The National Telecommunications and Information Administration, an agency of the Department of Commerce, has expressed its concerns on cross-ownership of registries and registrars for existing and new generic Top Level Domains in a letter from its Assistant Secretary of Commerce for Communications and Information, Lawrence Strickling.

The letter contains advice from the agency’s Antitrust Division that says “ICANN should retain its prohibition on vertical integration for existing gTLDs” except where there is no likelihood market power can be abused.

The advice says that new gTLDs “should be permitted to adopt registry agreements that allow for cross ownership” unless it is determined by ICANN “that the gTLD is unlikely to possess market power.” However the Antitrust Division deems it unlikely any new gTLD will be in the position “to possess significant market power.”

The concerns were addressed in a letter to ICANN that contained some initial advice that was requested from the US Department of Justice Antitrust Division. The letter from Strickling notes that “[i]n addition, in the Affirmation of Commitments, ICANN committed to the global community that it would adequately address a number of items, including competition and consumer protection issues, prior to implementing the new gTLD program. In light of this obligation as well as the concerns raised by the European Commission in its letter to the ICANN Board on June 14, 2011, we recommend the ICANN Board carefully consider the concerns raised by competition authorities before taking action on proposals to make wholesale changes to restrictions on cross-ownership of registries and registrars for existing and new gTLDs.”

In their advice, James J Tierney, Chief of the Networks and Technology Enforcement Section at the Antitrust Division says that to make a competitive analysis of the proposed cross ownership changes would require “a more thorough examination of the potential consumer harms” and that a “full analysis of the harms and benefits of the cross-ownership is beyond the scope of” their letter. But they raise two competitive concerns that they say warrant serious scrutiny.

One relates to price caps or other regulatory restrictions can mean firms “evade such restrictions by integrating upstream or downstream”. The example they give in the context of new gTLDs is that “a gTLD subject to a price cap could develop or purchase a registrar, grant it an exclusive contract, and exercise its market power by increasing the registrar’s price. Second, cross-ownership may allow a registrar or registry to disadvantage its rivals, foreclosing competition and harming registrants.”

The Antitrust Division say they would “expect that removing cross-ownership restrictions would lead to substantial price increases for .com, .net and .org and would likely lead to price increases for .info and .biz.”

However for existing gTLDs such as .aero, .museum, .mobi and .tel the Antitrust Division believes “cross-ownership should presumptively be allowed” unless it is determined the TLD has market power.

Concerns are expressed on trademark holders, with the Antitrust Division saying ICANN “should require all new gTLDs to take steps to minimize external costs that defensive registration will impose on owners of domains that reflect brands or trademarks.”

The full text of the letter to ICANN is available on the NTIA site here and the ICANN site here.