ICA Tells ICANN The Draft Of RAA Agreement Is “Deficient in Scope”

The Internet Commerce Association  (ICA) submitted comments to the Internet Corporation for Assigned Names and Numbers (ICANN) website, on the current  draft  statement   of  Registrants’   Rights  and   Responsibilities  (RRR)  calling it “deficient in scope”.

“We prefer the alternate version proposed to ICANN by the Non­ Commercial  Stakeholders  Group  (NCSG) and propose  that a modified  version  of it be adopted   as  the  final   RRR said Phil Corwin in his letter to ICANN

“As  a  document   intended   to  provide   guidance   to  all registrants,  especially those lacking a sophisticated  understanding of their rights and responsibilities, it is important  that the RRR reflect  the input of registrants  represented by such entities as the NCSG and the ICA as well as of registrars.”

The  ICA  strongly  supports   the  concept  of  a  standard  statement   of  RRR  that  all accredited  registrars  must provide  a link to.

However,  the current draft RRR (available at http:1/www.icann. org/en/resources/registrars/raa/proposed-registrant-rights­ responsibilities-22apr13-en.pdf) is insufficient  in scope.

This deficiency  perhaps  reflects the  fact  that  it  was  drafted   by  registrars   without  input  from  registrants   or  entities representing them.

As an RRR starting point, we prefer the proposed draft submitted by ICANN’s NCSG on May  14,  2013  and  available   at  http://forum.icann.org/lists/comments-proposed-raa-22apr13/msg00010.html.

We have modified and added some provisions  of that draft-­ and have also included,  for the sake of comprehensive treatment  and balance,  some important provisions of the current registrar-developed draft RRR.

We would propose that ICANN adopt this modified RRR statement  in lieu of the current draft RRR; modifications  and additions to the NCSG draft are indicated below
Registrants’ Rights and Responsibilities

Registrants  of domain  names  depend  on the  DNS  to provide  stable  online  location­ pointers for their speech, association, commercial,  and non-commercial activities. Registrants  derive  rights  and responsibilities  from applicable  law as well as from  the web of ICANN-based  contracts  and relevant  policies.  As a matter  of policy,  ICANN should ensure that its contracts  and the parties bound by them can support  a wide range of lawful and innovative end-user activities and free and open communications.

Registrants shall have the right to:

• Reliable neutral resolution of registered domain names;

• No suspension or termination of registration without due, disclosed process;

•    Administration  of UDRP disputes  and other ICANN-adopted  rights  protection mechanisms  (RPMs)  in a uniform  and neutral  manner  by arbitration  entities that are effectively overseen by ICANN;

• Privacy in the provision and display of registration data;

·Fair and non-discriminatory  treatment from ICANN, Registrars and Registries;

•  No  censorship  of  domain  use,  content,  or  communications through  Registries  or
Registrars;

• Timely and secure transfer of registered domain names between Registrars;

• Renewal  (or  choice  not  to  renew)  domain  name  registrations  on  clearly  disclosed terms.

To not be subject  to false advertising  or deceptive  practices  by their Registrar or through any proxy or privacy services made available by their Registrar.  This includes deceptive notices, hidden fees, and any practices that are illegal under the consumer  protection  laws of the relevant  jurisdictions  of their registrar  or the registrant’s  domicile.

To accomplish that. registrants shall be entitled to accurate and accessible  information about:

• The identity of their ICANN Accredited Registrar;

• The identity of any proxy or privacy service provider affiliated with their Registrar;

• The terms and conditions under which Registrant information is revealed by a proxy or privacy service provider;

• The terms and conditions under which Requests are relayed to Registrants by a proxy or privacy service provider (without revealing of the identifying information);

• The Registrar’s terms and conditions,  including clear and conspicuous  disclosure of  pricing  information  and  other  key  terms  and  conditions,   applicable  to  both Registrar services and any proxy/privacy services offered by the Registrar;

• Clear and conspicuous identification of any changes to the Registrar contract and/or the terms of the proxy/privacy agreement, to which they will be held on continuation  or renewal of the domain name;

• Notice of the customer support services offered by the Registrar and its proxy/privacy service providers,  and how to access  them,  including  means  to raise concerns  and resolve disputes;

• Instructions that are readily understandable  and explain the Registrar’s processes for  registering,  managing,  transferring,  reviewing  and  restoring  domain  name registrations,  including  any  proxy/privacy  services  that  may  be  available  from  the Registrar.

Registrants have the responsibilities:

•     To comply  with  their Registrar’s  posted  terms  and  conditions  and  with applicable Registry and ICANN policies.
•     To assume responsibility for the use of their domain name.
•     To provide accurate WHOIS and other required information.

