[ppml] Markets, pricing, transparency, 2008-2 / 8.3.9

Tom Vest tvest at pch.net
Mon Mar 17 01:53:56 EDT 2008

On Mar 16, 2008, at 5:04 PM, Scott Leibrand wrote:

> Tom,
> To summarize, you are suggesting that we need to have ARIN collect  
> and publish price information on each IPv4 transfer transaction,  
> correct? Currently 8.3.9 reads, in part, "ARIN will also publish a  
> log of all transfers, including block, transferor, transferee, and  
> date", and you want to add "price paid" to that list, right?  Do  
> you have any suggestions as to whether/how ARIN should concern  
> itself whether the price reported by the transferor and transferee  
> is accurate?
> An assumption we made in the proposal was that transparency would  
> be achievable through the ARIN-operated listing service: both  
> transferees and transferors would choose to list there, and would  
> provide a listing/offered price on each entry.  This would provide  
> ARIN and the public information as to the prices people are willing  
> to pay/accept, and one could assume that most transactions would  
> occur between those two prices (i.e. that most people wouldn't pass  
> up a better deal).
> Can you clarify how you'd propose to enforce transparency, and what  
> impact you think such enforcement would have?
> Thanks for your input,
> Scott

Hi Scott,

Thanks -- that's the right question to focus on, I think: how to  
enforce transparency, and what impact enforcement (and/or non- 
enforceability) would have. However, I think my suggested addition,  
pricing information, shares fate with the all of the other facts to  
be reported under the existing text of 8.3.9. How should ARIN concern  
itself with accuracy on any of those points, or with adherence to  
2008-02 at all, as opposed to executing number resource transfers on  
a purely ad hoc, bilaterally defined, and completely opaque/ 
unreported basis?

I think when last we broached this subject, you suggested that  
adherence would be automatic/self-reinforcing, because following the  
prescribed mechanism would provide buyers with better, more valuable  
(because more assured) address resources, and the concentration of  
buyers willing to pay higher prices would bring sellers into  
compliance with the policy-defined framework also. In order for that  
natural attraction dynamic to work, won't prospective sellers need to  
know what prices are being taken by policy-compliant buyers (e.g., as  
opposed to black market trawlers)? Conversely, even if the assurance  
of RIR-approved resources is a strong enough attractor to deter  
buyers for trawling the black market, won't aspiring buyers want to  
know what prices were considered "customary and reasonable" by  
previous buyers?

In short, I think the addition of pricing information to the list  
won't encumber or otherwise affect current compliance/enforcement  
assumptions at all. If these assumptions do hold, and transparency of  
pricing information can be preserved as well, then I think the market  
has a much greater chance of be sustainable for however long it's  
needed -- i.e., fewer buyers will be, or believe that they were  
cheated; deceptive "show transactions" will be discouraged, if not  
eliminated; and any changes in supply, demand, and/or price trends  
that may be indicative of weaknesses in the transfer mechanism will  
remain visible to all and thus, hopefully, subject to correction down  
the line.

If, however, current assumptions about incentives to comply do not  
hold, or are not strong enough to support the addition of pricing  
information, then I think that that says something significant about  
the viability of decentralized resource transfers in general. To  
date, automatic (i.e., uncoerced if not purely voluntary) compliance  
with any/all policies has been an artifact of a unitary resource  
distribution mechanism -- the most recent version of which is the RIR  
system. That kind of mechanism has a proven track record in  
maintaining a "good enough" central registry of address resource  
transactions, dates, and recipients, while sustaining transparency on  
questions of pricing, supply, etc. At present I cannot think of any  
decentralized mechanism that is likely to deliver any of these things  
sustainably over any length of time, without substantial (i.e.,  
unrealistic) out-of-band enforcement costs.

If there were some way to leverage that unitary distribution model to  
execute the same kind of incentive-driven redistribution envisioned  
by 2008-02 and its counterparts, then perhaps we could satisfy the  
transitional supply requirement without sacrificing transparency or  
any of the information exchanges that help to keep the central  
registry (at least) "good enough". But that means more/continued, not  
less, community-driven collective action -- so the impact depends  
entirely on the perceptions of the members of the community.

What does the rest of the community think?


