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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
+
+
+
+Huston                                                          [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 renumbering
+
+
+
+Huston                                                          [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 or
+
+
+
+Huston                                                          [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 to
+
+
+
+Huston                                                          [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 radio
+
+
+
+Huston                                                          [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 a
+
+
+
+Huston                                                          [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 effective
+
+
+
+Huston                                                         [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 1994
+
+
+6. References
+
+   [1] Gerich, E., "Guidelines for Management of IP Address Space", RFC
+       1466, 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.au
+
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+Huston                                                         [Page 12]
+