• To be contactable, to maintain current Registrar account data, and to respond to registrar  inquiries within  a reasonable  time; or to provide  an alternative  such  as allowing  the  registrar  to  suspend  registration  upon  an  unresponded-to  allegation  of abuse;

• Not to use the domain name for abuse of the DNS (to be defined more specifically: e.g.,  specific  DNS  attacks,  deliberate  malicious  distribution  of  malware,  or  criminal activity); and

• Not to commit intentional trademark infringement (“cybersquating as defined in the UDRP and enforced through it and other ICANN-adopted  RPMs).
Conclusion

The adoption of an RRR that provides a clear, comprehensive  and balanced recitation of rights and responsibilities is an important objective. Therefore, the current draft RRR should be replaced by an improved document.

We hope that ICANN finds our views useful Thank you for considering them in this important matter affecting the general  understanding  of the basic rights  and responsibilities of domain registrants.

3 More New gTLD Withdraw; .Inc, .Ltd and .Mail

3 More new gTLD applications have been withdrawn on the ICANN site.

C.V. TLDcare out of the Netherlands  withdrew its two new gTLD applications for  .Ltd and .Inc

Prioritization numbers for the two applications were 1,381 and 1,503 respectively

Afilias, also withdrew its application for the .Mail new gTLD which had a prioritization number of 1,724

This marks the second withdrawn application for .Inc but don’t worry there are still 9 more applicants.

This also marks the second new gTLD withdrawn for .Ltd and now there are only 5 applicants remaining.

Likewise for .Mail,  this is the second withdrawn application leaving 5 other applicants.

ICANN is now showing a total of 63 withdrawn applications

Guest Post By Bill Sweetman “Why I Support The ICA”

This is a guest Post by Bill Sweetman who is General Manager of YummyNames, a service from Tucows.com, a top 5 domain name registrar,  that allows marketers, entrepreneurs, and startups to buy premium domain names for their business.

Bill is also a member of the ICA Board:

“”The domain investing industry, as wonderful and exciting as it is, is pretty small compared to other industries and consists of a relatively small number of individuals, companies, and related service providers. It is very easy for our eclectic little group of domain enthusiasts to be outgunned by deep-pocketed interests from other industry groups who don’t know or care about domain investors and have no qualms about crushing our industry. Remember, most people wrongly equate domainers with cybersquatters.

Not to sound alarmist, but many of the *basic* things that you take for granted, such as the right to own lots of domains, park (or lease) a domain, even just re-sell a domain name, are all things that could disappear in the coming years if some of the more extreme ‘anti-domainer’ and ‘anti-commercial’ forces out there get their way. I am not kidding here.

The only organization that is actively monitoring ICANN and various government entities on behalf of domain investors is the ICA. And not just monitoring, either. Phil Corwin is right there, in the trenches so to speak, often the only person speaking up when a policy or rule is proposed that is not in the best interest of domainers as well as everyday domain owners. Phil is a tireless crusader for domain investors and we are all very lucky to have him on our side.

If you make a living buying and selling domain names, and you want to continue to enjoy the unique domainer lifestyle, I strongly encourage you to consider supporting the ICA. No amount is too small, and you can donate right on the ICA Website at http://internetcommerce.org/donate

There is no other, and no better, organization out there fighting for your rights as a domainer. But ICA can’t continue doing so without your support.

Thanks for listening.

Bill Sweetman
General Manager of YummyNames””

NOTE: Worldwide Media, Inc. which is owns and operates TheDomains.com is Silver Member of the ICA as Well.

You can read domainer Nat Cohen’s Guest Post of Why he supports the ICA on Elliotsblog.com

Assistant Secretary Of Commerce Larry Strickling’s Statement on WCIT Dubai

The Assistant Secretary Of the United States Department of  Commerce Secretary Larry Strickling just issued this statement on the World Conference on International Telecommunications (WCIT) which just wrapped up in Dubai:

“I have just returned from Dubai and the World Conference on International Telecommunications (WCIT), which wrapped up today having failed to reach consensus on a revision of the International Telecommunications Regulations (ITRs). ”

“At last count, the United States and over 50 other nations did not sign. ”

“I wanted to take this opportunity to provide you some perspective on the events of the last two weeks at the conference and to discuss how the United States will move forward from this conference.”

“We went to Dubai with two commitments.”

“First, we were dedicated to the goal of a successful conference. ”

“We were confident we could find common ground with the rest of the world to make any necessary updates to the ITRs within their application to traditional telecommunications services.  We also hoped the assembled nations would hold a productive discussion on the need to expand broadband capabilities throughout the world.

“But second, we were just as committed to ensuring that the free and open Internet not be ensnared in International Telecommunication Union (ITU) treaty obligations that could threaten the Internet with top-down government regulation at the expense of the multistakeholder processes that had served so well in encouraging economic growth and wealth creation of the Internet up to now.  ”

“This has been the steadfast, bipartisan policy of the United States throughout the Obama Administration.  ”

“Indeed, at the start of the conference in Dubai, the House of Representatives unanimously passed a resolution, earlier passed by the Senate by unanimous consent, calling upon the Administration to continue to “promote a global Internet free from government control” and to “preserve and advance the successful multistakeholder model that governs the Internet today.”

