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An Economic Perspective on IPv6 Transition

Explore the economic factors behind the IPv6 transition and learn from past lessons. Understand the demand and supply models that drove the deployment of the IPv4 Internet and consider the challenges and opportunities in the transition to IPv6.

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An Economic Perspective on IPv6 Transition

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  1. An Economic Perspective onIPv6 Transition Geoff Huston APNIC

  2. The IPv6 Transition Plan Size of the Internet IPv6 Deployment IPv6 Transition – Dual Stack IPv4 Pool Size Time

  3. Measured IPv6 Deployment 3% 2% 2% 1% 2004 2008 2006 2010

  4. Measured IPv6 Deployment http://www.google.com/intl/en/ipv6/statistics/

  5. Measured IPv6 Deployment http://www.potaroo.net/stats/1x1/sitec/v6hosts.png

  6. IPv4 Exhaustion

  7. The IPv6 Transition Plan - V2.0 IPv6 Deployment Size of the Internet IPv6 Transition – Dual Stack IPv4 Pool Size 4 months! 2004 2006 2008 2010 2012 Date

  8. Is this Plan Feasible? Deploy IPv6 across some 2 billion users, with more than a billion end hosts, hundreds of millions of routers, firewalls and middleware units, audit billions of lines of configuration codes and filters, and audit hundreds of millions of ancillary support systems - all within the next 120 days.

  9. Is this Plan Feasible? No.

  10. What now?

  11. The Economics of Technology Evolution Why are we facing IPv4 address exhaustion? Why have we left it so long to engage with the transition to IPv6? What can we learn from economics?

  12. Lessons from the Past If this transition to IPv6 is proving challenging, then how did we ever get the IPv4 Internet up and running in the first place? Can demand and supply models of markets show us what happened in the switch from telephone networks to IP networks?

  13. Market Supply and Demand Model Price Quantity

  14. Market Supply and Demand Model demand Price Quantity As price increases, the level of demand will decrease

  15. Market Supply and Demand Model Price supply Quantity As price increases, the incentive to supply the market will increase

  16. Market Supply and Demand Model d Price s Market equilibrium point of supply and demand P Q Quantity A market equilibrium exists at a price point that balances demand and supply

  17. Technology Change: Supply Schedule Shift d(Circuits) Price s(Circuits) reduced cost of supply p(Circuits) s(IP) q(Circuits) Quantity The shift from circuit switching to packet switching allowed for cheaper services

  18. Technology Change: The Demand Schedule Shift d(IP) d(C) Price s(C) increased perception of value p(Circuits) q(Circuits) Quantity The shift from telephony to data networks allowed for a broader use model

  19. Circuits to IP Packets: The Demand Schedule Shift d(IP) d(C) Price s(C) reduced cost of supply, and increased perception of value, resulting in a new equilibrium point with higher quantity and lower unit price p(Circuits) s(IP) p(IP) q(IP) q(Circuits) Quantity

  20. IPv4 Deployment IP networks exposed new market opportunities in a market that was actively shedding many regulatory constraints • presence of agile high-risk entrepreneur capital willing to exploit short term market opportunities exposed through arbitrage of circuits • volume-based suppliers initially unable to redeploy capital and process to meet new demand • unable to cannibalize existing markets • unwilling to make high risk investments

  21. IPv4 Deployment Small ISP (Entrepreneur Sector) Size of the Internet High Volume Provider Industry (Telco Sector) ~1990 ~1995 ~2000 Time

  22. IPv4 Deployment IP networks exposed new market opportunities in a market that was actively shedding many regulatory constraints • presence of agile high-risk entrepreneur capital willing to exploit short term market opportunities exposed through arbitrage of circuits • volume-based suppliers initially unable to redeploy capital and process to meet new demand • unable to cannibalize existing markets • unwilling to make high risk investments • the maturing market represented an opportunity for large scale investment that could operate on even lower cost bases through economies of scale

  23. IPv4 Deployment Small ISP (Entrepreneur Sector) High Volume Provider Industry (Telco Sector) Size of the Internet ~1990 ~2005 Time

  24. What about IPv6 Transition? Will the same technology, cost and regulatory factors that drove the deployment of the IPv4 Internet also drive this industry through the transition from IPv4 to IPv6?

