The IP Address Crunch

4cb1f2dc96040Sometimes it feels like small ISPs just move from one crisis to another. The latest problem I am hearing about is that ISPs are having a hard time getting new IP addresses – which is something they need in order to connect new customers to their network. I have clients who have been trying for months to find new addresses, and if they don’t find any they are soon going to have to turn away new customers.

We’ve known for decades that we would exhaust the current IP addresses. The IP world introduced IPV6 IP addresses back in 2011 and that was supposed to be enough new IP addresses to last the whole world for a long time into the future. Historically the original Internet used IPV4 IP addresses, of which there was about 4.3 billion. The new addresses have more digits and there are about 79 with 28 zeroes after it times more IPV6 addresses. Even the tens of billions of expected IoT devises won’t make a dent in the new inventory of IP addresses.

So how can there be a shortfall of IP addresses with so many new ones available? The problem is the speed at which the world is implementing the new IPV6 addresses. Some of the large companies like Comcast, Verizon Wireless and T-Mobile have swapped all of their customers to IPV6 addresses. But the implementation has been slow. Google probably has the best measure of IPV6 implementation since they see a large chunk of the world’s traffic. By 2014 they reported that only 2% of the IP addresses in the world had been converted to IPV6. At the end of last month that had finally climbed to 14% of all IP addresses.

But so far the conversions have been done by the largest ISPs. It is exceedingly hard for small ISPs to make this transition. They are more or less locked into the IP practices of the large carriers that sell them Internet bandwidth. It’s been estimated that the small companies might not be offered IPV6 until perhaps 50% to 60% of the Internet traffic is using the new addressing standard. By the looks of the growth curve that is still at least a few years away.

The bodies that assign IP addresses have all run out of new addresses. The Internet Assigned Number Authority (IANA) free pool of numbers ran dry in February 2011. There are five Regional Internet Registries (RIRs) around the world and the last one of them ran out of IP addresses last year. Since then ISPs can’t get IP addresses through the normal channels.

So small ISPs are stuck in limbo. If they want to grow they need new IP addresses, but there are none available in the traditional channels. As happens with any scarce resource a new market of brokers has stepped in to supply the demand for IP addresses. There are several of these brokers worldwide. These brokers have gone to large companies like GE, Haliburton and Ford and bought their inventories of unused IP addresses. And this process created a market.

Back in 2012 these brokers established market prices for IP addresses. The prices started at about $5 per IP address. But as these brokers have found fewer unused blocks, and as there are more ISPs looking for numbers, the prices have risen and IP addresses today sell for between $11 and $15 per IP address.

So small ISPs should just be able to buy what they need from these brokers, right? Unfortunately it’s not that easy. The addresses are sold through a periodic online auction process, and like happens with any rare resource there are now speculators buying IP addresses with the hope of selling them later at a higher price. The competition in the auction processes has become fierce. To some extent this is like the process for trading bitcoins and those with the fastest and most powerful computers can win the auctions. The small ISPs I know tell me they are not getting any addresses. I know one ISP who has failed at the process for over 6 months.

So we now have a situation where small ISPs are nearly locked out of the process of buying new IP addresses (and even if they buy them they are expensive). This shortfall and the auction arbitrage is likely to last for a few more years. The economics of the market tell us that at some point the arbitrage price for IP addresses will drop. When that happens the speculators in the market will ditch their inventory and there should be IP addresses available at lower prices than today and more easily available. But that’s not expected until there are a lot more IPV6 users. The ISPs might be facing this problem for the next two years. I feel certain that we are going to see small ISPs that will find themselves unable to add new customers to their networks – and in world where we want broadband everywhere that is a disaster.

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