“So what happened to cause the failure of the conference?  ”

“The International Telecommunication Union had made two important promises in advance of the conference.  ”

“First, that it would operate by consensus and second, that Internet issues would not be appropriate for inclusion in the ITRs.  As it turned out, the ITU could not deliver on either of these promises. ”

“When around 40 percent of the participating countries do not sign the final documents of the conference, it is obvious that the ITU did not achieve the consensus it had promised.”

“I want to spend a minute on the process followed in Dubai.  ”

“I have spoken before about why the ITU is not and cannot be a true multistakeholder organization since only member states have a vote.  But the process followed in Dubai was startling as to how even member states were denied a meaningful opportunity to participate.  The final document presented on Wednesday as the chairman’s plan was shared with only twenty or so countries the previous day.  Through the plenary debate on Wednesday, countries that had not been given that privileged access were constantly being chastised by countries such as upsetting the “careful compromise” reached on Tuesday to which these other countries had not been a party”.

“There are some who would say that breaking up into smaller and smaller groups is the only way the ITU can get anything done.  But that’s exactly my point.  Just as some nations argued that the new network realities required an overhaul of the ITRs, I think it is clear beyond any doubt that these new realities and the proliferation of stakeholders that have emerged in the Internet economy demonstrates how unfit government-only institutions such as the ITU are for dealing with these issues”.

“What does this outcome mean for the United States and for the multinational companies that operate in countries around the world?

“First off, I should note that it is not all that unusual for the ITRs not to apply to all countries. ”

“These regulations date back to 1850 and the United States refused to sign them until 1973 so we have gotten along nicely in this country without these regulations before.  Of course, the existing 1988 regulations are still in force and the new provisions from this week do not take effect until January 2015 for those countries that sign the treaty so there will not be any immediate changes as a result of WCIT-12.

“What remains to be seen is whether these new provisions will have any impact outside of the United States on companies that operate in signatory countries. ”

“We have plenty of time to assess the likelihood and extent of any impacts but I would suggest that to the extent the new language gives some nations the prod to make substantial changes in the way they deal with the Internet within their borders and in their international relations, those changes likely are not sustainable in the long run given how interconnected the world has become and the need for all nations and their economies to be integrated into this global interconnection for them to succeed”.

“Lastly, I want to address what those of us who believe in the free and open Internet and in multistakeholder governance of the Internet need to do as a result of the Dubai outcome”.

For this discussion, I divide the world into three categories. ”

“First are those countries that embrace the multistakeholder process and are committed to a free and open Internet.”

“The good news is that this group is increasing in size.  Countries such as Kenya, Estonia and others are becoming beacons of Internet freedom for the rest of the world and the arguments in favor of freedom and openness are so strong and self-fulfilling that other countries will join on in the future.”

“Second are those countries, largely authoritarian in nature that are threatened by a free and open Internet.  These countries, which are fairly small in number, watched the events in Tunisia, Egypt and other Arab countries with alarm and are not likely to move away from their preferred model of top-down control and censorship any time soon.”

“But that brings us to the remaining nations of the world.  ”

“These countries want the benefits of the Internet to grow their economies and create wealth for their citizens and are actively searching for the best ways to achieve those gains.  They have issues such as how to maintain sustainable investment in their infrastructures and are legitimately concerned about online problems of spam, child pornography and the like.  Interestingly, they are not committed to the idea that the ITU is the only place to bring these issues but it is the one global institution they know the best.  Based on my conversations with representatives of several of these countries last week, it is clear to me that many would be open to finding solutions to these problems through other means such as multistakeholder processes but they just are not comfortable enough with this form of governance to join in”.

“Our challenge, starting now, is to work hard to increase the number of countries that support the multistakeholder model.  The growth in support the last several years is a direct result of the efforts of like-minded stakeholders, including the United States, to demonstrate the strength of a free and open Internet:

  • Through the world’s commitment to the global Internet Governance Forum and the support of local and regional IGF’s throughout the world.
  • Through actions such as the adoption of Internet policymaking principles at the OECD last year; and
  • Through the world’s efforts the last four years to improve existing multistakeholder organizations such as ICANN, which coordinates the Internet domain name system.

All stakeholders need to redouble their efforts to better understand the needs and challenges countries around the world have with respect to the Internet.  We need to brainstorm with them to build their capacity to deal with these issues.  We need to strengthen existing opportunities, and perhaps develop new ones, for these countries to participate in multistakeholder processes to solve their problems.  We need to make a renewed and reinvigorated commitment to getting the necessary funding and staffing to allow the Internet Governance Forum to grow.The divide reflected in the outcome of the WCIT today is not going to go away overnight.  But our arguments are powerful and if we apply ourselves to the task, we have every reason to expect the ultimate success of the global ideal of the free, open and multistakeholder Internet.”

