The Internet Commerce Association is launching a campaign calling for the National Telecommunications and Information Administration (NTIA) to stop an expected application for an increase in the .com registry fee when the current ‘price cap’ agreement expires on 30 November 2018. The ICA is calling any increase in the fee âan unjustified price increase that would over time effectively constitute a billion-dollar âtaxâ on Internet users.â
The ICA, a non-profit trade organisation representing domain name investors, website developers and related companies, says that they expect Verisign to seek the price increase from the NTIA, which comes under the U.S. Department of Commerce. Any increase, the ICA claims, would âfurther enrich Verisign, âThe Most Profitable Company You’ve Never Heard Ofâ, which is already enjoying huge windfall profits?â
The ICA claims the cost of running the .com registry may be as low as $3 per domain, but Verisign charges $7.85 to registries. The ICA further claims that due to the dominance of .com, Verisign has no real competitive pressure on their pricing. Before the U.S. government stepped in to cap Verisign’s prices in 2012, Verisign’s previous contract permitted it to raise prices 7% annually in most years.
The ICA notes in their announcement that âthanks to Verisign’s exclusive contract to operate the .com registry, granted without a competitive bidding process, Verisign earned $457 million last year, and enjoys inflated operating margins of over 60%. Its windfall profits powered a tripling of its stock price over the past five years â despite the freeze imposed on .com prices. Verisign places fourth behind only Apple, Facebook, and Alphabet (Google’s parent company) in terms of revenue per employee. Verisign uses its excess cash to reward its top four executives with nearly $18 million in compensation in 2017 â equivalent to 7% of Verisign’s operating expenses (excluding cost of revenue). In comparison, the compensation of Oracle’s and Adobe’s top four executives is about 1% of operating expenses.â
The ICA concludes their announcement saying that ânot content with their current windfall profits, Verisign will likely seek an unjustified price increase that would over time effectively constitute a billion-dollar âtaxâ on Internet users.â
To garner support for their campaign, the ICA has launched a petition on change.org to raise public awareness here.
Preserving WHOIS has become of the 2 main priorities internationally for the U.S. government’s National Telecommunications and Information Administration with fears the service may go “dark and become a relic of the Internet's history.” Continue reading U.S. Govt’s NTIA Has Preservation of WHOIS As Priority With Concerns It May Go Dark
Verisign has just filed a Form 8-K with the U.S. Securities and Exchange Commission (SEC) revealing that the National Telecommunications and Information Administration (NTIA) has approved the extension of the .Com registry Agreement through November 30, 2024.
We previously reported that, on September 15th, ICANNâs Board approved the .Com RA extensionâ and simultaneously approved an extension of the existing $7.85 ceiling on .Com wholesale prices through 2024. Notwithstanding that price cap extension, the wholesale pricing of .Com domains could be revisited by ICANN and Verisign if NTIA does not extend the separate Cooperative Agreement (CA), currently in force through Â November 30, 2018; or does extend it but with a different pricing control.
As described in the SEC filing, the NTIA action took the form of two separate amendments to the CA, as follows:
On October 20, 2016, Verisign and the U.S. Department of Commerce (the âDOCâ) entered into Amendment Number Thirty-Three (33) (âAmendment 33â) to the Cooperative Agreement between Verisign and the DOC. Except as modified by Amendment 33, the terms and conditions of the Cooperative Agreement, remain unchanged. Amendment 33 relieves, releases and discharges Verisign from all root zone operation, management and maintenance responsibilities, obligations or requirements under the Cooperative Agreement, including but not limited to, those contained within Amendments 11 and 31. Following this release, the RZMA between Verisign and ICANN became effective.
On October 20, 2016, Verisign and the DOC entered into Amendment Number Thirty-Four (34) (âAmendment 34â) to the Cooperative Agreement between Verisign and the DOC. Except as modified by Amendment 34, the terms and conditions of the Cooperative Agreement, remain unchanged. Under the terms of Amendment 34, the DOC approves the amendment to the Registry Agreement as in the public interest, which extends the term of the Registry Agreement to coincide with the eight-year term of the RZMA. In addition, the DOC retains the right to conduct a public interest review for the sole purpose of determining whether the DOC will extend the term of the Cooperative Agreement before it expires on November 30, 2018. Verisign agrees to cooperate with such a review and to work in good faith to reach mutual agreement with the DOC to resolve issues identified in such review and to work in good faith to implement any agreed upon changes as of the expiration of the current term of the Cooperative Agreement. (Emphasis added)
The Root Zone Maintainer Service AgreementÂ (RZMA) referenced in both amendments was the major component of the CA. With its termination, and transfer of the RZMA counterparty role from NTIA to ICANN, about all that remains of the CA is the wholesale price cap. So in essence when the NTIA decides whether to extend the CA beyond 2018 or let it terminate it will be deciding whether .Com should continue to be subject to a wholesale price cap. If the NTIA conducts a public interest review to determine whether the CA will be extended beyond 2018 it will likely solicit input from the public.
