Aftershocks Plague ICANN-VeriSign .com Decision

Nine ICANN board members voted for the deal, 5 opposed and one abstained. Board members will explain their votes on ICANN’s website in coming days. One member who voted against the deal told us ICANN asked the board “very sternly” not to speak publicly about the decision until all statements are made available.

The new .com agreement awaits Dept. of Commerce (DoC) and NTIA input, ICANN Pres. Paul Twomey told us. The decision, which settles litigation between ICANN and VeriSign, needs Commerce’s nod. If approved by DoC, the settlement VeriSign called its “last, best offer” could lead to a more productive relationship between ICANN and VeriSign, Twomey said. Critics argued otherwise.

GoDaddy Vp Tim Ruiz said he’s disappointed but not surprised by the decision, and his company won’t give up its fight. Commerce still needs to approve it, members of Congress have expressed concerns about it and “we'll be doing all we can to convince [them] that it is anticompetitive and simply a bad deal for the industry and registrants everywhere,” Ruiz said. After hearing from critics about why the proposal would kill competition, the board still approved a “known bad deal,” Network Solutions CEO Champ Mitchell said. “The board has left NTIA with no choice but to reject this deal to ensure that competitive and accountable operation of the .com domain registry is not lost forever to consumers,” he said: “The long-term interests of the entire Internet community must prevail over short-term expediency for a few.”

The Coalition for ICANN Transparency (CFIT), which has sued over the ICANN-VeriSign deal, was irate. “Voting in favor of a bad deal doesn’t change the deal’s dynamics, it just confirms ICANN’s refusal to listen to legitimate criticism coming from every corner of the Internet community,” said CFIT’s John Berard. There won’t be fewer suits but more, he predicted. CFIT’s suit against ICANN and VeriSign will continue (WID March 1 p14), especially since the judge in the case upheld his group’s antitrust claims, he said. The deal’s components “were wrong when they were first proposed and they're still wrong,” Berard said.

The World Assn. of Domain Name Developers (WADND) said ICANN “sold its constituency down the river.” WADND filed a lawsuit simultaneously with CFIT’s but abandoned its litigation (WID Dec 14 p9, Nov 30 p1). “The ones who will pay the piper are the domainers who have registered millions of .com domains -- who have publicly complained to ICANN about this betrayal, but whose complaints have obviously fallen on deaf ears,” WADND Secy. Howard Neu told us. The group hopes CFIT will succeed in its lawsuit, or at the least convince DoC that the govt. should protect the entire Internet community, not just VeriSign’s bottom line.

BulkRegister Mktg. Dir. Melanie Holloway said ICANN’s “continued acquiescence” to VeriSign “signifies the lack of overall industry consideration.” The fight “must be continued at the next level and with greater force,” she said, calling for “a dramatic change in the agreement’s terms.” She wouldn’t comment on whether litigation was likely. When asked, Network Solutions also dodged the litigation question. “We are focused on ensuring that the U.S. government doesn’t make the same mistake as the ICANN Board,” a spokeswoman said.

VeriSign charges registrars $6 per domain; the new deal lets it raise pricing 7% in at least 4 of the next 6 years. There are about 48 million .com domain names; GoDaddy CEO Bob Parsons said by year-end the .com registry will exceed 60 million names. At the current rate, VeriSign will take in $360 million to run the .com registry this year, Parsons said on his blog.

The registry is expected to grow 33% in 2006 and, even assuming .com growth slows to 25% next year, the incremental 2007 revenue in the .com registry at $6 a name would be about $90 million. That raises VeriSign’s annual take to $450 million, Parsons said. A 7% hike pushes the amount to $481.5 million, he said. Figuring a 25% growth rate in 2008 for .com registries, VeriSign could pull in $644 million for the year, Parsons said. BulkRegister, the 3rd largest U.S.-based ICANN-accredited registrar, said VeriSign could make over $3 billion by 2012 under the agreement.

“VeriSign deals in facts, not speculation,” a spokesman said in response. The .com infrastructure is key to the global economy, businesses rely on it and VeriSign aims for the highest level of performance, he said. Pricing flexibility lets registries have the funding necessary to keep upgrading infrastructure, VeriSign said. “Registrars seem to lose sight of that and only focus on their own narrow economic concerns,” he said: “Registrars talk a good consumer game, but this is really only about their own margins.” The fact that registrars didn’t pass on to their customers $10 million in savings from lower .net prices demonstrates that, he said.