ICA Tells Dept Of Commerce To Make Verisign Roll Back .Com Prices By $2 To Match .Net & Limit Increases To CPI

In a 16 page letter sent by Phil Corwin  the Internet Commerce Association (ICA)  to the U.S. Department of Commerce (DOC) and the Department of Justice (DOJ), the ICA urges the DOC & the DOJ not to approve the renewal of the Verisign contract to operate the .com registry unless Verisign rolls back wholesale prices of .com domain names to the same price it charges for .net domain registrations and to limit price increases in the future to the increase in the Consumer Price Index (CPI).

Verisign (VRSN) reported during their earnings call about a month ago, that the contract to mange the  Com registry is still under review by the Department of Commerce and Department of Justice.

In its letter, the ICA took a very strong position that the contract should only be renewed if price adjustments are made to the contract in both the base price and the price increases.

The argument is pretty simple.

Verisign operates the .net registry for a wholesale price of $5.86 per domain yet its charging $7.85 to manage the .com registry using the same facilities, staff, equipment and infrastructure.

There is no logical reason Verisign can operate the much smaller .net registry which has less than 15 million registrations for $2 less than the .Com registry which has around 105 Million domain registrations.

The second point is equally direct.

Verisign has a monopoly on the .com and .net registries and operates like a traditional utility company in that  you cannot register a .com or a .net domain without Verisign getting paid as you can’t get electricity without paying your local electric company.

The difference is if your electric company wants a rate increase it has to go to the relevant commission that oversees it and show that its costs have increased and profits decreased and get approval for each and every rate increase.

Verisign on the other hand is entitled to a 7% rate increase in every 4 out of 6 years, without a showing of additional cost all the while when the company is operating at a greater than 50% profit margin.

Here is the highlights of letter which makes me proud to be a silver member of the ICA:

As the Department of Commerce (DOC) continues its review of the .com Registry Agreement in consultation with the Department of Justice, it is the view of the ICA that approval of its renewal with VeriSign should be approved as being in the public interest only if:

  • The wholesale base price for .com domains is reduced from its present level of $7.85 to at least the same $5.86 price currently in effect for .net domains
  • Future increases in the wholesale price of .com domains are limited during the six-year term of the new agreement to the increase in the Consumer Price Index (CPI) unless VeriSign submits additional information that provides sufficient documented justification to the satisfaction DOC that such higher pricing is required for the continued operation of the .com registry in a safe, stable, and secure manner.

VeriSign Continues to Dominate the gTLD Marketplace

VeriSign continues to exercise quasi-monopolistic control over the marketplace for generic top level domains (GTLDs) through its operation of the .com and .net registries under contracts with the Internet Corporation for Assigned Names and Numbers (ICANN) that require approval of the Department of Commerce. As of June 30, 2012 total combined .com and .net domain registrations totaled 118.5 million domains, of which 103.7 million were in .com and 14.8 million in .net.

These two dominant gTLD registries, both operated by VeriSign, constituted nearly fifty percent of the 240 million domains registered as of that date.

Their combined total of 118.5 million domains exceeds the 100.3 million total for all of the country code top level domains (ccTLDs) operated by all the nations of the world. It is also more than five times greater than combined total registrations of approximately 22 million for all other existing gTLDs.

The term “dot com” is now the world’s biggest brand and it is used and respected globally as the gold standard of the internet.”

“The monopolistic position occupied by VeriSign is openly recognized by market analysts. Here is how one technology sector analyst characterized the benefits of VeriSign’s monopoly DNS position in late 2009, while also correctly forecasting the massive “special dividends” and stock buyback program that we discuss later in this letter:

We are attracted to VRSN primarily for stock-specific reasons. VRSN holds a legal monopoly on the DNS industry…We touched on VRSN’s monopoly position in DNS… As a result, VRSN holds one of the stronger competitive positions of any stock in our portfolio. The DNS contracts for managing the dot.com and dot.net domain naming registries were granted by ICANN in 2006 and 2005, respectively. The agreements expire in 2012 and 2011, respectively, but call for a “presumptive right of renewal,” i.e., the contracts should automatically renew with similar terms for another six years as long as VRSN meets its contractual obligations. Under the contracts, VRSN is allowed to take price increases of up to 7% and 10% (for dot.com and dot.net, respectively) in as many as four of the six years in the term…VRSN has spent more than $100mm over the past couple of years to build out its DNS infrastructure. With this spending program mostly finished, management is free to redeploy this cash flow into more shareholder friendly initiatives, like a large share buyback or perhaps the initiation of a dividend.

Absent existing pricing restraints in the .com and .net registry agreements, VeriSign could exploit this market dominance through substantially higher wholesale pricing.