> Tom Vest wrote:
>> Looking over the various threads on 2008-2 over the last couple  
>> of  weeks, it seems that many people are counting on price signals  
>> to  accomplish a variety of different things, e.g., incentivize  
>> IPv4  surplus address space holders to offer their surplus for  
>> sale,  incentivize other IPv4 holders to create surplus (e.g., by  
>> migrating  some requirements to NAT or IPv6), encourage at least  
>> some nonzero  supply of IPv4 prefixes of various sizes, encourage  
>> aggregation, etc.
>> As far as I can tell, nothing currently in 2008-02 supports any   
>> persuasive argument about how any of these price signals will  
>> achieve  any the stated goals. It may be that Section 8.3.9  
>> permits such  details to be worked out in the course of the  
>> policy's  "implementation", but I think they're far too important  
>> to set aside  until then...
>> A brief and incomplete survey of pricing beliefs/doubts follows:
>> On Mar 6, 2008, at 4:43 PM, Geoff Huston wrote:
>>> We all share a common view that post unallocated pool exhaustion   
>>> there will be aa period where demand outstrips supply and in a   
>>> market situation the price of IPv4 escalates, while the price of   
>>> IPv6 remains relative constant and relatively insignificant.   
>>> Ultimately consumers are exposed to the price differential as is   
>>> conventional when prices of supply shift, and it is reasonable  
>>> to  anticipate that most consumders would express a preference  
>>> for a  lower priced service.
>>> Perhaps the objective here is NOT "to try and construct a  
>>> perfect  Ipv4 market". Perhaps it is more along the lines of "to  
>>> try and  expose some basic economic signals about the relative  
>>> scarcity of  Ipv4 and Ipv6 addresses to provide more direct and  
>>> focussed impetus  for industry-wide IPv6 adoption"
>> Hi Geoff,
>> That's a very reasonable argument, but sometimes even the best   
>> argument can be undermined by its context. Today many of us  
>> operate  in a competitive, "relatively low margin commodity"  
>> market (a  paraphrase of your own description from another  
>> message). However,  it's fair to say that not every operator  
>> agrees with that  description, much less embraces it as inevitable  
>> or appropriate. In  the places where the industry actually does  
>> fit that description, it  only arrived at that state fairly  
>> recently, and (for many operators)  quite reluctantly, and (for  
>> all but a handful of the world's largest  networks) very  
>> gradually, as price signals revealing the actual state  of supply  
>> in the marketplace slowly trickled out beyond the veil of  NDAs  
>> and strategic vendor relationships. Even today, there are many   
>> passionate market advocates that reject this outcome as  
>> illegitimate,  precisely because it was precipitated by regulatory  
>> interventions  that either restricted or compelled  some  
>> commercial behavior by  incumbents. However, you never hear them  
>> criticize this development  because it undercut monopoly rent  
>> seeking -- instead the critics  suggest that by forcing the  
>> incumbents to make network inputs  available for less than  
>> monopoly-maximum-$, such rules obscured  "basic economic signals"  
>> and undermined incentives for non-incumbents  to invest in  
>> constructing their own vertically integrated end-to-end   
>> platforms. By implication, they suggested that incumbents that   
>> withheld critical bottleneck inputs, or sold them only at absurd   
>> prices, were actually doing a noble and highly principled thing;  
>> they  were promoting investment, and a transition to a more  
>> sustainable  market!
>> Now, no doubt there are some staunch libertarians that would make   
>> that argument "on principle" regardless of any relevant personal   
>> stakes that might be advanced or harmed as a result. But when the   
>> incumbents themselves and/or their agents are making the  
>> argument,  non-incumbents and the general public tend to be a  
>> little more  skeptical -- and rightly so.
>> I am concerned that the market-based IPv4 transfer proposals are   
>> heading down a very similar path, and that the results are also   
>> likely to be similar -- and not much to anyone's liking. We do  
>> have a  real supply challenge to overcome in the near term, and I  
>> concede  that market-based mechanisms may be a good way to meet  
>> that  challenge. But given the lessons of the past, I think that  
>> any market  mechanisms adopted this time should require full  
>> transparency from  all parties involved, e.g., public disclosure  
>> of non-anonymized  identities of buyers and sellers, actual prefix  
>> exchanged, price  paid, etc. Without transparency, there can be no  
>> "market price", at  least not for the first 4-5 years -- e.g.,   
>> until enough address  traders have whispered enough stories to  
>> each other at some *OG,  perhaps enabling someone to write a white  
>> paper about it ;-). Without  transparency, it will never be  
>> possible to know or demonstrate how  the costs and the benefits of  
>> this major policy turn have been  distributed. With transparency,  
>> however, these "facts" will remain  accessible to the whole  
>> community, thereby permitting the address  transfer policies to be  
>> sensibly adjusted later as necessary, and  preserving the  
>> "lessons" that come out of this experience for future  policy  
>> deliberations.
>> On Mar 10, 2008, at 5:34 AM, bmanning at vacation.karoshi.com wrote:
>>> 	it could be, leo, that for the right price, there might be a
>>> 	"steady flow" of prefixes.  at least this is what i think
>>> 	Geoff and David have argued.
>> How will the community know if there is a steady flow, or if the   
>> price is "right"? If prices *and* involved parties are not  
>> completely  transparent (and the transaction costs are not a large  