The NTIAâs approval of the .Com RA extension also contains the caveat that âThis approval is not intended to confer federal antitrust immunity on Verisign with respect to the .com Registry Agreement, as amended.â However, it is highly unlikely that Verisign would ever face antitrust scrutiny for its .Com pricing while it is charging a government-imposed wholesale price.
In addition to its SEC filing, Verisign has also just published a separate FAQ document providing its explanation of these developments; it is published in full at the end of this post. Letâs focus on these two questions and answers:
Q: Will the Department of Commerce extend the Cooperative Agreement?
A: The Department of Commerce has reserved the right to conduct a public interest review to determine whether the Cooperative Agreement should be extended.
Q: Will the public interest review result in changes to Verisignâs pricing for .com domain name registrations?
A: The purpose of the public interest review will be solely to determine whether the Cooperative Agreement should be extended. (Emphasis added)
That second answer is factually correct, yet incomplete â because a decision to terminate the CA would end the U.S. government imposed price cap on .Com. As we noted when reporting on the ICANN Boardâs approval of the .Com RA, its adopted Resolution contained this language:
Whereas, the proposed Amendment also requires Verisign andÂ ICANNÂ to cooperate and negotiate in good faith to:Â (1) amend the .COM Registry Agreement by the second anniversary date of the proposed Amendment in order to preserve and enhance the security of the Internet or theÂ TLD; and (2)Â as may be necessary for consistency with changes to the Cooperative Agreement between Verisign and the U.S. Department of Commerce.Â All other terms and conditions in the existing Registry Agreement remain unchanged.
The .Com RA extension became effective on October 1, 2106 when the IANA transition occurred, so ICANN and Verisign are now committed to review the RA and amend it to make it consistent with any future changes to the CA. As we read that Resolution provision, if NTIA decides not to extend the CA, or extends it with a different price control provision, the RA would no longer be consistent with it and good faith negotiations would ensue to make it so.
The direct relationship between the CA and the continuation of the .Com price freeze was outlined in the August 31st letter from the Department of Justice to Sen. Cruz, which stated:
We note that the current extension proposal contemplated by ICANN and Verisign does not change the price cap contained in the 2012 .com Registry Agreement, which will remain in effect through November 30, 2018. Nor does the current extension proposal alter the price cap in Amendment 32 of the Cooperative Agreement. Moreover, if NTIA were to approve an extension of the .com Registry Agreement, it would have the right in its sole discretion to extend the term of the Cooperative Agreement with the current price cap in place until 2024 at any time prior to November 30, 2018, the date on which the Cooperative Agreement is currently scheduled to expire. If this occurs, the $7.85 fee cap would be extended another six years to 2024.Â (Emphasis added)
As the last sentence makes clear, if NTIA determines not to extend the CA and lets it expire then the $7.85 fee cap would no longer be in effect.
Now itâs true that since DOJ wrote that letter ICANNâs Board approved the RA extension accompanied by an amendment to the RA extending the $7.85 price cap through 2024. But itâs also true that the very same RA obligates ICANN and Verisign to engage in good faith negotiations to bring the RA into consistency with any changes in the CA â and its termination would certainly be a major change.
The bottom line is that NTIAâs approval of the .Com RA extension constitutes the last official act to extend Verisignâs role as registry operator through at least 2024, and probably beyond as it does not alter the RAâs presumptive renewal clause.
But it does not determine .Com pricing beyond 2018, as whether the price cap or some other form of pricing control continues past 2018 depends on the NTIAâs future Â decision on whether and in what form to extend the CA. And that NTIA decision will be followed up by ICANN-Verisign negotiations to render the RA consistent with the CA.
Hereâs the full text of Verisignâs FAQ document on todayâs development:
Frequently Asked Questions
Q: Has the Cooperative Agreement been amended to remove Verisignâs root zone
A: Yes, those functions will now be performed by Verisign for ICANN under the
Root Zone Maintainer Service Agreement, which ICANN posted for public review at
Q: Who will authorize changes to the root zone file?
A: ICANN will authenticate and verify submitted changes, which are then submitted to
Verisign for publication, per the RZMA.
Q: Has the term of the .com Registry Agreement been extended?
A: Yes, the Department of Commerce has approved the extension as in the public
interest. The registry agreement term now ends on November 30, 2024.
Q: Was the Cooperative Agreement extended?
A: No. However, the Department of Commerce has the right, in its sole discretion, to
extend the Cooperative Agreement before it is scheduled to expire on November 30,
Q: Will the Department of Commerce extend the Cooperative Agreement?
A: The Department of Commerce has reserved the right to conduct a public interest
review to determine whether the Cooperative Agreement should be extended.
Q: Will the public interest review result in changes to Verisignâs pricing for .com
domain name registrations?
A: The purpose of the public interest review will be solely to determine whether the
Cooperative Agreement should be extended.
Q: What happens if issues arise during the public interest review?