We believe that VeriSign should be fairly compensated for the technical function of operating these registries, but should not be allowed to abuse its quasi-monopolistic control to overcharge for those services based upon the secondary market value of the domains and the enterprise value of the businesses that have utilized them as a virtual foundation for speech and commerce.

.Net Pricing is the Appropriate Benchmark for .Com

The current .Com registry agreement was forged as the settlement of litigation brought against ICANN by VeriSign in the middle of the last decade, after ICANN attempted to put the renewal contract out for competitive rebid. One year earlier, a similar competitive rebid process had reduced the wholesale price for .net registrations from $6.00 to $3.50 – yet the .Com settlement set a wholesale domain base price for the much larger registry at $6.00.

When the terms of the settlement were announced they set off substantial opposition from a bipartisan group of members of the U.S. Senate and House.  They also generated intense debate and division among members of ICANN’s Board and after the Board’s split 9-5 February  2006 vote to approve the contract its approval by DOC was opposed by  almost all major domain registrars and other members of the ICANN community. One contemporary press release captures the outcry over the badly flawed contract now being considered for renewal:

GoDaddy.com, the No. 1 registrar of domain names worldwide, is outraged by the Internet Corporation for Assigned Names and Numbers’ (ICANN) 9-5 vote last night to approve a new .COM registry agreement with VeriSign. The agreement grants VeriSign uncontested price increases and perpetual monopoly power, which will lead to exorbitant profits at the expense of the Internet community.

ICANN, the governing body of the Internet, has been working to settle a lawsuit with VeriSign, which manages .COM and .NET domain name extensions. The proposed settlement agreement would allow VeriSign to raise registration fees by seven percent annually in four of the next six years without cost-based justification. It also would give VeriSign control of the .COM registry indefinitely, as it extends VeriSign’s “presumptive renewal” right when the proposed settlement agreement expires in 2012.

“We are bitterly disappointed, but we’re not giving up yet. It’s simply a bad deal for the industry and registrants everywhere,” said Bob Parsons, CEO and Founder of GoDaddy.com. “The fact that this monopolistic deal was approved is a loud signal that major changes are needed at ICANN.”

GoDaddy.com joined other top registrars, representing approximately 57 percent of all registered .COM names, in petitioning ICANN to address concerns with the proposed settlement. The ICANN board vote came only one week after the close of the public comment period, and without modifications to any of the raised issues.[5]

The principal objections to what was broadly viewed as a “sweetheart deal” were:

  • ICANN’s lack of adequate transparency and accountability in reaching this agreement behind closed doors and its presentation to the community as for all practical purposes a fait accompli.
  • The presumptive renewal provisions of the agreement, which in fact amount to perpetual renewal and effectively grant VeriSign an endless monopoly to operate the .Com registry.
  • The pricing provisions, which permit increases of 7 percent in four out of the six years of the contract absent any substantive justification.

In the ensuing years, VeriSign has exercised all four of its upward pricing options, resulting in an increase from the $6 contract base price to the current $7.85 wholesale price. VeriSign can likewise be expected to exercise all of the price increase opportunities permitted under the pending Agreement.

We believe that a minimum $2 reduction, which would align .Com and .Net wholesale pricing, would be in the public interest and therefore should be required as a condition of DOC approval. As noted above, a competitive rebid of the .Net contract in the year preceding the .Com litigation settlement set a wholesale base price of $3.50 for that .net contract. That is the only market testing that has been performed in the past decade for the operation of these two dominant gTLD registries and thus the only reliable wholesale pricing benchmark.

Rather than being viewed as harsh treatment of VeriSign, a reduction in .Com pricing of only $2 is in fact generous. First, had the .Com contract been competitively rebid in the year following the .Net pricing competition there is a substantial probability that the base wholesale price would have been set at less than $3.50, not at the settlement benchmark of $6, due to the fact than the number of registered domains is more than seven times larger with resulting efficiencies of scale. Second, under its own overly generous contract pricing provisions, .Net wholesale prices were permitted to increase by up to ten percent annually absent any justification commencing on January 1, 2007, and that pricing power carried into the new .Net agreement approved by ICANN in 2011[6] — so the current $5.86 .Net wholesale price may itself be unjustifiably generous.

Indeed, registry operation services consist of commodity technical services that are widely available from a large number of well-qualified potential providers.

It is widely acknowledged that the price of commodity technical services tends to fall, not rise, over time – particularly in the database management field, given that prices for data storage continue to decrease dramatically in accordance with Moore’s Law – so there is no reason for the DOC to permit unjustified price hikes for such services.

It is absolutely not in the public interest for .Com wholesale prices to be at least $2 more than they would be if the .Com registry contract was competitively rebid on a regular basis. That excess price level, multiplied across a .Com domain base of at least 100 million, results in excess and unjustifiable revenues of more than $200 million per annum. Across the entire six-year span of the renewal contract, this will result in excess revenues to VeriSign totaling at least $1.2 billion.

