Last year Georgia Tech’s Internet Governance Project teamed up with ICANN’s Office of the Chief Technology Officer to research the economic factors affecting the decisions of network operators to deploy Internet Protocol version 6 (IPv6). The study was commissioned because we both believe that the Internet community needs a better understanding of the economic incentives affecting the attempt to “upgrade” the IPv4 Internet to IPv6, a new Internet protocol with a huge address space. IPv6 doesn’t work with the old Internet. This report examined quantitative data about current levels and patterns of IPv6 adoption, and tried to explain that data based on an analysis of the economic incentives affecting network operators. We titled the report “The Hidden Standards War: Economic Factors Affecting IPv6 Deployment.”

The ongoing competition between IPv4 and IPv6 has big implications for the future of the internet. Is this mixed-standard Internet a passing phenomenon, or will we get stuck in it? If it is only a transitional phase of a standards war and one will prevail, which one will it be? If IPv6 prevails, how long will it take us to get there? Is it possible that IPv6 actually loses the standards competition, and becomes the proverbial ‘orphan’ of the standards economics literature? Our report tries to answer those questions. We are still vetting the draft report but can release some initial findings.

Some initial findings

There is good news and bad news for IPv6 in our findings. For starters, we don’t think IPv6 will lose the standards war and go into oblivion. IPv6 deployment can make economic sense for network operators that need to grow, particularly mobile networks where the software and hardware ecosystem is mostly converted. While it appears as if IPv6 capability is sometimes turned off in response to incompatibilities, the capability remains and as far as we know is never eliminated; therefore, the “stock” of networks with IPv6 capability can only continue to grow. But based on our findings we’re not sure yet whether we will ever exit the mixed world. It is possible we will remain in it for some time, perhaps forever (for some definition of ‘forever’ appropriate for global technical standards). The general picture of IPv6 deployment today is best summed up in the following chart:

The largest group, 169 countries, or 79% of the total, had no appreciable IPv6 deployment, remaining at or below 5% during the entire study period. The next largest group (26 countries, or 12%) were economies with increasing levels of IPv6 capability. The next group (18 countries, or 8%) exhibited a plateau in growth, with IPv6 capability growth stopping at levels anywhere between 8% (Austria) and 59% (Belgium). Even in countries where major network operators have converted, there are plateaus in the level of deployment for a period of two or more years rather than a steady, increasing march towards additional deployments. The full report explains in more detail why these plateaus happen.

How to explain this pattern?

It’s all about the costs and benefits. The study investigated the economic incentives to convert. One important economic consideration which has not been appreciated by previous research is that network effects play almost no role in the decisions of network operators to deploy. No one uses IPv6 only. All public network operators, and nearly all private ones, must offer full compatibility with all other network operators and as many end points and applications as possible. Given that fundamental constraint, there are only three basic choices for network operators:

Remain on IPv4 (do nothing) Run both IPv4 and IPv6 (implement dual stack) Run native IPv6 among compatible parts of their own network with some kind of tunneling or translation (i.e., converter technologies in economics) at the boundaries to make it compatible with IPv4

Among these viable alternatives, we show that dual stack will never get us across the finish line; it is not economical. It is the third category that shows promise for some growing networks. We also show that there is no difference in the network benefits obtained in all of the three options; all three approaches gain access to essentially the same Internet. Consequently, one network operator’s migration to IPv6 places no pressure on the incentives of other network operators to deploy IPv6. There is also no discernible difference in the Internet service offered via IPv6 and IPv4. Furthermore, the costs of maintaining compatibility between the two standards are borne exclusively by networks that deploy IPv6. Deployers must make one-off investments in infrastructure and training, and incur ongoing compatibility costs, whereas non-deployers only have to pay for additional IPv4 numbers. (And if non-deployers don’t need to grow they don’t incur any new costs).

Because of the additional costs associated with IPv6 deployment, there is a strong positive correlation between a country’s wealth (measured in per capita GDP) and country-level IPv6 deployment levels. Per capita GDP differences explain nearly half (.499) of the variation in IPv6 deployment levels across countries, and the correlation is statistically strong (<.01). The study also found that a lower level of market concentration (as measured by HHI) is correlated with higher country-level IPv6 capability rates. This was true of both wireless (-.267, p = <.01) and fixed broadband (-.347, p = <.01) service markets, though the correlation is stronger in fixed broadband. It is well known that competitive markets accelerate investment in newer, more efficient technologies. The problem in this case, however, is that we found no correlation between IPv6 deployment by a network operator and changes in its market share, so the negative correlation between market concentration and IPv6 deployment is not a product of competitive advantage. It probably exists for two reasons: 1) the presence of more players in a market increases the likelihood that one of them will make an arbitrary deployment decision; 2) a more open market permits the entry of new firms (such as India’s Jio) with newer infrastructures, which have a more favorable cost structure for IPv6.

The good news for IPv6 is that it can make economic sense for some operators who need to grow. The bad news is that many networks don’t need to grow much. And even if they need to grow, they may still be lodged in a slower-moving software and hardware ecosystem tied to IPv4, which will make it less expensive to expand by just obtaining more IPv4 addresses or using NAT. Additional bad news is that the need to maintain backwards compatibility with non-deployers eliminates any network effects that would create growing pressure to convert to IPv6. Not until the very end game, when the number of IPv4-only networks is so small that the older protocol is in danger of being shut off entirely, is there any external pressure on lagging network operators to convert. We will do additional modeling to gain a better understanding of end-game timing and scenarios.

The final report will come out near the end of this month.