A: The parties have agreed to work in good faith to reach mutual agreement to resolve
This article by Philip Corwin from the Internet Commerce Association was sourced with permission from:
On 1 October the US government through the Department of Commerce’s National Telecommunications and Information Administration (NTIA) relinquished its role of overseeing the technical management of the ‘internet’s address book’, or the IANA functions, that ICANN has overseen since its inception. The role was handed over to a global multi-stakeholder group, allowing the IANA functions contract to expire.But the right of American politics did its best to thwart the transfer of powers using its usual efforts of fear and ignorance. The cheerleader of the opposition was Senator Ted Cruz who invoked fear reminiscent of the cold war opposition to the USSR, saying the transfer of powers jeopardised “free speech online and has been widely denounced by conservative and grassroots leaders and Members of Congress.”There was even a lawsuit from four US Republican state governments – Arizona, Texas, Oklahoma and Nevada – that sought a temporary restraining order to prevent the IANA contract from expiring on 30 September. The states argued the handover was unconstitutional and required congressional approval. But the case failed.From Saturday the global multi-stakeholder group, which consists of a collection of academics, technical experts, private industry and government representatives, public interest advocates and individual users around the world, will oversee the IANA functions. It’s a transfer that has been planned since 1997 and in March 2014 a formal plan was announced. It had been a goal of Democratic and Republican administrations, with the odd exception, through the Clinton, George W. Bush and Obama presidencies.There won’t be many noticeable changes. Speaking to IP Pro: The Internet, ICANN’s Theresa Swinehart said “nothing really changes in the context of ICANN overall, aside from some adjustments in the clerical functions and the role we play in accommodating the community proposal, and in enhancing some of the accountability processes we have in place.””It’s not changes to what we do, it’s taking on additional areas and areas of additional balances on the accountability side.”The change had near unanimous support from the global internet community, including from the Internet Society and the Internet Engineering Taskforce (IETF).”Today’s outcome confirms the strength of both the community and the multi-stakeholder process in tackling issues important to the continued growth and evolution of the Internet,” said Gonzalo Camarillo, Chair of the Internet Society’s Board of Trustees. “We commend the NTIA for its trust and confidence in the multi-stakeholder Internet community to achieve this important accomplishment.”The IETF noted in a blog post that “this is a good day — but also in many ways just like previous days. It is what we are already doing. The Internet will continue to work as it has before. The communities continue to work with the IANA system to make sure it responds to the needs of the users, as we have. Networks and people co-operate, voluntarily, so that they can connect over the Internet. Just like what the world has been doing since the dawn of the Internet.””Like many things on the internet, this is the result of many incremental steps by many people, Andrew Sullivan, IAB Chair, told the IETF blog. “It is incremental change that brings us the stability of the internet.””We rarely get the opportunity to witness a global consensus as broad and diverse as the one in favour of this transition,” Alissa Cooper, Chair of the IANA stewardship transition Coordination Group, who also spoke to the IETF blog. “Hundreds of people and organizations from across sectors and across the world had the courage and endurance to see this process through, and as a result the Internet is running as smoothly today as it did yesterday.”
The leaders of the Internet technical organisations responsible for coordination of the Internet infrastructure (IETF, IAB, RIRs, ccTLD ROs, ICANN, ISOC, and W3C), welcome the US Government’s announcement of the suggested changes related to the IANA functions contract.The roles on policy development processes of the Internet technical organisations and ICANN’s role as administrator of the IANA functions, remain unchanged.The transition of the US Government stewardship has been envisaged since the early days of IANA functions contract. This transition is now feasible due to the maturity of the Internet technical organisations involved in performing their respective roles related to the IANA functions, and ICANN will facilitate a global, multi-stakeholder process to plan for the transition.The strength and stability of the IANA functions within the above organisations (which make up the Internet technical community) are critical to the operation of the Internet. The processes around the IANA functions have always been carefully specified in the communities that our organisations represent. The IANA functions are faithfully administered by ICANN. We are committed to continuing our proven, community-driven processes as we engage in this transition. Our communities are already considering proposals to progress the transition.Our organisations are committed to open and transparent multi-stakeholder processes. We are also committed to further strengthening our processes and agreements related to the IANA functions, and to building on the existing organisations and their roles. The Internet technical community is strong enough to continue its role, while assuming the stewardship function as it transitions from the US Government.