Of course, for the average registrant holding only one or a few registrations for business or personal use, the difference in pricing may appear negligible.

But for the overall public the aggregate difference is quite substantial.

And there are distinct segments of the public who suffer a disproportionate impact from an unjustifiably high .com price.

One of those segments is, admittedly, the non-infringing domain investor and developer portfolio owners and managers who comprise the membership of the ICA.

But another large and significant segment is comprised of the large brand interests who are compelled to maintain substantial “defensive” portfolios of infringing, primarily .com domains with no intent to use them but solely to keep them out of the hands of infringing “cybersquatters”.

Maintaining these mostly useless domains is a continuing annual cost drain on U.S. businesses, as such defensive portfolios probably total many tens of millions of domains in the aggregate – one leading brand protection company reported that a recent survey revealed that over 90% of corporate portfolios currently consist of defensive registrations”.

Allowing VeriSign to price .Com domains in excess of competitive market levels leads to an unjustified transfer of wealth from the shareholders of large brand entities to those of  VeriSign.

VeriSign also operates the .Name registry, and its wholesale pricing level currently is $6.00, again indicating that wholesale .Com prices are unjustifiably high.

In any event, there can be no justification for a $2 price differential between .Net and .Com wholesale domain prices given that VeriSign performs the exact same registry functions for all these gTLDs, as well as back end services for other TLDs, at the exact same technical facilities:

Registry Services operates the authoritative directory of all .com, .net, .cc, .tv, and .name domain names and the back-end systems for all .gov, .jobs and .edu domain names…

We are the exclusive registry of domain names within the .com, .net and .name generic top-level domains (“gTLDs”) under agreements with the Internet Corporation for Assigned Names and Numbers (“ICANN”) and the U.S. Department of Commerce (“DOC”). As a registry, we maintain the master directory of all second-level domain names in these top-level domains (e.g., johndoe.com and janedoe.net). These top-level domains are supported by our global constellation of domain name servers. In addition, we own and maintain the shared registration system that allows all registrars to enter new second-level domain names into the master directory and to submit modifications, transfers, re-registrations and deletions for existing second-level domain names (“Shared Registration System”).

Separate from our agreements with ICANN, we have agreements to be the exclusive registry for the .tv and .cc country code top-level domains (“ccTLDs”) and to operate the back-end registry systems for the .gov , .jobs and .edu gTLDs. These top-level domains are also supported by our global constellation of domain name servers and Shared Registration System. (Emphasis added)

What is the justification for .Com registry services being priced at $7.85 when the exact same functions performed at the exact same technical facilities for .Net domains are priced at only $5.86? We submit that there is no reasonable justification and that permitting this price differential to persist is not in the public interest.

A $2 price wholesale reduction is also less harsh treatment than submitting the .Com registry contract for competitive rebid.

We believe that DOC could justify such a rebid on the basis of VeriSign experiencing substantial security breaches in 2010 that were not reported to senior management until more than a year later.

We are confident that if such a bidding process was initiated that well-qualified DNS providers would be willing to operate the .Com registry at a wholesale price of $5.86 – or less.

.Com Pricing Will Rise Inordinately and Unjustifiably if DOC Fails to Protect the Public Interest

If the DOC approves the .Com renewal contract in the form approved by ICANN’s Board of Directors in June, .Com wholesale prices will rise inordinately and unjustifiably over its six year term. We must assume that VeriSign will again exercise all four upward pricing options if they are available.

This is what the compounded effect of four seven percent increases would result in starting from the current base price of $7.85:

  1. $8.40
  2. $8.99
  3. $9.62
  4. $10.29

An ICANN fee and a registrar markup are added to these wholesale prices, resulting in a retail price that is more than $3.00 higher than the above wholesale prices (and, depending on the registrar, in some case substantially higher).

Thus, if the contract currently being reviewed by DOC is approved, retail prices for .Com domain registrations and renewals can be expected to reach $13.50 or higher by the end of its term – and that would be the starting base price for the next perpetually renewed contract.

In addition, for those remaining two years in which VeriSign is not entitled to exercise a seven percent price increased absent justification, its ICANN-approved renewal contract permits two additional price increases of up to seven percent each as follows:

In any year, however, where a price increase does not occur, Registry Operator shall be entitled to increase the Maximum price by an amount sufficient to cover any additional incremental costs incurred during the term of the Agreement due to the imposition of any new Consensus Policy or documented extraordinary expense resulting from an attack or threat of attack on the Security or Stability of the DNS…

In short, even without the ability to levy unjustified price hikes, VeriSign retains the freedom to increase prices to account for the costs of implementing any new ICANN consensus policies or to deal with even the threat of cyberattacks. Any contract ultimately approved by DOC should preserve necessary pricing flexibility that can be justified for these and other salient reasons.

