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Unleashing the Potential of Hidden Assets: The Value of IPv4 Addresses in Today's Digital Landscape

By Lee Howard, Senior Vice President, IPv4.Global

Cogent Communications' recent announcement of a securitization offering tied to IPv4 addresses has turned a spotlight on the untapped value of these intangible assets. With limited supply and a still-distant total transition to IPv6, a business's IPv4 addresses are not just networking resources - they are assets that can affect the corporate balance sheet.

Cogent's innovation was to apply this financial tool, one typically reserved for more traditional assets, such as real estate rents or loans - financial products with predictable cash flows - to leases of intangible, digital IPv4 addresses. This generated $206 million in capital in the form of a note. This high profile move reflects the value of IPv4 addresses and has drawn attention to the monetization opportunities in the IPv4 marketplace. Many businesses may reexamine how they might similarly raise capital.

The IPv4 Market Landscape

IPv4 addresses have been the backbone of internet connectivity since the Internet Protocol was put into production in 1981. An address space of 4.3 billion possible addresses seemed reasonable before the personal computer boom and subsequent internet boom. In 1992, IPv6 was developed to address the scarcity of IPv4 addresses, seeing sporadic adoption until the early 2010s when regional internet registries finally ran out of addresses to assign. The gradual adoption of IPv6 has not kept pace with internet growth leading to a market for the trading and leasing of previously assigned IPv4 addresses.

The educational sector has already identified this opportunity. For example, Lewis and Clark University was one of many colleges allocated over 65,000 IP addresses in the days when the internet was primarily a research and education tool. The college recently consolidated the addresses it needed and sold the rest to unlock a sizeable windfall. That's because the addresses, currently valued between $30-$45 each, depending on block size, present significant untapped value.

Evaluating Business Needs: Sell or Lease?

Telecoms organizations are also often sitting on significant IPv4 address holdings that exceed their current requirements. However, selling isn't the only option. There's also the possibility of leasing these assets, as Cogent showed. While many ISPs lease to their downstream customers, Cogent was early in leasing to non-connected organizations. In their securitization filings, Cogent said that it is leasing over 10M addresses. Earning approximately $0.30 per month, that represents $36 million per year in revenue. That revenue is what Cogent sold for $206 million.

The decision to sell or lease if affected by immediate financial needs, long-term strategic goals, and the broader market dynamics including:

1. Current and Future Network Needs. Before deciding the fate of IPv4 assets, prospective sellers should assess current and anticipated future network needs. Selling might provide a significant immediate financial boost but could potentially constrain future expansion or transition plans. Leasing different blocks for one, two, or three years can provide safety for growth plans while earning income in the meantime.  

2. Financial Strategy. For some organizations, the immediate capital generated from selling IPv4 addresses might be crucial for funding strategic investments or for clearing debt. For others, the predictable, ongoing income from leasing could support operational budgets or fund gradual strategic shifts without the need for immediate large-scale investment. It's worth noting that, with leasing income hovering around $4 per address per year - it will take seven years to earn the same income as a sale, based on today's pricing of approximately $30 - $45 per address depending on block size. 

3. Attitude to Risk. The length of the lease affects income. Short term lessees pay more as they are generally more likely to use the addresses for spam or abuse. There's also a higher vacancy rate, as new listings may take weeks to find new lessees. Those who are more risk averse might consider long-term leasing at a lower rate or may take the money immediately in a sale.

4. Administrative Considerations.  Managing a lease requires ongoing administration and monitoring to ensure compliance with lease terms and to address any technical issues that arise. Managing reports of abuse (such as spam or DMCA notices) and legal requests requires awareness and time. Selling, on the other hand, transfers the administrative burden along with the addresses. Companies must weigh these operational costs against the potential financial benefits.

5. Present Value of Money. Some speculators suggest that prices will rise again and want to hold for some future peak. This is risky. Potential sellers or lessors should consider whether prices, currently falling, will rise faster than the return on a capital investment now. If an investment of $10 million now will return a compound annual growth rate of 10%, but prices only rise by 5% per year, a sale now is better than holding. However, leasing offsets this risk, by generating 8-12% annual revenue.

6. Market Conditions. The IPv4 marketplace is dynamic, with prices influenced by demand, regional availability, and overall internet growth trends. Engaging with a seasoned broker can provide insights and strategic advice tailored to these market fluctuations.

Every Organization Needs an IP Address Strategy

In a world where intangible assets can be as valuable as physical ones, understanding and leveraging the value of IPv4 addresses is not just an opportunity; it is an imperative for forward-thinking organizations. Whether the strategy involves unlocking the immediate financial potential of IPv4 assets through a sale or capitalizing on a steady income stream through leasing, the first step is always to get a clear understanding of exactly what holdings an organization has, how they are distributed across blocks, and how many are currently used.

By turning IPv4 addresses into financial instruments, companies like Cogent will succeed in creating cash for their business from an entirely new source. New ways to generate cash without spending cash are rare. Any organization with significant IPv4 address holdings must consider its options.

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ABOUT THE AUTHOR

Lee Howard 

Lee Howard is a renowned expert in IP addressing and a thought leader at IPv4.Global, a leading marketplace and advisory firm for IP address transactions. With a profound understanding of network technologies and their economic impacts, Lee provides strategic guidance to enterprises navigating the complex landscape of digital resources.

Published Tuesday, June 11, 2024 7:30 AM by David Marshall
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