- Adiel A. Akplogan, CEO African Network Information Center (AFRINIC)
- Barrack Otieno, Manager, The African Top Level Domains Organization (AFTLD)
- Paul Wilson, Director General Asia-Pacific Network Information Centre (APNIC)
- Don Hollander, General Manager Asia Pacific Top Level Domain Association (APTLD)
- John Curran, CEO American Registry for Internet Numbers (ARIN)
- Peter Van Roste, General Manager, Council for European National Top Level Domain Registries (CENTR)
- Russ Housley, Chair Internet Architecture Board (IAB)
- Fadi Chehadé, President and CEO Internet Corporation for Assigned Names and Numbers (ICANN)
- Jari Arkko, Chair Internet Engineering Task Force (IETF)
- Kathy Brown, President and CEO Internet Society (ISOC)
- Raúl Echeberría, CEO Latin America and Caribbean Internet Addresses Registry (LACNIC)
- Carolina Aguerre, General Manager, Latin American and Caribbean TLD Association (LACTLD)
- Axel Pawlik, Managing Director Réseaux IP Européens Network Coordination Centre (RIPE NCC)
- Jeff Jaffe, CEO World Wide Web Consortium (W3C)
[news release] To support and enhance the multistakeholder model of Internet policymaking and governance, the U.S. Commerce Department’s National Telecommunications and Information Administration (NTIA) today announces its intent to transition key Internet domain name functions to the global multistakeholder community. As the first step, NTIA is asking the Internet Corporation for Assigned Names and Numbers (ICANN) to convene global stakeholders to develop a proposal to transition the current role played by NTIA in the coordination of the Internet’s domain name system (DNS).NTIA’s responsibility includes the procedural role of administering changes to the authoritative root zone file – the database containing the lists of names and addresses of all top-level domains – as well as serving as the historic steward of the DNS. NTIA currently contracts with ICANN to carry out the Internet Assigned Numbers Authority (IANA) functions and has a Cooperative Agreement with Verisign under which it performs related root zone management functions. Transitioning NTIA out of its role marks the final phase of the privatization of the DNS as outlined by the U.S. Government in 1997.”The timing is right to start the transition process,” said Assistant Secretary of Commerce for Communications and Information Lawrence E. Strickling. “We look forward to ICANN convening stakeholders across the global Internet community to craft an appropriate transition plan.”ICANN is uniquely positioned, as both the current IANA functions contractor and the global coordinator for the DNS, as the appropriate party to convene the multistakeholder process to develop the transition plan. NTIA has informed ICANN that it expects that in the development of the proposal, ICANN will work collaboratively with the directly affected parties, including the Internet Engineering Task Force (IETF), the Internet Architecture Board (IAB), the Internet Society (ISOC), the Regional Internet Registries (RIRs), top level domain name operators, VeriSign, and other interested global stakeholders.NTIA has communicated to ICANN that the transition proposal must have broad community support and address the following four principles:
- Support and enhance the multistakeholder model;
- Maintain the security, stability, and resiliency of the Internet DNS;
- Meet the needs and expectation of the global customers and partners of the IANA services; and,
- Maintain the openness of the Internet.
Consistent with the clear policy expressed in bipartisan resolutions of the U.S. Senate and House of Representatives (S.Con.Res.50 and H.Con.Res.127), which affirmed the United States support for the multistakeholder model of Internet governance, NTIA will not accept a proposal that replaces the NTIA role with a government-led or an inter-governmental organization solution.From the inception of ICANN, the U.S. Government and Internet stakeholders envisioned that the U.S. role in the IANA functions would be temporary. The Commerce Department’s June 10, 1998 Statement of Policy [pdf] stated that the U.S. Government “is committed to a transition that will allow the private sector to take leadership for DNS management.” ICANN as an organisation has matured and taken steps in recent years to improve its accountability and transparency and its technical competence. At the same time, international support continues to grow for the multistakeholder model of Internet governance as evidenced by the continued success of the Internet Governance Forum and the resilient stewardship of the various Internet institutions.While stakeholders work through the ICANN-convened process to develop a transition proposal, NTIA’s current role will remain unchanged. The current IANA functions contract expires September 30, 2015.For further information see: IANA Functions and Related Root Zone Management Transition Questions and AnswersAbout NTIANTIA is the Executive Branch agency that advises the President on telecommunications and information policy issues. NTIA’s programs and policymaking focus largely on expanding broadband Internet access and adoption in America, expanding the use of spectrum by all users, and ensuring that the Internet remains an engine for continued innovation and economic growth. To find out more about NTIA, visit www.ntia.doc.gov.This NTIA news release was sourced from:
The US Department of Commerce has finally renewed Verisign’s contract to run the .COM registry for the next six years, but surprisingly they have denied the registry’s ability to raise prices as part of the approval.The announcement means the fee Verisign charges registrars for .COM domain names will remain at the current $7.85 for the life of the agreement that will run from 1 December 2012 through to 30 November 2018. In the contract, that ICANN and Verisign had earlier reached agreement upon, it would have seen VeriSign able to increase the fee by as much as seven percent four times over the term of the contract that could have meant the .com fee could have reached $10.29.But there is a caveat, with the possibility of removing pricing restrictions entirely if Verisign demonstrates to the Commerce Department’s satisfaction that market conditions no longer warrant such restrictions.The restriction on increasing the fee is being taken as a victory for the Internet Commerce Association who lobbied against the increase, and actually wanted a decrease to $5.86.Writing on the ICA blog, Philip Corwin said:
ICA is taking half a victory lap over this welcome news. DOC went further than we had urged on the price freeze front, as we’d suggested that VeriSign be permitted to adjust wholesale prices to reflect increases in the Consumer Price Index. But it did not take up our suggestion that the .Com base price be reduced to $5.86, the current wholesale domain price for the .Net registry that VeriSign runs out of the exact same facilities. We are under no illusions that our letter to the Departments of Commerce and Justice was the spur to their extended review of the Agreement’s pricing provisions, as we were as surprised as everyone when VeriSign announced last month that the Agreement was under price provision review that might require a six-month extension of the current Agreement. However, we do hope that the compelling arguments contained in our letter played some role in VeriSign’s decision to accept this deal rather than have discussions go into overtime and risk other parties chiming in for the type of price restrictions and rollbacks we advocated.The news came as a shock to the share market, with shares dropping 13 percent to $34.15 at the close of trade in New York, the biggest decline since 26 October. Verisign’s share value has now lost 4.4 percent this year.In a conference call with investors following the announcement, Verisign Chief Executive Officer Jim Bidzos said:
“We’re extremely well positioned even without the pricing terms in the previous agreement. We’re still a growth company.”Speaking on the announcement, Lawrence E. Strickling, Assistant Secretary of Commerce for Communications and Information and NTIA Administrator, said renewal of the agreement was in the public interest.”I’m pleased the Department of Commerce was able to find that renewal of the agreement is in the public interest,” said Strickling. “Consumers will benefit from Verisign’s removal of the automatic price increases. At the same time, the agreement protects the security and stability of the Internet by allowing Verisign to take cost-based price increases where justified.”The NTIA announcement, including a link to the amendment, is available at:
Purpose (Brief): A consultation on establishing and implementing a Customer Service Complaint Resolution Process for the 2012 IANA functions contract
Section I: Description, Explanation, and Purpose
The Internet Assigned Numbers Authority (IANA) functions contract (SA1301-12-CN-0035) between ICANN and the United States Department of Commerce, National Telecommunications Information Administration (NTIA) to maintain the continuity and stability of services related to certain interdependent Internet technical management functions, known collectively as the Internet Assigned Numbers Authority calls for a public consultation from all interested and affected parties to help satisfy the following objective:
Â Â C.2.9.2.g The Contractor shall work with NTIA and collaborate with all interested and affected parties as enumerated in Section C.1.3 to establish and implement within six (6) months after date of contract award a process for IANA function customers to submit complaints for timely resolution that follows industry best practice and includes a reasonable timeframe for resolution.
Section II: Background
This is one of a series of consultations to establish performance standards for the delivery of the IANA functions, as described in contract SA1301-12-CN-0035.
Section III: Document and Resource Links
- Consultation on the IANA Customer Service Complaint Resolution Process [PDF, 650 KB]
- Contract SA1301-12-CN-0035 and related documents
- IANA-Related Issue Escalation Procedure
Comment Open: Â Â Â 27 November 2012
Comment Close: Â Â Â 18 December 2012
Close Time (UTC): Â Â Â 23:59 UTC – Public Comment Announcement
Reply Open: Â Â Â 19 December 2012 – To Submit Your Comments (Forum)
Reply Close: Â Â Â 9 January 2013 Â Â Â View Comments – View Comments Submitted
This ICANN announcement was sourced from:
In the past two years VeriSign has bestowed âspecial dividendsâ on its shareholders totaling nearly $1 billion, still has a cash pile exceeding $1.4 billion, and has so little need for all that cash that it is planning to spend more than half of it on stock buybacks. Meanwhile, under the .Com registry operations renewal Agreement already okayed by ICANN, it stands to reap more than $1.2 billion in above-market rate excess profits over the next six years. Nice monopoly work if you can get it.
But of course you canât get it and neither can anyone else. Because the 2005 .Com settlement of VeriSignâs litigation against ICANN essentially allows VeriSign to run .Com until the end of time, and to keep hiking prices regardless of necessity much less the falling costs generally associated with digital technologies.
ICA thinks thatâs wrong, and has just sent a letter to the Departments of Commerce and Justice. It urges that as they continue their extended review of the renewal Agreementâs pricing provisions, they should conclude that the âpublic interestâ standard governing required approval requires that .Com wholesale prices be cut at least $2 to the same level as .Net, also run by VeriSign â and that absent compelling justification all future price hikes should be tied to the Consumer Price Index.
Other major points in the letter are:
- .Com continues to dominate the domain name system (DNS), especially in the U.S., and any effective future competition from new gTLDs is purely speculative for now.
- Absent corrective intervention, .Com wholesale prices will soar to more than $10 by 2018.
- .Com cybersecurity will suffer no weakening if pricing is restrained.
- Only the Department of Commerce has the power to protect .Com registrants, as ICANN has rendered itself contractually impotent.
- VeriSign shareholders will still have ample marketplace opportunities to increase profits and stock pricing without monopoly exploitation of the .Com franchise.