What would be endangered by a .Com price reduction are extremely generous dividend distributions to VeriSign shareholders as well as a large share buyback program. As the company’s most recent 10-K filing discloses:

In April 2011, we declared and in May 2011 paid a special dividend of $2.75 per share of our common stock totaling $463.5 million.

Similarly, the 2010 10-K reports a similar act of extraordinary financial generosity to VeriSign shareholders:

          In December 2010, we declared and paid a special dividend of $3.00 per share of our common stock totaling $518.2 million.  Lastly, VeriSign’s enviable profitability has allowed it to engage in a continuing stock buyback program resulting in increased share prices, with more than three quarters of a $billion still in reserve for future buybacks:      During the first quarter, Verisign repurchased approximately 1.8 million shares of  the company’s common stock for a cost of $68 million. At March 31, 2012, approximately $763 million remained available and authorized under the current share repurchase program.

In other words, over the past two years VeriSign determined that a total of $981.7 million was not required for R&D and cybersecurity purposes and could be readily transferred to its shareholders – and still leave it with about $1.4 billion in cash and equivalents, with about half of that reserved for future stock buybacks rather than investment in operations.

While these distributions in part represented cash received for sales of six separate and less profitable operating units over the past three years, the fact remains that VeriSign determined that retention of these funds was not required for future R&D and cybersecurity expenditures for its remaining core registry operations business.  Further, those divestitures resulted in a fifty percent increase in operating margins, from a quite healthy 33% to an enviable 52%. While official 2011 earnings were $249 million on revenues of $772 million, earnings per share (EPS) are on track to jump 27% in 2012 alone, and VeriSign is projected to generate $368 million in free cash in 2012 and $409 million in 2013. 

This company would remain highly profitable even in the wake of a .Com wholesale price reduction.

Overall, the transfer of nearly $1 billion through special dividends constitutes significant evidence that VeriSign revenues are substantially in excess of what is required for the continued secure operation of the .Com registry.

Its fifty percent-plus operating margin, surging EPS, and escalating free cash generation is  a direct result of having perpetual monopoly control  of the most important and valuable gTLD, along with the government-sanctioned ability to repeatedly raise domain prices absent any justification.

Only DOC Has the Power to Restrain .Com Pricing

Section 3.1 (b) (v) of the draft renewal agreement between VeriSign and ICANN states that any adopted ICANN Consensus Policies shall not:

(A) prescribe or limit the price of Registry Services; …

(C) modify the terms or conditions for the renewal or termination of this Agreement; …

(G) modify the terms of Sections 7.2 and 7.3 below

Section 5 of the Agreement requires that disputes arising under it shall be resolved by binding arbitration.

Section 6.1 of the Agreement relates to termination by ICANN, stating:

Section 6.1 Termination by ICANN. ICANN may terminate this Agreement if and only if: (i) Registry Operator fails to cure any fundamental and material breach of Registry Operator’s obligations set forth in Sections 3.1(a), (b), (d) or (e); Section 5.2 or Section 7.3 within thirty calendar days after ICANN gives Registry Operator written notice of the breach, which notice shall include with specificity the details of the alleged breach; and (ii) (a) an arbitrator or court has finally determined that Registry Operator is, or was, in fundamental and material breach and failed to cure such breach within the prescribed time period and (b) following the decision of such arbitrator or court, Registry Operator has failed to comply with the decision of the arbitrator or court.

In other words, VeriSign can fail to cure fundamental and material breaches of the Agreement for which it has received notice from ICANN, can be found to have been in fundamental and material breach by an arbitrator or court, and even after losing the judgment in such forum can retain the right to continue operating the .Com registry if it then complies with the decision of the arbitrator or court. Only a willful refusal to comply with such a decision could provide ICANN with the power to terminate the Agreement and make it available for competitive rebid, a provision which has drawn stern criticism from the Department of Justice.

These are collectively the provisions of the Agreement that prompted charges of a “sweetheart deal” in 2005-6 and that preclude ICANN from ever subjecting the Agreement to market price testing except in the extraordinary and very unlikely circumstances that would allow a termination, as well as from negotiating any changes in its domain registration pricing provisions.

ICANN conceded its own impotence in this regard in the very text of the Public Notice that accompanied the draft .com renewal Agreement, noting that any breach of the renewal provisions would expose it to legal liability:

The registry agreement precludes a competitive bidding process to provide .com registry services. The renewal provisions in the current .com Registry Agreement are consistent with all the other ICANN gTLD agreements. All ICANN’s gTLD registry agreements essentially provide that they will be renewed absent a serious breach of the agreement. These renewal provisions encourage long-term investment in robust TLD operations, and this has benefitted the community in the form of reliable operation of the registry infrastructure. ICANN does not have the right under the current .com Registry Agreement to unilaterally refuse to renew the agreement or to bifurcate registry functions. Breaching the renewal provision would expose ICANN to liability under the contract… Both the current .com registry agreement and the proposed renewal agreement permit Verisign to increase the price it charges registrars for domain names registrations four times during the six-year term with each increase being no greater than 7%. This provision was substantially negotiated between Verisign on the one hand, and the U.S. Department of Justice and the U.S. Department of Commerce, on the other. The current agreement (Section 4.2) specifies that the pricing and renewal provisions (among others) are not subject to change through the agreement renewal process. (Emphasis added)

Given ICANN’s self-imposed legal impotence, rendering it unable to negotiate any alteration in the presumptive renewal or registration pricing provisions of the proposed .Com  Agreement, only the Department of Commerce – acting in concert with the Department of Justice – can protect the overall public interest by compelling .Com pricing changes as a condition for government approval.

