[arin-ppml] Dynamics of a transfer environment without operational need assessment

[John Curran]

On May 19, 2016, at 10:26 PM, Mike Burns <mike at iptrading.com<mailto:mike at iptrading.com>> wrote:

Hi John,

Given that all of our experience has been with needs-based transfer policies (which
provide some back pressure to speculation, whether via the direct prohibition that is
implied or the convolutions that is necessary to work around same), it is rather unclear
if financial speculation would have occurred over the past five years in absence of the
needs-based assessment model.

On the contrary we now have a good deal of experience with the most vibrant and active market, which has no needs test.

That may not be at all indicative, since a very significant proportion of readily IPv4 address
space is in the ARIN region and thus subject to operational needs-testing.  This alters the
potential benefits of speculation in all markets, since it is not clear that the supply in the
ARIN region can be mitigated if one wished to take on a major position in the supply of
IPv4 address space.

And the absence of speculation grows clearer every day in the RIPE region. I see more and smaller transfers happening over there, but to be sure there might be some noise in the data related to their final /8 policy. Still I don’t see evidence that any single agency is buying up addresses for speculation, and personally I have not been contacted by any speculator issuing a blanket buy order, which is what would be required to begin assembling a hoard of addresses. As a daily participant in this market I have to shake my head at any reasonable belief that the needs test is what is holding back speculation. We all know that speculation can occur already in many forms, and there is a back door to avoid the needs-test anyway. What is this paper shield of a needs-test that can hold back these mighty and insidious speculators?   ...

There are investment funds for all sorts of interesting assets, but the ability to establish a
fund for investment in IPv4 address space will not pass the risk management phase if it is
not clear that they can be legally held free and clear & independent of operational need.
(Yes, there are many organizations that pay enormous details to such legal niceties when
it comes to building financial investment vehicles.)

What’s more, ARIN seems to be depicted poorly in other regions as having failed to create a reserve pool for new entrants, like they have. They think the ARIN region is in a bad state, particularly for new entrants. What we should be doing is demonstrating the vitality of our market, which would enable new entrants to participate through the reliable purchase of IP addresses just like they purchase equipment, man-hours, and every other component of their new business.

That is the option being exercised by new entrants, and we should certainly make plain
to the global community that it is a reasonable and predictable path.   I can work on this
in the immediate future.

Eliminating barriers to trade will help to create a vibrant and reliable market to benefit new and old companies, and demonstrate to the world that a reserve pool for new entrants is just another way of keeping addresses fallow for years, whereas the ARIN policy provides the incentive for trade that naturally brings addresses into productive use.

I am uncertain that the present needs-assessment provides any significant hurdle to
new entrants, but leave it to the community to consider the merits of changing needs
assessment so as to eliminate barriers.

There is no way for a bad actor to create any squeeze in the market due to the inability to acquire enough space to affect price. Remember as price rises, so does available supply, since CGN provide some supply elasticity and there are still hundreds of millions of un-routed addresses*. But granted IPv6 deployment is not just a market-squeeze away, whether it’s short or long-term. Still it’s the Sword of Damocles to a market manipulator and provides a huge disincentive for what would have to be a yearslong project for that would-be manipulator. *Yes I know un-routed doesn’t mean unused, but c’mon we’re talking 20% of the universe of ipv4 space!

Agreed - any significant squeeze would entice organizations to consider whether they
have unused IPv4 resources (or can make efficiencies to obtain same) and liberate the
result to the market.

Note that such responses take significant time (e.g. 6 months or great for many orgs),
whereas most firms going to market have pressing business needs that they are trying
to satisfy… If the largest mobile and content firms are attempting to obtain space in a
market that has an determined investment firm operating, there will likely be a period
of time that will be rather challenging for everyone (and particularly the smaller startups
that you reference above…)   Will such market correct itself?  Almost certainly, but the
question is how long and at what impact to those unable to participate in the interim.
Ultimately, it is up to the community’s to decide how it values the benefits that would
be obtained against such potential risks.

Yes, maybe we should talk about the benefits of aligning policy with the real-world treatment of valuable assets.
Because in the real-world the general analysis that every business applies is really the same (largely Net Present Value), the only difference is their own judgements of things like how long IPv4 will last, how much CGN the Internet can take, as well as normal factors like their growth rates and risk aversion.  Why not let them use their own determination of these things in their decision to purchase addresses?  Must they subordinate their decisions to ARIN policy designed in a free-pool environment?

Entirely up to the community, but please note that even in the "real world”, there are classes
of assets that are restricted to only operating companies (one can find examples in spectrum,
telephony numbers, certain prospecting/mining/drilling rights and other fairly specialized asset
classes.)    I will note that some of these have very interesting (and potentially highly undesirable
side-effects (e.g. spectrum) but simply wanted to point out that the restriction to organizations
which will operationally use the address space is not an exotic restriction, and occurs in other
situations in the real world.

That’s a good idea for anybody who wants to pursue the general discussion. I’m reasonably sure Professor Mueller would be willing to provide relevant economic theory and maybe I can add something from my perspective with direct knowledge of hundreds of transfers around the world. I know there are other listening brokers who can challenge or support my observations.  Personally I am not aware of any broker who supports the continuance of the needs test as a means to conserve space.

Maybe the community should avail themselves of the information that only brokers have. Put a handful of brokers together and you have information covering a thousand transfers.  What other handful of community members has experienced a thousand transfers/allocations?  Probably only ARIN staff and David Huberman. ;-)  If we brokers speak with a unified voice about our experience with (the lack of) evidence of speculation, perhaps the community will credit our perspective.

I believe sharing information is always a good idea, as it provides for a better informed
policy development process.   You may want to distinguish actual observations from
beliefs, particularly since "past performance is not a reliable indicator of future results”
(and doubly so if the underlying conditions change going forward as a result of number
resource policy changes.)

Thanks,
/John

John Curran
President and CEO
ARIN


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