[arin-ppml] Will the price per IP really be affected by the transfer market introduced in 2009-1?

[Ted Mittelstaedt]

Ah, but your point is dependent on how an ISP views it's market.

In my employers target markets, Internet connectivity is a commodity.
We cannot raise our prices beyond more than a few percent of
competition or we will lose all our customers.  There is no
room for us to pass along a price increase for transfer IPv4,
or a price increase for shifting to IPv6 - we have to absorb
those costs.  And let me tell you, there ain't a lot of room
there to absorb much.

With commodity markets, any business operating in them
must tie everything to the cost of the product, the product
won't sell at all if your more than a few percent higher than
competition.  If you have a supplier increase pricing somewhere
then you have to cut expenses somewhere else.

If, as you assume, the amount of transfer IPv4 in service is
a function of the price, then if Internet Service is a commodity
market, transfer pricing is going to be severely limited in
how far it can rise.

If transfer pricing does not rise high enough to make it worthwhile
for orgs to spend the money to renumber out of it, then the
orgs won't, and the transfer market will never come into
existence.

Thus, let me put my original question a bit differently.  How much
of an increase for IPv4 can YOU absorb?  How much do you think
your competitors can absorb?  How much do you think the industry
can absorb?  If it's not a large amount, then how exactly will
a transfer market in IPv4 reach critical mass to enable it to
get started?



Ted

> -----Original Message-----
> From: Scott Leibrand [mailto:scottleibrand at gmail.com] 
> Sent: Friday, May 08, 2009 12:22 PM
> To: Ted Mittelstaedt
> Cc: 'ARIN PPML'
> Subject: Re: [arin-ppml] Will the price per IP really be 
> affected by the transfer market introduced in 2009-1?
> 
> As a matter of economic theory, I think we can assume that 
> the amount of
> IPv4 in service as a result of a transfer is actually a 
> function of the price, rather than an independent variable.  
> Put in microeconomic jargon, the amount of IPv4 in service as 
> a result of a transfer is the supply, which is a function of 
> the price and the supply curve.  The price, in turn, is a 
> function of the supply curve and the demand curve.  
> Both such curves represent the amount of IPv4 space that everyone
> (cumulatively) is willing to provide/request at any given price.
> 
> If you think about the incentives of an individual ISP, with 
> some quantity of IPv4 space, they could be in one of three 
> states: they might be willing to pay for IPv4 addresses, if 
> the price is low enough, to meet their internal demand for 
> growth.  They might be willing to provide
> IPv4 addresses, at a price, if that price is sufficiently 
> high to compensate them for the trouble and opportunity cost 
> of giving them up (and switching to a substitute like IPv6, 
> or abandoning marginally profitable customers).  Or, they may 
> be in the middle, where they don't engage in the market, 
> because the current price isn't low enough to make it worth 
> getting addresses, but also isn't high enough to overcome all 
> the trouble of releasing IPs.
> 
> To get back to your question, the marginal cost to an ISP of 
> providing an IPv4 address to a customer should be 
> approximately equal to the market price of that IPv4 address 
> on the transfer market, plus or minus the transaction costs 
> of freeing up enough addresses to transfer (or finding 
> someone else willing to do the same).  So, depending on their 
> own particular circumstances, some ISP will pass on an IPv4 
> address cost of approximately the market price, some will 
> pass on less (or none at all), and others might be able to 
> pass along a higher price (especially if the market price stays low).
> 
> -Scott
> 
> Ted Mittelstaedt wrote:
> > Hi All,
> >
> >   I have a question for everyone's consideration.
> >
> >   If a transfer market goes into effect, after 5 years, 
> what would a 
> > reasonable estimate be for the amount of IPv4 in 
> production, that was 
> > in production as a
> > result of a costly org-to-org directed transfer?   And, is 
> it realistic to
> > assume that cost of all other IPv4 to the customer will be affected?
> >
> >   If for example, after 5 years only .005% of all IPv4 in 
> service on 
> > the Internet was in service as a result of a transfer, then even if 
> > /8's are going for 50 million dollars, wouldn't competition pretty 
> > much mandate that the ISP paying transfer fees be utterly unable to 
> > pass that cost along to their customers as a surcharge on IPv4?
> >
> > Ted
> >
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