“No need” and the debate over IP address conservation

At the RIPE 66 meeting in Dublin, the bold, long-overdue proposal to eliminate needs assessments for IPv4 number allocations got an interesting response. RIPE-NCC is the Regional Internet Registry for Europe, and almost everyone in Europe supported the proposal. Vocal opposition came from two policy tourists from North America: ARIN Board member Bill Woodcock and ARIN Advisory Council member Chris Grundemann.

The author of the “No Need” proposal, Tore Anderson, argued that because the free pool is depleted, RIPE’s conservation principle no longer applies. In other words, there is no longer any reason to use technical needs assessments to conserve the allocation of the resource. If someone has more addresses than they need, they can sell them or transfer them to someone who does need them. There is no reason to interject a complicated and expensive bureaucratic process to determine whether someone “needs” the addresses before they buy them.

Chris Grundemann argued passionately against Anderson’s ideas, both on the floor at RIPE 66 and in a blog post. But his argument took an odd form. He claimed that the need for conservation has not been eliminated by the depletion of the free pool. He wrote, “Now that almost all of the public IPv4 address space has moved from RIR pools into the ‘wild,’ there is arguably a much greater need to practice conservation. The loss of the RIR free pool buffer does not mark the end of ‘the lifetime of the public IPv4 address space.'”

They are both right. Indeed, the arguments do not contradict each other at all.

We do need conservation. But we don’t need administrative needs assessments.

Grundemann’s attack on Anderson’s proposal was framed as a defense of traditional needs assessment, but he missed the target. He believes that the need to conserve the IPv4 address space justifies continued application of traditional needs assessment practices to IPv4 transfers. But the leap from conservation to needs assessment is a non sequitur. Needs assessment is not the only form of conservation. It is not even the best form of conservation. The market price system acts as a perfectly efficient and effective form of conservation. It makes people pay the actual scarcity value of the resource. Technical needs assessment is a poor substitute for it. Indeed, market prices conserve more rationally and more fairly than the administrative processes. As the resource becomes more scarce, the price goes up. It doesn’t impose arbitrary time horizons on business planning. If the organizations in the internet industry want to extend their time horizon and guarantee themselves of the resource over a 5 year time span, they can do so, provided they are willing and able to pay the price for a 5 year supply. If they want to be more careful and acquire only a 1 year supply, they can do that. Needs assessment, in contrast, imposes an arbitrarily fixed time horizon – e.g., 2 years – on the definition of “need.”

So in order to defend needs assessment, Grundeman not only has to argue that conservation is still needed. He also has to prove that there is something fundamentally wrong about using market prices to ration the resource. That’s where he fails. It’s excusable, because neither Grundemann nor Woodcock are economists* and both are ill-prepared to make coherent arguments about that topic. Neither of them presented a convincing case about the nature of the number market. Instead, we were given vague references to “bad actors,” “stockpiling” and “hoarding.”

There are three responses to this argument.

First, there’s the dirty little secret that Grundemann and other defenders of the status quo repeatedly ignore. The biggest cause of “stockpiling and hoarding” is not and never has been market allocation of IP addresses. The biggest cause is the existing system of common pool governance. That system had already coughed up 41% of the address space by 1991, just as the Internet was getting started. That system privileges large ISPs who can deal with the uncertainty and bureaucracy of needs assessments because they have long experience playing the ARIN game and filling out complicated forms to get addresses. That system provides organizations who hold allocations no incentive to return them, whether they need them or not. That system imposes so many costs and restrictions on the acquisition of addresses that it encourages everyone to ask for and keep more than they need, whenever they get the chance. In fact, only the emergence of transfer markets has started to rectify the historical misallocation of IP numbers, by giving holders of too many addresses an economic incentive to give them up and sell them to someone who does need them. Currently, about 35% of the address space is unused – in other words, there is already a ton of “stockpiling and hoarding.” Needs assessments, by making market transfers more difficult, helps to freeze this situation in place. And yet this is the system Grundemann defends and resists changing.

Second, Grundemann spends so much of his time in the ARIN policy playground that he seems to have forgotten how the real world of business works. Probably 95% of the resources that currently go into the production of Internet service are allocated by the market. Routers and equipment, telecommunication services, office space, etc., etc. – all are allocated on a “buy what you think you need” basis. How and why are addresses different? If Chris’s company wants to rent office space in Denver, no one performs a needs assessment before they will sell it to him. They do not say, “hey, Chris, you are asking for 12 rooms, but we think you only need 10.” Does anyone really think the market for real estate should operate like that? Office space is fixed in supply in the short term, just as IP number blocks are; there is no economically relevant distinction there. We might add that Grundemann’s salary, like that of nearly all other network managers, is determined by the market. If he wants to switch jobs there are no administrative agencies who have to make an advance determination that the company hiring him really “needs” him. Don’t you think its better we don’t do that? What is the reason – other than “we’ve always done it this way and at ARIN we’ve turned this way of doing things into a religion” – that IP numbers should be handled differently now that the free pool is occupied?