>> share of the  sales prices), it will be trivially easy for anyone  
>> with IPv4 to  pollute any partial/anonymized market information,  
>> making it less  than useless.
>> On Mar 10, 2008, at 6:28 PM, Scott Leibrand wrote:
>>> My own amateur-economist take on it is that, initially, supply (of
>>> currently unrouted space) will exceed demand, so price will stay  
>>> low,
>>> and the quantity demanded (your "churn rate") will be only slightly
>>> lower than it is today (with price ~= 0).  Price will then start  
>>> to  rise
>>> as the easy supply is put into production, bringing new, more   
>>> expensive
>>> supply online, and reducing demand.
>> If there is transparency in the marketplace, then all of these  
>> things  may happen -- in any case you'll be able to know whether  
>> they did or  not. Without transparency no one will ever know.
>> On Mar 6, 2008, at 1:43 AM, Geoff Huston wrote:
>>> ...Others may be of the view that one of the major elements in an  
>>> IPv6
>>> transition is the incentive to stop deploying IPv4 and that may   
>>> well be
>>> based in an escalating value of IPv4 addresses, which would   
>>> increasingly
>>> provide economic incentives for entities to deploy IPv6 as their
>>> mainstream technology base with minimal IPv4 translation services.
>> That may be true, but as noted above, historical (and current)   
>> precedent doesn't provide much confidence. At one time many  
>> people  made the same argument about international telecom  
>> settlement flows;  just send us more, some countries said, and  
>> we'll use it to bankroll  our own network rollout, and thereby  
>> gradually offset the settlement  imbalances over time. Needless to  
>> say, no one ever found any evidence  that this actually worked --  
>> usually it worked the other way round.  Some incumbent access  
>> facilities owners make the exact same argument  today (and every  
>> day since 1984): just permit us to charge end uses  more, or  
>> charge other indirect beneficiaries lots more, or change our   
>> pricing model with the same overall effect, and we'll deliver the   
>> latest/fastest/most advanced platform ever. Needless to say, in   
>> places where they had their way no one has ever found any  
>> evidence  that this actually works, much less works better than  
>> current/viable  alternatives.
>> Bottom line: revenue is revenue; just because an incumbent  
>> operator  makes additional revenue from IPv4 sales does not mean  
>> that that  marginal addition to the bottom line will be used to  
>> fund IPv6  transition. In fact, if incumbent IPv4 address holders  
>> stand to earn  lots of revenue from IPv4 holdings in an IPv4 &  
>> IPv6 scarce  environment, it's not clear to me that (or when) the  
>> incentives to  capitalize on that arrangement are surpassed by the  
>> incentives to do  their part to make IPv6 ubiquitous.
>> Out of curiosity, would you support making that linkage between  
>> IPv4  revenues and IPv6 investment an explicit requirement in  
>> APNIC's  proposal?
>> On Mar 6, 2008, at 1:43 AM, Geoff Huston wrote:
>>> ...The diversity of views abot scenarios and timings will drive   
>>> different
>>> behaviours - some entities may act on the view that once the  
>>> shock of
>>> exhaustion wears off and the related market price has factored in
>>> scarcity premiums as well as the initial shock, the drive to IPv6  
>>> will
>>> assume a new level of momentum, and the IPv4 demand will drop,  
>>> and  with
>>> declining demand so will market prices - i.e. some folk would see no
>>> value in hoarding and believe that maximal value will be seen in the
>>> initial operation of short term market that will be overtaken by  
>>> IPv6
>>> relatively quickly. Other entities may be of the view that the  
>>> inertia
>>> of this industry is sufficiently large, and the capability of  
>>> dense  NAT
>>> deployments sufficiently tenable that an IPv4 market may be used  
>>> for a
>>> long period. If this is accompanied by a view that demand will   
>>> continue
>>> to outpace supply then an escalating price is an obvious outcome.
>> These are reasonable and useful speculations -- no doubt we could   
>> hypothesize a wide variety of stakeholder views, and maybe even  
>> model  the weighted results of their behavior on average prices,  
>> collateral  growth of NAT, IPv6 substitution, etc. Maybe we could  
>> then bootstrap  that model, and tweak the parameters, and see how  
>> different kinds of  market arrangements lead to different kinds of  
>> outcomes. If we  actually had a model like that, then maybe some  
>> community members  would be more persuaded that markets would,  
>> under some set of  arrangements, be quite likely to lead to a  
>> particular outcome (e.g.,  IPv6/industry growth and diversity) and  
>> not to others (e.g., perma- NAT/industry consolidation).
>> Unfortunately we don't have a model like that, and we're only  
>> going  to have one opportunity to try this out in reality once. If  
>> we  engineer transparency into the transfers mechanisms, however,  
>> maybe  the resulting real-time window onto how things are really  
>> working  will be good enough...
>> On Mar 6, 2008, at 1:43 AM, Geoff Huston wrote:
>>> And its not as if such forms of market outcomes spell
>>> doom and disaster of an out of control stampede. This is not  
>>> quite the
>>> wild days of 2000 and the GSM auction debacle appears to have  
>>> hosed  down
>>> some of the more insane players in this industry. This is a  
>>> relatively
>>> low margin commodity business down at the plumbing side and it  
>>> may  well
>>> be that market pricing may well be influenced by the limited   
>>> amounts of
>>> capital that are within the industry these days.
>> Ahh, right back where we started ;-)
>> TV
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