  25. IPv6 vs IPv4 Are there competitive differentiators? no inherent consumer-visible difference no visible consumer demand no visible competitive differentiators other than future risk

  26. IPv4 to Dual Stack:The Demand Schedule Shift DV4 Price SV4 PV4 QV4 QDualStack Quantity

  27. IPv4 to Dual Stack:The Demand Schedule Shift DV4 Price Supply side cost increase due to Dual Stack operation SDualStack SV4 PV4 QV4 Quantity

  28. IPv4 to Dual Stack:The Demand Schedule Shift DV4 / DualStack Price No change in perception of value, so demand schedule is unaltered Supply side cost increase due to Dual Stack operation SDualStack SV4 PV4 QV4 Quantity

  29. IPv4 to Dual Stack:The Demand Schedule Shift DV4 / DualStack Price No change in perception of value, so demand schedule is unaltered Supply side cost increase due to Dual Stack operation SDualStack PDualStack SV4 PV4 QV4 QDualStack Quantity Equilibrium point is at a lower quantity if Dual Stack supply costs are passed on to customers

  30. Impasse? • To get to an IPv6 network we need to operate a dual stack hybrid model for a transitional period • But the higher cost and lower perception of utility of imply that there is no ‘natural’ market driver to propel either producers or consumers into a dual stack transition service

  31. Something has to break! Demand appears to be constantly increasing, not slowing And our stocks of IPv4 addresses are finite, and addresses are about to jump in price So how might this be resolved?

  32. The Expanding Internet New Users Existing Base of IPv4 Users

  33. Asymmetric Need for IPv6 Existing Base of IPv4 Users New Users

  34. Asymmetric Cost of IPv6 Existing Base of IPv4 Users New Users

  35. Impasse 2.0 • It’s the new users and new uses of the Internet that are are the immediate beneficiaries of an IPv6 network, and the immediate victims of continued stasis in IPv4 • But the incremental economic value of these additional users and uses does not appear to outweigh the costs of transition in the installed base • And the larger the installed base of IPv4, the greater the economic resistance to change

  36. “Tipping Points” If the value of the new users and uses is disproportionately high, compared to the installed base, the actions of this small subset of users can influence the actions of the installed base Such situations can lead to a “tipping point” where adoption of a new technology by a small set of influencers can direct a far larger market

  37. The Mobile Internet The mobile “smartphone” market retailed 300M units in 2010 (Gartner) This market sector: earns the highest margin per user is growing at the fastest rate will be one of the first to feel the impacts of address scarcity should be able to provide clear market impetus in the transition to IPv6

  38. But… • Public or Private? Will the mobile market continue to open their users to the entire Internet or head back into private walled gardens and lock up users and content? • Google’s Android model • Apple’s App Store and the iPhone model

  39. Why are we wedged on IPv6? Much of the answer to the question: “where to now?” for the Internet depends on the direction being taken by the mobile sector in response to address scarcity. So why is this not just a simple case of “just use IPv6 and lets move on!” ?

  40. Why are we wedged on IPv6? • Cost and Benefit are not aligned: • Those folk who have been historical "losers" with the open Internet - the carriers - are now being asked to make the bulk of the investment in IPv6 access infrastructure • They are understandably reluctant to make further investments that in the end just worsen their long term revenue prospects

  41. Why are we wedged on IPv6? • Cost and Benefit are not aligned: • Those folk who have benefitted from an open network in the past are increasingly ambivalent about open networks and IPv6 into the future • They are now part of the set of entrenched incumbents, with market positions to protect

  42. Why are we wedged on IPv6? • Cost and Benefit are not aligned: • Those folk with the most to gain in the longer term from continuation of an open network - consumers - do not necessarily act from day to day in their own long term interests • i.e. consumers are unwilling to fund this transition through higher prices for Internet services

  43. Is the Open Pendulum swinging back? • Continued delay by incumbents to embrace IPv6 allows further consolidation, and increased ability by incumbents to define (and limit) the parameters of future competition. • What is at risk here is the future of a truly open public network infrastructure

  44. If we really want to keep a truly Open Internet... • Then we need to alter the market environment to favor the rapid adoption of IPv6! • Working out how to do this on the fly is proving to be extremely challenging

  45. Thank You

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