There is a third and final argument why we don’t need needs assessment: fears about speculation and hoarding driving the market are completely without merit. This is pretty obvious once one examines the economic characteristics of the IP address market. Louis Sterchi, one of the participants in the RIPE debate, has written a blog post noting that speculators do not enter these kinds of markets, and given the fact that a huge portion of the space is already held by many, many large and small organizations who are using and will not give up their numbers, it would be impossible for any speculators to corner the market and have a strong impact on price.

Independent academic research has shown that the transfer market has worked well at moving number resources from underutilized holders to people who need them. Speculators are not present. While many of these transfers have been subjected to the arbitrary intermediation of RIR needs assessment, one major transfer – the Microsoft – Nortel deal – was sealed in bankruptcy court prior to ARIN approval. No real needs assessment was involved (yes, I know we will get an obligatory objection from ARIN in our comments section, but who cares – the evidence is conclusive). That deal, like all the others, involved real users of the address space.

The debate over RIPE policy proposal 2013-3 now moves from the public meeting to RIPE-NCC’s Address Policy Working Group (APWG) mailing list. Let’s hope reason prevails.

* Woodcock’s ignorance of economics is is painfully obvious, but that never stops him from expressing opinions. In the RIPE-66 transcript he refers to the Chicago School as a school of economics not respected or taken seriously, apparently overlooking the fact that 3 members of that school are Nobel Laureates.

13 comments

  1. John Curran

    Milton –

    You state the following:

    “While many of these transfers have been subjected to the arbitrary intermediation of RIR needs assessment, one major transfer – the Microsoft – Nortel deal – was sealed in bankruptcy court prior to ARIN approval. No real needs assessment was involved (yes, I know we will get an obligatory objection from ARIN in our comments section, but who cares – the evidence is conclusive).”

    but fail to cite the conclusive evidence. Could you please do so, particularly since the deal that you assert was was sealed in bankruptcy court prior to ARIN approval was approved only after Nortel filed an amended motion in which

    the revisions reflected in the Amended Sale Agreement and Revised Order were the result of negotiations between Microsoft, ARIN and NNI and, accordingly, ARIN’s counsel has informed NNI that it does not oppose entry of the Revised Order.

    Thank you for your prompt attention to this matter.
    /John

    John Curran
    President and CEO
    ARIN

    • Milton Mueller

      John
      We’ve been through this before. Here is a blog contemporaneous to the Nortel – Microsoft deal which has a link to a document that shows how ARIN’s intervention affected the deal. http://www.internetgovernance.org/2011/04/17/heres-the-actual-sale-agreement-between-nortel-and-msft/

      In your comments on that blog, you admit that the deal was struck independently of ARIN’s transfer policy and that you intervened ex post in order to salvage what you could of the transfer policy. It is clear from the full documentation of the case that ARIN did a ‘needs assessment’ ex post as part of this hastily improvised settlement, which Microsoft agreed to primarily out of courtesy. Microsoft was given a Legacy RSA contract instead of a normal RSA, which does not follow 8.3 procedure. Based also on the documented fact that many of the blocks Microsoft acquired remain unrouted on the public internet more than 2 years afterwards, and on direct conversations with people at that company, the evidence that needs assessment was not a gating factor in this trade is overwhelmingly strong. I understand why you and your lawyer cannot publicly admit that, and I understand why you need to go on record challenging it every time it is asserted. It’s part of your job. As an independent analyst with no vested interest in the issue, it is my job to just tell the truth.

      • John Curran

        Milton –

        You stated that the deal was sealed in bankruptcy court prior to ARIN approval and yet the actual court records indicate that the sale was not completed until after ARIN reviewed it (for compliance with the transfer policy) and concurred. If you had said the deal was conceived without consideration to needs-assessment or the deal was proposed without ARIN’s involvement, then you’d convey most of your point without ignoring facts on record.

        As it is, stating that deal was sealed in bankruptcy court prior to ARIN approval, when Nortel’s own pleadings and the court record clearly makes quite clear that the proposed deal was not approved until ARIN concurred, appears to be intentional misrepresentation of the facts regarding the approval of this deal.