The Obama Administration has the opportunity to correct a six-year-old mistake made by the Bush Administration when it approved the .Com settlement Agreement in 2006. It portrays itself as more attuned to antitrust enforcement and consumer protection than its predecessor â and in this critical realm of domain pricing and registrant protection, it now has a chance to prove it.
ICAâs letter follows —
Philip S. Corwin, Founding Principal
1155 F Street, NWÂ Suite 1050
Washington, DC 20004
Honorable Lawrence E. Strickling
Assistant Secretary for Communications and Information &
Administrator, National Telecommunications and Information Administration (NTIA)
U.S. Department of Commerce
Herbert C. Hoover Building (HCHB)
1401 Constitution Avenue, N.W.
Washington, D.C. 20230
Re: Department of Commerce Review of the .Com Registry Operations Contract
Dear Secretary Strickling:
I am writing on behalf of the members of the Internet Commerce Association (ICA). ICA is a not-for-profit trade association representing the domain name industry, including domain registrants, domain marketplaces, and direct search providers. Its membership is composed of domain name registrants who invest in domain names (DNs) and develop the associated websites, as well as the companies that serve them. Professional domain name registrants are a major source of the fees that support registrars, registries, and ICANN itself. ICA members own and operate approximately ten percent of all existing Internet domains on behalf of their own domain portfolios as well as those of thousands of customers.
DOC Should Approve the Pending .Com Registry Contract Only if Wholesale Prices Are Reduced and Future Increases are Limited to CPI Adjustments Unless Otherwise Justified
This letter is prompted by VeriSignâs announcement of October 25, 2012:
Verisign’s .com Registry Agreement renewal with Internet Corporation for Assigned Names and Numbers (ICANN) to serve as the authoritative registry operator for the .com registry was approved by Verisign’s Board of Directors on June 16, 2012, and ICANN’s Board of Directors on June 23, 2012. In accordance with the Cooperative Agreement between the Department of Commerce and Verisign, Verisign submitted the .com Registry Agreement to the Commerce Department for its review on June 26, 2012. As a result of communications beginning in October 2012 with the Commerce Department, we have concluded that the Commerce Department may not complete its review and approve the renewal of the .com Registry Agreement prior to its expiration on Nov. 30, 2012, and that the Commerce Department, together with the Department of Justice, is reviewing the .com Registry Agreement’s pricing terms. Pursuant to the terms of the Cooperative Agreement, if the .com Registry Agreement is not approved by the Commerce Department prior to its expiration, the Commerce Department is required to agree to the extension of the .com Registry Agreement for six months, or such other reasonable period of time as the Commerce Department and Verisign may mutually agree. (Emphasis added)
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. Combined new .com and .net domain registrations totaled 8.4 million in the second quarter of 2012 alone, and the renewal rate for these two dominantÂ gTLDs continues at a high level, with nearly three-quarters of all domains (72.9 percent) renewing when their current registration expires.
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.
VeriSignâs dominance of the gTLD marketplace â and, in fact, of the entire global domain marketplace â is demonstrated by the combined total of .com and .net registrations, and is enhanced by the secondary market valuation placed on .com and .net domains. In particular, .com domains tend to be valued most highly in secondary market domain sales and are sought after by registrants because of the strong association among the general public of .com with the Internet itself, resulting in both enhanced type-in traffic and memorable domain addresses that establish business credibility. It is important to note that the gTLD dominance of .Com in particular is not due to any promotional activities or operational superiority on the part of VeriSign, but is almost solely due to the historic legacy of this gTLD dating back to the opening of the Internet to public and commercial use. As one secondary domain market website aptly states, âThe term “dot com” is now the world’s biggest brand and it is used and respected globally as the gold standard of the internet.â
The monopolistic position occupied by VeriSign is openly recognized by market analysts. Here is how one technology sector analyst characterized the benefits of VeriSignâs monopoly DNS position in late 2009, while also correctly forecasting the massive âspecial dividendsâ 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 industryâ¦We touched on VRSNâs monopoly position in DNSâ¦ 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 âpresumptive right of renewal,â 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 termâ¦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 â 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.Â They also generated intense debate and division among members of ICANNâs Board and after the Boardâs split 9-5 FebruaryÂ 2006 vote to approve the contract its approval by DOC was opposed byÂ 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.
The principal objections to what was broadly viewed as a âsweetheart dealâ were:
- ICANNâs 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 — 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 â particularly in the database management field, given that prices for data storage continue to decrease dramatically in accordance with Mooreâs Law â 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 âdefensiveâ portfolios of infringing, primarily .com domains with no intent to use them but solely to keep them out of the hands of infringing âcybersquattersâ. 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 â one leading brand protection company reported that a recent survey ârevealed that over 90% of corporate portfolios currently consist of defensive registrationsâ. 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 ofÂ 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 namesâ¦
We are the exclusive registry of domain names within the .com, .net and .name generic top-level domains (âgTLDsâ) under agreements with the Internet Corporation for Assigned Names and Numbers (âICANNâ) and the U.S. Department of Commerce (âDOCâ). 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 (âShared Registration Systemâ).