Further, while we believe that antitrust analysis is relevant, we also feel that the operative concept of “public interest” in this situation is broader than antitrust law. Given the .Com dominance, its operation is in essence a public trust.

Finally, DOC has a particular duty to protect U.S. domain registrants because of the particular dominance of .com domains in the U.S. marketplace. Unlike the European Union, where many businesses utilize ccTLDs for their main website (e.g., .uk, .fr, .de, etc.), as well as many other nations where the same situation exists (such as .au for Australia and .cn for China) the .us ccTLD has never gained significant market share in the United States. As a result, Alexa reports that 23 of the top 25 U.S. websites, and 94 of the top 100, are hosted on .com domains.

VeriSign Shareholders Will Have Ample Opportunity to Benefit and Profit from New Initiatives in Fully Competitive Markets

If DOC acts in accordance with our request it will likely have some negative short-term impact on the overall price of VeriSign stock, which at the moment undoubtedly prices in the unwarranted benefits of  both perpetual renewal and guaranteed price increases notwithstanding overall consumer price levels, technology-based productivity gains,  or any need for substantive justification.

However, DOC should act in the public interest of resetting .Com pricing at a level more consistent with the market testing expressed in current .Net pricing.

Such action would in no way preclude VeriSign and its shareholders from reaping additional profits in markets in which its .Com monopoly cannot be leveraged and it is not subject to ICANN-imposed price restrictions.

The current and proposed renewal .Com contract both allow VeriSign to engage in activities that do not constitute core “Registry Services” and to charge whatever the competitive market will bear.

For example, VeriSign is the exclusive registry for the .tv and .cc ccTLDs, and operates the back end registry systems for the .gov, .jobs, and .edu gTLDs. It also provides Network Intelligence and Availability Services (NIA) comprised of its iDefense, Managed DNS, and DDoS Protection Services, each of which generates separate fees from customers.

VeriSign also stands to generate substantial new revenues through participation in ICANN’s New gTLD program.

It has applied for 14 new gTLDs, including twelve International Domain Name (IDN) transliterations of .Com and .Net, none of which will be subject to pricing restrictions. In addition, applicants for about 220 new gTLDs have selected VeriSign to provide their back-end technical registry services, which also have been negotiated at competitive market prices.

In regard to new gTLDs, we would note that additional new gTLDs established over the past decade have failed to dislodge .Com and .Net from their dominant gTLD positions, and at this point in time the competitive impact of the introduction of hundreds of new gTLDs is entirely speculative. Therefore, ICANN’s new gTLD program cannot be used as a rationale for abrogating DOC’s responsibility to safeguard the public interest through restraint of exorbitant .Com pricing as there is no assurance that any new gTLDs, either individually or in the aggregate, will effectively exercise market price competition against .Com over the term of the pending Agreement.

Overall, DOC can act to protect the public interest in reasonable .Com pricing levels while leaving VeriSign and its shareholders free to reap the financial benefit of an array of existing and new services that do not benefit from the natural monopoly conferred by the .Com and .Net registry contracts.

Conclusion

Operation of each TLD registry is a “natural monopoly” because only a single entity may exercise control over registry operations. Natural monopolies in the public utility sector traditionally require the monopoly operator to submit a request accompanied by extensive documentation and justification, and receive affirmative permission from its oversight regulator, before any price increase can be put into effect.

The possibility of excessive price increases is even more pronounced for .Com domains, given the registry’s massively dominant position in the overall TLD marketplace — .Com registrations constitute nearly half of all domain registrations, and the secondary marketplace as well as  consumer behavior conclusively demonstrates that .Com domains are by far the most valuable.

A registrant which believes it has been subject to excessive price increases has no practical alternative at the present time, as moving their domain location to another TLD would mean significant sacrifices in overall traffic and marketplace recognition and credibility.

Given these realities, we implore the Department of Commerce to act to protect the public interest by mandating a reduction of wholesale .Com domain prices to at least the same level as current .Net prices, and to prohibit future .Com price increases other than adjustments in concert with CPI increases, or those for which VeriSign provides substantial and convincing justification as being necessary for the continued reliable and secure provision of .Com registry services.