        /John

        John Curran
        President and CEO
        ARIN

        • Milton Mueller

          John,
          Are you contending that the court ruled that it would not approve the deal unless ARIN approved it? This is clearly not the case, you simply need to read the Amended agreement of sale of April 13. It notes only that ARIN was notified of the sale; that Microsoft agreed to enter into an LRSA with it, and that “Other than entry into the LRSA, no Consent from ARIN or any other regional internet registry is required for the purchase of Seller’s Rights.” It also makes it clear that the sale was negotiated in March prior to ARIN’s intervention, and, obviously, prior to any after the fact needs assessment-cum-blessing administered by ARIN. There is no mention of a needs assessment in the entire document.

          Case closed. Give it a rest, John. You will not win any litigation around this issue by dunning me, my blog or its readers with repetitive statements of the ARIN party line. You will only win by convincing a judge. Good luck with that.

          • John Curran

            Milton –

            I have made no such assertion; obviously we cannot know definitely what would happen if the transfer had not been in compliance with policy. I can say that we have many other transfers since that time, and these have been without exception supported by bankruptcy courts and with specific language recognizing ARIN’s role in approval (One can read more about this including cites in the recent ABA Business Online article here – http://apps.americanbar.org/buslaw/blt/content/2013/05/article-03-edelman.shtml )

            No, Milton, I was simply asking you to back up your assertion that the deal was sealed in bankruptcy court prior to ARIN approval when the order actually came after negotiations with ARIN and ARIN’s removal of its objection (as clearly noted the Nortel’s revised motion and which I quoted in my initial comment.)

            I know that your interpretation lends well to your blog posting, but it really doesn’t hold water when compared to the case record.

            FYI,
            /John

            John Curran
            President and CEO
            ARIN

    • Milton Mueller

      John, you can’t even get your document references right. Document 5280 is NOT the sale agreement. You have linked to a basically irrelevant document in which Nortel is telling the judge why Industry Canada’s intervention is not worth listening to. The document you want to read is #5252, Exhibit A, the “Amended Purchase Agreement.”

      • John Curran

        Milton –

        I did not state document #5280 is the revised sale agreement; I said it was the Nortel revised motion (which requests approval of the revised sale order, and notes successful negotiations with ARIN and ARIN no longer objecting)

        While you indicate that document #5280 is a basically irrelevant document, you obviously failed to fully review it, since in addition to Nortel’s objection to Industry Canada’s arguments that you you noticed, it also contains (in paragraph 10) Nortel’s acknowledgement that its Amended Sale Agreement and proposed Revised Order are satisfactory to ARIN:

        10. Second, the revisions reflected in the Amended Sale Agreement and Revised Order were the result of negotiations between Microsoft, ARIN and NNI and, accordingly, ARIN’s counsel has informed NNI that it does not oppose entry of the Revised Order.

        Accordingly, the Court need not consider Industry Canada’s views as to ARIN’s policies where ARIN is not raising any such objection itself.

        It can’t be any clearer – the pleading is quite relevant and makes plain that the deal did proceed until ARIN concurred, and hence the reason I referenced Nortel’s final motion seeking approval of the revised docs.

        (A more thorough reading of this pleading might have also helped you avoid other embarrassments from past blogs, e.g. reviewing earlier paragraphs #8 and #9 where Nortel specifically notes (with respect to its contention of a property interest and that the numbers are not subject to ARIN’s transfer restrictions), that while they believe those points to be true, in considering whether to approve the Amended Purchase Agreement and enter the Revised Order, the Court is not being asked to rule on either of these points. Obviously, that’s quite a bit different from your assertions of what was decided by the court.)

        By the way, if you need any further assistance in matching references to court materials, please let me know and I’m happy to assist. Continuing to assert that was sealed in bankruptcy court prior to ARIN approval when Nortel itself says otherwise doesn’t reflect your best work.

        Thanks!
        /John

        John Curran
        President and CEO
        ARIN

  2. CKN23-ARIN

    In my opinion, Mr Grundemann suffers from a few issues: Youth, control, and a warped sense of justice. Let us not forget he was a proponent of the “3.6.1 Whois POC validation” and clearly stated at the time that his ultimate desire was going after the “low hanging fruit”.

    He describes his carnal desires here:
    http://lists.arin.net/pipermail/arin-ppml/2008-October/012359.html

    The IP market discussions are going no where in the USA as long as Comcast, Google, et al get all of the space they need from Uncle Sugar. It’s a business decision on their part as Uncle Sugar has the most IPs right now. They will get as much as they can (hoarding) and maximize the profit off of the scarcity until their stockpile is depleted. Eventually they will beg Uncle Sugar for a rigged system that will get them more IPs at a discount to the true market value. Grundemann will be right there crafting a policy to enact the will of the “community”. Who knows, he probably has phase two of 3.6.1 already written.

