mismatch between existing public resource management       structures and IPv4 address space management implies that       public operation for this activity on a national basis       is not a commonly observed attribute.  The competency of such       established public resource management structures in managing       what continues to be a remarkably vibrant and dynamic       technology-influenced domain must be questioned.  Potential       outcomes may possibly include a rational and equitable address       space management mechanism, but would also in all probability       include a cost of a heavy damping factor on further       technological innovation and refinement of the underlying       technology base upon which the address space is sited as a       longer term outcome.    b) such functions are operated (and/or funded) by Internet Service       Providers.  This is a more common scenario at present in the       Internet IPv4 environment, and although such an operational       environment does admit the potential for adequate funding for       competent administration of the operation, the strong       association of these entities who have established interests in       the operation of enterprises based on the provision of services       across the address space (i.e., strong interest in exploiting       the address space) has a natural tendency to express domination       of the market by established interests, threatening fair access       to the common resource and threatening the open market of       deployment of the technology.  It is reasonable to suggest that       such alignments are undesirable from a public policy       perspective.    c) such functions are inadequately funded to service the level of       activity, and / or administrated informally and consequently       managed poorly, and the essential attribute of reliable address       space management is not achieved.   It is noted that these issues are largely unresolved within the   Internet community today, and tensions between established and   incoming Internet Service providers over equitable access to the   unallocated address space pool are a consequent risk.5. Concluding Observations   In the absence of the capability to price the management of the   Internet address space at administrative cost levels, let alone the   capability to set pricing of address leasing at prices which reflect   the finite nature of the resource and reflect (even in part) the   market value of the resource, as a component of overall common   address management practices, the most likely scenario is aHuston                                                          [Page 9]

RFC 1744          Management of Internet Address Space     December 1994   continuation of the FCFS, OAFA and FREE address management policies   until exhaustion of the unallocated address pool occurs.   It is perhaps a sad reflection of the conflict of short term   objectives and longer term considerations that the evident short term   motivations of ready and equitable access to the IPv4 address (which   were the motivational factors in determining the current Internet   address allocation policies) run the consequent risk of monopoly-   based restrictive trade and barrier-based pricing as a longer term   outcome of unallocated address space exhaustion.   While free address allocation and the adoption of policies which   include pricing components both ultimately produce an outcome of   strong pressure for increased address space utilisation efficiency,   the removal of the neutral presence of the unallocated address pool   does induce considerable risk of open market failure within the   Internet itself if free address allocation policies continue until   pool exhaustion has occurred.   Further strengthening of the current FCFS, OAFA and FREE address   allocation policies, in an effort to induce higher address   utilization efficiencies across the remaining address space is not a   viable address management strategy refinement, in so far as the   trading market will then commence before unallocated pool exhaustion,   trading in large address blocks which are precluded from such   strengthened address allocation policies.   The most negative aspect of this are is that these processes will   erode levels of confidence in the self regulatory capability of the   Internet community, such that significant doubts will be expressed by   the larger community the Internet process is one which is appropriate   for effective formulation of common administrative policy of one of   the core common assets of the Internet.   These outcomes can all be interpreted as policy failure outcomes.   The seriousness of these outcomes must be assessed in the terms of   the anticipated timeframe of such policy failure.  Current   expectations of unallocated address pool lifetime of 6 - 12 years   does allow the Internet community some time to revisit their methods   of administrative process definition, but this observation is   tempered by the IPv6 process and by increasing levels of pressure on   the address space in terms of growth in address demand through growth   of deployment of the Internet itself.   It is perhaps an appropriate conclusion to acknowledge the   impediments of existing processes to admit any significant process or   policy change that would produce a more efficient and effectiveHuston                                                         [Page 10]

RFC 1744          Management of Internet Address Space     December 1994   address space management regime.   However it is this policy failure to efficiently utilise the IPv4   address space through inadequate address pool management policies,   rather than the exhaustion of the pool per se which is perhaps the   driving force to design and deploy an evolutionary technology to IPv4   which possesses as a major attribute a significantly larger address   space.   It is also appropriate to conclude that any outside observer of the   IPv6 refinement process will look to see if there is any evidence of   experiential learning in address management policies.  If there is to   be a successor technology for IPv4 it would be reasonable to   anticipate that associated address pool management mechanisms show a   greater degree of understanding of public resource space management   capability in the light of this experience.  If no such evidence is   forthcoming then there is no clear mechanism to instil sufficient   levels of consumer and industry confidence in such technologies in   such a way which would admit large scale public deployment,   irrespective of the technical attributes of the successor technology.   Such potential mechanisms may include pricing components irrespective   of the actual size of the address resource, given that the number's   uniqueness is a resource with inherent market value irrespective of   whether scarcity pricing premiums are relevant in such an address   space.   It is also appropriate to conclude that continuation of current   address space management policies run a very strong risk of   restrictive and monopoly-based trading in address space, with   consequence of the same trading practices being expressed within the   deployed Internet itself.   The immediate action considered to be most appropriately aligned to   both the interests of the Internet community and the broader public   community is to examine Internet address space management structures   which include pricing as well as policy components within the overall   management mechanism, and to examine the application of such   mechanisms to both the existing IPv4 address space, and to that of   any refinement or successor Internet technology base.Huston                                                         [Page 11]

RFC 1744          Management of Internet Address Space     December 19946. References   [1] Gerich, E., "Guidelines for Management of IP Address Space",RFC1466, Merit Network, Inc., May 1993.7. Security Considerations   Security issues are not discussed in this memo.8. Author's Address   Geoff Huston   Australian Academic and Research Network   GPO Box 1142   Canberra  ACT  2601   Australia   Phone: +61 6 249 3385   Fax: +61 6 249 1369   EMail: Geoff.Huston@aarnet.edu.auHuston                                                         [Page 12]