Separate from our agreements with ICANN, we have agreements to be the exclusive registry for the .tv and .cc country code top-level domains (âccTLDsâ) 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 â 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 ICANNâs 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:
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 â 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 DNSâ¦
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.
.Com Security and Stability Will Not Suffer if Wholesale Prices Are Reduced and Limited to CPI Increases
During the 2005-6 controversy over the .Com litigation settlement, as well as more recently, VeriSign has attempted to justify high .Com wholesale prices as being required to upgrade facilities and maintain sufficient cybersecurity. For example, a recent company press release stated:
The level of security and stability offered by Verisign is only possible with investments in overcapacity and redundancy, network security, intellectual property (IP) and in human capital: The engineers and employees at Verisign who operate the .com registry and ensure its security and stability. The pricing terms of the .com Registry Agreement enable Verisign to make these investments, develop the necessary IP, know-how and purpose-built systems, respond to new threats to stability as they emerge, and recruit and retain the specialized talent necessary to maintain our network, including dozens of globally distributed constellation sites and data centers in the U.S. and elsewhere.
Verisign believes that under the terms of Amendment 30 the public interest is served in the security and stability of the DNS and through Verisign’s operation of the .com registry. The stakeholders that rely on the availability and secure functioning of the DNS are numerous, including businesses large and small, and individual Internet users. 
Although that release failed to note the 2010 security breach, we nonetheless acknowledge that sufficient investment to maintain the security and other key operational aspects of the largest and most important gTLD is of paramount importance. However, even at the reduced wholesale pricing level we have suggested, VeriSign would have ample resources to invest in these areas.
For example, VeriSignâs 2012 10-K SEC filing reports:
We believe that timely development of new and enhanced Internet security, e-commerce, information, and technologies is necessary to remain competitive in the marketplace. During 2011, 2010 and 2009 our research and development expenses were $53.3 million, $53.7 million and $52.4 million, respectively.
VeriSign could readily maintain this level of R&D spending even if .Com pricing was reduced by $2.
Likewise, in regard to cybersecurity, the 2012 10-K reports:
In 2010, we announced an approximately $300 million new initiative called âProject Apolloâ to meet infrastructure challenges expected over the next decade. We expect that this initiative will strengthen, scale and in some cases revamp the .com infrastructure to absorb very large loads, repel significant DDoS attacks and provide enhanced monitoring and logging capabilities. We expect to grow capacity 1,000 times todayâs level of 4 trillion queries to manage 4 quadrillion queries per day to support normal and peak system load and attack volumes based on what we have experienced historically, as well as to accommodate projected Internet attack trends.
This âProject Apolloâ, which has been designed to meet all anticipated infrastructure challenges for the next decade, is absorbing approximately $30 million in investment per year. Again, this level would be readily sustainable in the context of a .com price reduction.
Taken together, VeriSignâs annual expenditures for R&D and the Project Apollo infrastructure and cybersecurity initiative total approximately $83 million per year. Even at the price level we have suggested, revenues from the .Com registry alone would total in excess of $585 million per year, more than seven times higher. And that does not even take into account the companyâs substantial capital base â âVerisign ended the first quarter with Cash, Cash Equivalents, Marketable Securities and Restricted Cash of $1.39 billionâ. Clearly, there is no reason to believe that a .Com price reduction would present any threat to adequate funding for operational upgrades and enhanced cybersecurity.
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 companyâs 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:
|Â Â Â Â Â Â Â Â Â In December 2010, we declared and paid a special dividend of $3.00 per shareÂ Â Â Â Â Â Â of our common stock totaling $518.2 million.Lastly, VeriSignâs 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:
Â Â Â Â Â During the first quarter, Verisign repurchased approximately 1.8 million shares ofÂ Â 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 â 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.Â 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 isÂ a direct result of having perpetual monopoly controlÂ 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; â¦
(C) modify the terms or conditions for the renewal or termination of this Agreement; â¦
(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 Operatorâs 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.
And Sections 7.2 and 7.3 relate to fees paid by VeriSign to ICANN and VeriSignâs pricing of domain name registrations and registry services â they too are off-limits for re-negotiation in all future .Com contracts.
These are collectively the provisions of the Agreement that prompted charges of a âsweetheart dealâ 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. This is why ICAâs April 26, 2012 comment letter on the proposed .Com renewal contract stated:
We lament the fact that the perpetual renewal and pricing provisions of the current .com agreement preclude ICANN from subjecting the agreement to competitive rebid and permits additional price increases without any justification or public explanation. Notwithstanding the manner in which ICANN has unwisely restricted its own bargaining latitude, we believe that a requirement should be imposed on VeriSign and all other gTLD registry operators to provide a public explanation of the justification for any future price increases, and that such a requirement would not be a material term or condition that ICANN is precluded from imposing or altering. Because of these serious contractual flaws, it is even more critical that the batching process for new gTLDs facilitate the rapid introduction of new, general purpose gTLDs that can exert pricing competition against .com and other incumbent registries.
