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Microsoft spends $7.5m on IP addresses

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It’s official, IP addresses are now more expensive than domain names.

Nortel Networks, the bankrupt networking hardware vendor, has sold 666,624 IPv4 addresses to Microsoft for $7.5m, according to Delaware bankruptcy court documents (pdf).

That’s $11.25 per address, more than you’d expect to pay for a .com domain name. Remember, there’s no intellectual property or traffic associated with these addresses – they’re just routing numbers.

This, I believe, is the first publicly disclosed sale of an IP address block since ICANN officially announced the depletion of IANA’s free pool of IPv4 blocks last month.

The deal came as part of Nortel’s liquidation under US bankruptcy law, which has been going on since 2009. According to a court filing:

Because of the limited supply of IPv4 addresses, there is currently an opportunity to realize value from marketing the Internet Numbers, which opportunity will diminish over time as IPv6 addresses are more widely adopted.

Nortel contacted 80 companies about the sale a year ago, talked to 14 potential purchasers, and eventually received four bids for the full block and three bids for part of the portfolio.

Microsoft’s bid was the highest.

The Regional Internet Registries, which allocate IP addresses, do not typically view IP as an asset that can be bought and sold. There are processes being developed for assignees to return unused IPv4 to the free pool, for the good of the internet community.

But this kind of “black market” – or “gray market” – for IP addresses has been anticipated for some time. IPv4 is now scarce, there are costs and risks associated with upgrading to IPv6, and the two protocols are expected to co-exist for years or decades to come.

In fact, during ICANN’s press conference announcing the emptying of the IPv4 pool last month, the only question I asked was: “What is the likelihood of an IPv4 black market emerging?”.

In reply, Raul Echeberria, chair of ICANN’s Number Resource Organization, acknowledged the possibility, but played down its importance:

There is of course the possibility of IPv4 addresses being traded outside of the system, but I am very confident it will be a very small amount of IPv4 addresses compared to those transferred within the system. But it is of course a possibility this black market will exist, I’m not sure that it will be an important one. If the internet community moves to IPv6 adoption, the value of the IPv4 addresses will decrease in the future.

I doubt we’ll hear about many of these sales in future, unless they come about due to proceedings such as Nortel’s bankruptcy sale, but I’m also confident they will happen.

The total value of the entire IPv4 address space, if the price Microsoft is willing to pay is a good guide, is approximately $48.3bn.

This story was first published at Domain Incite.

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