Questions for Congress and Dept. of Commerce

Rep. Boucher (D-Va.) raised the ICANN-VeriSign .com talks in letters to Commerce and DoJ. He asked Commerce Secy. Carlos Gutierrez to study the deal and Asst. Attorney Gen. Thomas Barnett to scrutinize its antitrust aspects (WID March 1 p14). In Nov., House Small Business Committee Chmn. Manzullo (R-Ill.) wrote to then-NTIA Dir. Michael Gallagher highlighting similar concerns about the deal. Manzullo wondered if the FTC and other agencies would be consulted, particularly in connection with newly authorized registry services (WID Nov 28 p1).

The arguments against the deal are too compelling for Commerce to ignore, Boucher told us Wed.: “I can think of no policy justification whatsoever for awarding to VeriSign a contract in perpetuity where they can manage this popular TLD… with relatively no oversight over price increases.” Competition can produce “tremendous benefits,” he said, citing a 1/3 price drop for .net domains when bidding was instituted. Commerce is naturally reluctant to interfere with ICANN decisions, but that hesitation “has to be weighed against the public policy interests in promoting competition in commercial matters.” In this instance, the balance weighs in favor of interference, he said: “ICANN clearly got it wrong here on antitrust grounds. Sending it back to ICANN is the remedy.”

But the question remains: How will NTIA and Commerce proceed? Assuming DoC casts an up or down vote, does NTIA have a practical universe of alternatives? An industry source close to the issue wondered if the agency could send the pact back to ICANN for more of a consensus vote -- and if so, would NTIA provide guidance on what was problematic at their end? “This puts Commerce in an interesting position of getting for review a proposal that generated angst in the comments and support from only 60% of the board,” the source told us. It’s also worth noting that Commerce’s memorandum of understanding with ICANN is up for renewal in Sept., the official said.

A spokesman for NTIA said he expects the pact to come up for consideration “shortly.” “We'll review the agreement, keeping in mind the longstanding goals of ensuring that the continued stability and security of the Internet is maintained,” he told us. Commerce also will consult with DoJ’s antitrust division about competition issues that congressmen and critics have flagged, he confirmed. The NTIA spokesman wouldn’t answer other questions on what he called an “internal process.”

Web Community’s ‘Clear Path Forward’

Many issues raised by opponents stemmed from decisions by previous ICANN boards, Twomey told us. Some changes proposed during the public comment period were impracticable given “the legal options available under existing contracts,” he said. In this 4th renegotiation of the .com registry, ICANN wanted to “get the best possible deal in the best possible space, not in some ideal space,” he said.

VeriSign said it’s happy with the agreement and looks forward to working with Commerce toward final approval. A company spokesman said the contract is “straightforward,” mirroring a .net registry agreement approved last year. Global Name Registry Pres. Hakon Haugnes echoed VeriSign, calling the board action “a constitutional moment for ICANN” that provides “a clear path forward for the industry.”

The settlement is a “major opportunity to recast a much more cooperative relationship” between ICANN and VeriSign, Twomey said. “The ICANN staff and ICANN board have all thought very carefully about this, discussed it with many people and came up with what is the best possible outcome.” Internet players must focus on substantial issues on the horizon in a collegial and cohesive manner, not in the “Cold War style” feuding the community has grown accustomed to, he said. Progress on new gTLDs, including consideration of how to introduce internationalized domain names, requires a unified front, Twomey said.

In other business, the ICANN board approved 7 proposals by the group’s Country-Code Name Supporting Organization (ccNSO) regarding improvements and clarifications to ICANN bylaws. One recommendation was held over for more discussion with the ccNSO at ICANN’s meeting in Wellington, N. Zealand, scheduled the last week of March. The recommendations were presented to the ICANN board from the first policy development process conducted by the ccNSO. The success of the process was a milestone for ICANN’s technical coordination of the DNS. Twomey called this a “small but very important step” and said it was “another example of the international Internet community working through ICANN.”