    As an example of Uncle Sugar’s generosity, let us review Google’s allocations in 2012:

    2/7/2012 – http://whois.arin.net/rest/net/NET-108-170-192-0-1
    3/7/2012 – http://whois.arin.net/rest/net/NET-108-177-0-0-1
    4/4/2012 – http://whois.arin.net/rest/net/NET-172-253-0-0-1 <- NOT ANNOUNCED
    4/16/2012 – http://whois.arin.net/rest/net/NET-172-217-0-0-1
    5/24/2012 – http://whois.arin.net/rest/net/NET-142-250-0-0-1
    7/12/2012 – http://whois.arin.net/rest/net/NET-192-178-0-0-1

    In 2013 they are back for more:

    4/4/2013 – http://whois.arin.net/rest/net/NET-172-253-0-0-1 <- NOT ANNOUNCED
    (Place holder for more allocations that will probably be given in the coming weeks/months)

    The above burn rate is obviously entirely reasonable when factoring all of their prior allocations dating back to the formation of the company. What was once a /16 every couple of years turned into a /16 every few weeks. Again, an entirely reasonable burn rate justified by ARIN's "community" IPJ policies. I wonder if "Mom & Pop" who have to get on their knees for a /23 could request more space while not even announcing all of their existing allocations. Oh, wait, how much of the Nortel space is Microsoft announcing as of today?

    These comments should not be taken as bad mouthing Google (or the other big boys), it is merely trying to demonstrate the absurdity of the current situation. Don't hate the player – Hate the game. I watch in amazement the chorus of drones who either have zero integrity, are totally clueless as to what is going on around them, or are simply delusional and vomiting the policies, procedures, and talking points bullshit that is clearly in place only for the unwashed masses.

    Cheers,
    CKN23-ARIN

    Feel free to look at my ORGs and related networks here: http://whois.arin.net/rest/poc/CKN23-ARIN/orgs [sadly limited to the first 256]

    Preemptive responses:

    "If you have accusations of fraud please report them"
    – "Where do I report ARIN?"

    "If you have have a problem with a policy. Work to change it within the community."
    – "You mean those of the same ilk as Chris 'low hanging fruit' Grundemann? To work with a fraudulent system is to accept and endorse it."

    • Chris Grundemann

      You seem to infer that I should be ashamed of wanting to reclaim obviously abandoned IP space (the low-hanging-fruit you are referring to), I am not.

      It should also be noted that reclamation of abandoned space was, and remains, a VERY minor potential advantage of the Whois POC validation policy. As the name implies, the policy is primarily about ensuring valid POCs in Whois. Learn more on my blog: http://chrisgrundemann.com/index.php/2010/annual-whois-poc-validation-emails-arin/

      Also, FWIW, I could possibly take you more seriously if you didn’t post anonymously.

      Cheers,
      ~Chris

  3. CKN23-ARIN

    I feel bad that I singled out Google.

    Let’s review Amazon’s recent allocations in this dire time of “IP scarcity”.

    12/9/2011 – 54.240.0.0/12 (16 * /16s) – 11 of the /16s are announced as of today.

    Clearly this utilization is worth of more IPs. Uncle Sugar agreed and 3 months later assigned them another /12.

    3/1/2012 – 54.224.0.0/12 (16 * /16s) – 11 of the /16s are announced as of today.

    69% utilization based solely on what is announced. Time for more IPs. Uncle Sugar agreed and less than a year later gave them more IPs:

    2/19/2013 – 54.208.0.0/13, 54.216.0.0/14, 54.220.0.0/15 (14 * /16s) – 4 /16s are in use from the /13, 3 /16s are in use from the /14, and the /15 is not announced.

    (PLACE HOLDER FOR THEIR NEW ALLOCATIONS COMING SHORTLY I AM SURE)

    Clearly, the “team review” and director approval on all space larger than a /16 is working out well… for Amazon. Maybe we can all simply provide our IPJs based solely on BGP. This would appear to be the only justification Amazon needed.

    • John Curran

      There is no requirement to announce address space into the routing table in order for it to be utilized, and in fact, there are often good reasons to the contrary. Cloud computing companies, large corporations, mobile operators, and many other organizations are known have extensive internal infrastructure which requires unique addressing, only has a small amount of which is publicly routed. See IETF RFC 1918 for a full discussion regarding the reason why such entities might use public vs private addressing for this purpose.

      /John
      John Curran
      President and CEO
      ARIN

  4. Michele

    Milton

    The two Americans were not the only people who opposed the proposal.
    I also opposed it and I’m both European and represent a RIPE member.

    Regards

    Michele