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 contractâ¦ 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 ICANNâs self-imposed legal impotence, rendering it unable to negotiate any alteration in the presumptive renewal or registration pricing provisions of the proposed .ComÂ Agreement, only the Department of Commerce â acting in concert with the Department of Justice â can protect the overall public interest by compelling .Com pricing changes as a condition for government approval.
As the DOCâs own âCOMMERCE, ICANN AND VERISIGN AGREEMENT IN PRINCIPLEâ conspicuously notes, VeriSignâs exercise of permissible price increase powers contained in the Agreement does not shield it from antitrust scrutiny, as that Agreement in Principle containsâ
Recognition by VeriSign that any approval by the Department of Commerce of the new registry agreements is not intended to confer antitrust immunity on VeriSign with respect to the registry agreements.
Further, while we believe that antitrust analysis is relevant, we also feel that the operative concept of âpublic interestâ 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 ofÂ both perpetual renewal and guaranteed price increases notwithstanding overall consumer price levels, technology-based productivity gains,Â 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 âRegistry Servicesâ 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 ICANNâs 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, ICANNâs new gTLD program cannot be used as a rationale for abrogating DOCâs 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.
Operation of each TLD registry is a ânatural monopolyâ because only a single entity may exercise control over registry operations. Traditionally, the possibility of excessive price increases imposed by the entity in control of a natural monopoly has been addressed either by a regulatory regime that controls such increases (a role that ICANN abandoned in its 2005 .Com litigation settlement) or by periodic price testing in the marketplace â a possibility that is effectively precluded by the .Com agreementâs presumptive renewal provisions. 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 registryâs massively dominant position in the overall TLD marketplace — .Com registrations constitute nearly half of all domain registrations, and the secondary marketplace as well asÂ 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.
We would be happy to discuss these views further with you or any other member of the NTIA staff, as well as with officials of the Antitrust Division of the Department of Justice.
Thank you for considering our views in this important matter.
Philip S. Corwin
Counsel, Internet Commerce Association
Cc:Â Â Â Â Â Renata B. Hesse, Acting Assistant Attorney General, Antitrust Division, Department of Justice
 See www.verisigninc.com/en_US/news-events/press-room/articles/index.xhtml?artLink=aHR0cDovL2ZlZWRzLm13bmV3c3Jvb20uY29tL2FydGljbGUvcnNzP2lkPTE2NDAxMTU%3D and http://www.verisigninc.com/assets/domain-name-brief-oct2012.pdf
 âA domain name registry is a database of all domain names registered in a top-level domain or second-level domain extension. A registry operator, also called a network information center (NIC), is the part of the Domain Name System (DNS) of the Internet that keeps the database of domain names, and generates the zone files which convert domain names to IP addresses. Each NIC is an organization that manages the registration of Domain names within the top-level domains for which it is responsible, controls the policies of domain name allocation, and technically operates its top-level domain.â http://en.wikipedia.org/wiki/Domain_name_registry
 VeriSign Form 10-K Annual Report filed with the Securities and Exchange Commission on February 24, 2012.
 âIn 2010, the Company faced several successful attacks against its corporate network in which access was gained to information on a small portion of our computers and serversâ¦given the nature of such attacks, we cannot assure that our remedial actions will be sufficient to thwart future attacks or prevent the future loss of information. In addition, although the Company is unaware of any situation in which possibly exfiltrated information has been used, we are unable to assure that such information was not or could not be used in the future. The occurrences of the attacks were not sufficiently reported to the Companyâs management at the time they occurred for the purpose of assessing any disclosure requirements. Management was informed of the incident in September 2011â See footnote 5.
 Section 7.3 (d) of draft .com renewal summary changes, March 27, 2012, available atÂ www.icann.org/en/news/public-comment/com-renewal-27mar12-en.htm
 Form 10-K Annual Report, filed February 24, 2011
 See footnote 9
 See draft .com agreement redline March 27, 2012; see footnote 7
 Such perpetual renewal clauses in gTLD contracts were sternly criticized in a December 2008 letter sent from the department of Justiceâs Antitrust Division to the DOC: âICANN should require competitive bidding for renewals of a gTLD registry agreement, rather than granting the incumbent operator a perpetual right to renew without competitionâ¦We respectfully suggest that the DOC refrain from expressing satisfaction with ICANN’s progress toward the goal of promoting competition among TLDs unless and until ICANN develops a credible and effective policy that compels it to employ tools such as competitive bidding to manage TLDs in a manner that safeguards the interests of registrants in obtaining high quality domains at the lowest possible prices. To date, we believe that ICANN has not come close to fulfilling its obligations to employ competitive principles in its management of TLD registry operations.” (www.ntia.doc.gov/comments/2008/ICANN_081218.pdf)