Microsoft Heats Up IPv4 Market

With the current address block of Internet Protocol version 4 (IPv4) quickly dwindling, some analysts believe companies could soon begin paying a high premium for address space.

The acquisition by Microsoft last month of 666,624 IPv4 addresses from Nortel for $7.5 million, or $11.25 per address, highlighted what could be a reality for businesses looking to expand their IPv4 in the coming months or years. While IP addresses are currently free--for those companies that show a need, which Microsoft could not--they may be costly once the free supply expires by the end of the year.

"It certainly feels like we are at a turning point and have entered unexplored Internet policy, legal, and economic territory," said Craig Labovitz, chief scientist at Arbor Networks, in an interview. "While there has always been some nominal value associated with IP address space, Microsoft's Nortel IP purchase and the emergence of multiple address broker companies suggest the start of nascent IPv4 market. The question now is how the tensions between Internet policy and [the American Registry for Internet Numbers', or] ARIN's governance over IP address transfers will interact with these possibly competing market forces."

An estimated 95% of worldwide IPv4 address spaces are currently being used and the remaining five percent in the North American region will soon be used, according to ARIN, the North American registry that maintains the database of Web identifiers.

"We have about 80 million (IPv4) IP addresses, but at the current rate of requests, we expect that to run out by the end of this year," said John Curran, president and CEO of ARIN.

Still, most providers still have IPv4 allocations to last many months or years, which means it will take some time before enterprises and consumers end up bidding and paying for addresses like Microsoft did, Labovitz said. Still, the IPv4 shortage has other costs, he said.

"IPv4 scarcity has a cost today in the form of added expense from security and network complexity due to work-arounds like network address translation (NAT)," Labovitz said. "Many providers also have some charge, albeit nominal, for IP addresses such as Amazon's EC2 ($0.01 per allocated but unused IP per hour)."

Other future costs associated with IPv4 scarcity could include new charges for IPv4 allocations from service providers and higher costs for network access and IPv4 allocations. Also, there could be a degradation of network performance as providers are forced to add more tunnels, NATs, and "work-arounds," Labovitz said.

The solution to the upcoming shortage is a migration to IPv6, the new frontier of the Internet. IPv4 uses 32-bit addresses and can support about 4.3 billion devices. IPv6 uses 128-bit addresses and can support trillions of devices.

However, the move to IPv6 has been slow.Currently, less than one percent, or 0.3% of all Internet traffic is on IPv6, according to a recent study by Arbor Networks.

The slow rate of adoption is caused by technical and design hurdles, lack of economic incentives, and a lack of IPv6 content, said Labovitz.

Even if an organization may have enough IPv4 addresses for the coming years, it is still important that they transition to IPv6, since Internet carriers are currently undergoing a major shift to the new Internet Protocol. Once they do, IPv4 websites may have some shortcomings he said, such as delays and lower performance.

"If you don't migrate to IPv6, the quality of service you provide as a website will be completely out of your control" Curran said.