A wild stab at the umbers

[Stephen Satchell]

At 2:15 PM 1/19/97, Paul Ferguson wrote:
>My understanding of the costs involved are in no way intimate
>
>Let's see. For starters, staff salaries, computers, networking equipment,
>recurring monthly fees for connectivity & telecommunications, recurring
>monthly fees for office space [lease], maintenance & development of
>registry resources. This is just off the top of my head. I imagine it
>could get expensive pretty quick.

First off, in looking at the original proposal, I see that the *sole*
function of this registry is to allocate IP addresses to those who apply
for them, maintain the list to avoid multiple sites having the same IP
address, and publishing that registry of IP addresses to the public.  The
membership's sole responsiblity is to set policy and pricing on these three
functions -- other policy issues are in the pervue of other Internet
Society organizations.

That doesn't mean that the Registry doesn't have an interest in those
policies, but the main charter is one of a glorified book-keeper.


OK, let's start looking at what is involved.

Staff salaries:  you need two clerical types ($30K/year), director
($60K/year), policy co-ordinator ($40K/year), on-site repair and sysadmin
($60K/year), and a receptionist ($25K/year).  Multiply by three to cover
benefits, per-employee overhead, on-desk computers, building, physical
plant, parking, and the annual company picnic.  Total estimated:
$735K/year.  Budging $1000K/year allows for unforseen needs, as well as a
cushion for hiring consultants to deal with in-house problems.

Computers:  you will need something fairly good-size for a Web and FTP
server so that people can get registry information.  Call it $50K every
five years, or $10K/year.  The rest of the computers are included in the
headcount expense.

Networking equipment:  I can't see the need for anything faster than three
T1 links -- this isn't domain registration, after all -- so you are looking
at roughly $10K every five years, or $2K/year.  The in-house network
(including wiring) is of the same magnitude:  $10K every five years, or
$2K/year.  This toals $4K/year

Connectivity:  Three T1s would eat up $108K/year in port costs, and some
amount for the actual physical links.  In my territory, you are talking
$72K/year.  Total is $180K/year.  Probably way too high.

Office space [lease]:  incorporated into headcount expense.

Maintenance of registry resources:  Incorporated into headcount expense.

Development of registry resources:  There are two ways to do this that
don't involve adding headcount.  (1) Fund grants for outside development of
registry resources (estimated at $350K/year); and (2) have the volunteers
create the necessary resources (estimated at $10K/year to repay
out-of-pocket expenses).

Periodic meetings:  The usual cost for throwing a meeting ranges from $4K
to $9K, depending on how fancy you get.  This assumes five days, rooms for
the few staff that attend, some amenities, and the non-staff attendees pay
their own room costs.  This also incorporates some costs for printing and
copying contributions to the meetings.  If you assume quarterly
face-to-face meetings, the total to budget is $36K/year

Trade show presence:  Small booths run roughly $15K to build -- and expect
to build a new one every year.  Transporting, setting up, tearing down, and
returning the booth to storage is around $1K/show.  Labor and amenities
(power and net connection) associated with the booth should be no more than
$7K per show.  Assuming the organization exhibits at three trade shows a
year, that's $39K/year.

Copying, Mailings:  While I can make a strong case that this organization
should *never* mail a document, the truth is that ballots and such may need
to be mailed, and once you start snail-mailing ballots you might as well do
it right.  So let's make the following assumptions:  (1) 2000 members; (2)
six mailings per year; (3) 250 pages per mailing (not uncommon); (4) a
fully burdened copier cost of $0.045 per page; and (5) no attempt is made
to use cheaper publishing methods such as offset because of the turnround
time for the documents.  That works out to three million pages, for a cost
of $135K/year.  Postage for such a large mailing, even at non-profit bulk
rates, would cost roughly $5 each, for a total postage cost of $60K/year.
Add $20K for preparation and postage of meeting notices, membership
invoices, and address invoices.  Total here:  $215K/year.

  By the way, that's a per-member fee of $107.50 -- and I know that much of
that cost could be knocked down considerably by using web presses instead
of photocopy duplicators.

Legal, insurance:  WAG of $150K/year for legal, $100K/year for insurance
including E&O, general liability, property, key-man, and workman's comp.

Accounting, payroll:  WAG of $65K/year, done by an outside firm.  No need
to bloat headcount for services readily available on the outside.  Printing
and postage for bills and payments are incorporated in with mailings.

CPA:  Another WAG of $70K/year.

Loan costs:  priced correctly, there is no way that you can get enough
grants to fund this thing totally.  Assume you will need to borrow $1.5
million to start, and you can get this for 12 percent (secured loan).  That
means your debt service will be at most $180K/year.  This is a good place
to look to cover with revenue from "first-time fees."

Bad debt allowance:  not everyone is going to pay, or pay on time.  This
means that in order to be fiscally safe you need to build in a cushion for
bad debt.  In many businesses a five percent allowance works quite well.

So totaling all this, per year in thousands of dollars (000)::

Staff salaries:    1000
Computers:           10
Net Equipment:        4
Net Connection      180
Development         350
Meetings             36
Trade Shows          39
Copy/mail           215
Legal/Ins           250
Acct/Payroll         65
CPA (includes audit) 70
Debt service        190
                   ----
Subtotal:          2399
Bad Debt Allowance  120
                   ----
Total:             2519


Now for the revenue side of the equation.

If you decided to have each member pay the actual cost of membership plus
something toward the network equipment and connection, you can easily
justify a membership fee of $200/year.  Remember, I calculated the
out-of-pocket cost for a member is in the close order of $100; the other
hundred pays for the servers and the network link for the members.  That
represents $400K of revenue per year, and any increase or decrease in
membership counts scale almost directly, so that the membership fees pay
for everything a member needs.

For a simplistic view of the "cost per address", if you take the remaining
$2.2M of the projected expenses (removing the membership portion as
described above) and calculate a per-256-node cost, you arrive at a figure
of $0.132 per 256-node allocation per year.  Now I know that the United
States is not going to take the entire address space, but if you assume for
the moment (again simplistic -- I don't have any numbers here in this here
hotel room) that the United States uses 1/100 of the total address space.
That takes that simple number to $13.20 per /24.  This is almost half the
projected cost according to the admittedly-outdated proposal of $20 per
/24.

The "proper" way to get people to buy space from aggregators is to use a
one-time fee of $2000 for *any* first allocation, a one-time fee of $400
for *any* additional allocations, and a $200 "deregistration" fee to this
organization.  (By the way, if someone is late with payment, I might
suggest that they have to pay the $200 disconnect fee plus the $2000
first-allocation fee, and they may not necessarily get the same numbers
back.)

Further, the contract with the aggregators say that any resale of address
space shall be done at the aggregator's cost plus a maximum of 15 percent.
That should take care of any price gouging while still giving players some
working room to attract (or discourage) customers.

The annual fee would be fixed at, say, $25 per 256 addresses.  For
everybody. Same restriction on markup for resale.

Now let's talk about grandfathering existing allocations.  Let's say you
have 3000 existing top-level customers of address space.  If you impose a
$250 grandfathering fee, that give you $750K in "up front" money to help
pay down that debt of $1.5 million.  I'd need to do a bit of research to
see just how many addresses are allocated in the United States, but I think
meeting the "nut" shouldn't be difficult at all.

This is all off the top off my head and with very little research.  Indeed,
much of this analysis is based on my creating a few companies along the way
and having some idea of what some of the costs might be.

THIS IS A STRAWMAN ANALYSIS, and only good for "order of magnitude" projections.