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Threat of Tiered Pricing Continues in New gTLD Guidebook Version 2

The draft New gTLD Applicant Guidebook (version 2) has been released along with an analysis of the comments to the prior version. The documents are voluminous.

I glanced at the revised draft Base Agreement, and it’s clearly unacceptable as there continue to be no price caps in place to protect registrants (see section 2.9).

This is a backdoor way of allowing existing registry operators (e.g. com/net/org/biz/info) to get unlimited pricing power for existing domain names through .tv-style tiered pricing. Obviously ICANN is only listening to registry operators and prospective registry operators, given they’ve even lowered fees for registry operators (see Section 6.1) Note that price controls were a major source of comments by the public (see the bottom of page 121 to 123 of the comments analysis).

In particular, Neustar (operator of .biz) is on public record (page 123) stating they want elimination of price caps for .biz under the “equitable treatment” clause of existing registry agreements if other registries get it:

Any material changes for the newer, no-price capped TLDs regarding vertical separation and equal access in general must be applied to NeuStar – this is required under the .biz Registry Agreement and ICANN’s Bylaws. Price caps are appropriate for larger TLDs that have a much higher percentage of the market and are not appropriate for gTLDs that do not have any real market power.

If you are an existing registrant, even the smaller TLDs have market power over you, as you are “locked in” to that domain name and face very high switching costs (e.g. if you had operated abc.biz for 5 years, and Neustar suddenly decides to raise the renewal price to $1 million/year, that will definitely affect you, and is not something where “competitive forces” are at play). If VeriSign asked for $1 billion/year as a renewal fee for Google.com, Yahoo.com, or Microsoft.com, there is nothing in the contracts to protect domain name registrants. Similarly if PIR wanted to raise the renewal price of Redcross.org to $10 million/yr, Sex.org to $100 million/yr, or other “elite” domains to any price level they desire, there is simply no language to protect registrants.

The NTIA and Department of Justice recognized these issues, yet ICANN continues to put domain registrants at risk. The DOJ made two specific recommendations, namely (1) ICANN Should Give Greater Consideration to Consumer Interests before Creating New gTLDs and Renewing Registry Agreements, and (2) ICANN Should Revise The RFP Process and the Proposed Registry Agreement to Protect Consumers from the Exercise of Market Power. In fact, ICANN has done the exact opposite, ignoring consumer interests and tilting these agreements even more in favour of existing and prospective registry operators than the prior drafts.

This demonstrates conclusively that ICANN is simply out of touch with the public interest and knowingly favours the interests of registry operators, to the detriment of consumers. The need for more active supervision by the NTIA/DOJ is evident, and in particular they should order the cessation of the New gTLD program in its entirety. The public could not have been more clear in their prior comments, yet ICANN has knowingly chosen to ignore them. Given ICANN’s reckless behaviour in speculating with their emergency reserve fund and losing $4.6 million in the process, it is time for the NTIA/DOJ to take decisive measures now to prevent further damage through ICANN’s utter disregard for the public interest.

By George Kirikos, President, Leap of Faith Financial Services Inc.

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Response by NeuStar Jeff Neuman  –  Feb 19, 2009 9:48 PM

The author of this post has taken NeuStar’s comments to the CRAI Report out of context.  The original CRAI Report stated that restrictions on Registry/Registrar cross-ownership should only be loosened if the particular registry was not subject to price caps.  Our comment was relating to that statement.  .BIZ has price caps simply because of a legacy situation and not because a previous economic study stated this should be so. 

If ICANN had adopted that recommendation by CRAI for new TLDs (which apparently it has not according to the new Applicant Guidebook), our comments simply meant that ICANN needed to re-examine whether price caps were appropriate for .biz given that .biz represents such a small overall market share for TLDs.  We are confident that such an economic study would show that price caps were not necessary and therefore, a relaxation of cross ownership restrictions would be just as appropriate for .biz as it would be for new TLDs.

Our comments did not state that we intended to, or would ever, raise prices to the extremes the author suggests.  After all, NeuStar is subject to market pressures to which perhaps the dominant market share registry is not. 

The author’s post seems to boil down to a concern for the renewal price of a domain name, as that price could potentially disadvantage a registrant who has built up brand equity in its domain name.  NeuStar sympathizes with this comment and has suggested to ICANN and others in numerous conversations that perhaps a cap on renewal pricing for all TLDs is appropriate and warranted.  After all, if the initial price of a domain name registration is too high, market forces will push a potential registrant to another TLD.  However, if the renewal price is as the author suggests, then that could hurt the consumer.

Competitive Tenders Are The Answer George Kirikos  –  Feb 19, 2009 10:48 PM

Renewal price caps are a basic protection mechanism, and would be a start towards increased price protection. However, they are not enough.

In particular, registry operators would be incented to find ways to get valuable domain names deleted, so that they could raise the prices. For example, Afilias implemented a .INFO Abuse Policy which gives it sole discretion to define what constitutes “abuse.” If that policy was widespread in important registries, I would not want VeriSign deciding whether one of my domain names was “abusive” when they know that if they made that determination, they could raise the price on one of my dot-coms from $7/yr to $1 million/yr. I’m sure Google, Yahoo, Microsoft and others would feel the same way (Afilias, for example, gets to have sole discretion over the definition of spam, and certainly all the companies in the world that have user-generated content, free webmail, or webservices that are subject to hacking would be at risk; e.g. your Apache webservers gets hacked, you get flagged as “abusive” and the registry seizes your valuable domain to auction for more money).

Furthermore, all expired domains would effectively be able to be auctioned by the registry operator (i.e. through setting higher than normal registration prices, like .tv). Once again, this is asking for a handout, a change to your contract that only benefits Neustar. You signed a contract with ICANN, and are looking for more. What are you giving up in exchange for “more”? You’re giving up nothing.

Those are the one-sided contract changes that the registry operators always seek. That’s why the only solution is regular tenders for operation of the registry, just like the DOJ suggested (and which I’ve long advocated). Registry operators could compete to run .com or other gTLDs, and whoever bids the lowest (for a fixed level of service performance specified in the tender) wins the contract. Very basic stuff that companies do all the time in procurement, but apparently too basic for ICANN, because there’s no money in it for ICANN. The process is so simple that it doesn’t require an annual $60 million budget and hundreds of staff.

Notice with tenders, there are no incentives for registry operators to seize valuable domains, since they’re all the same price. All the benefits flow to the consumers. Competition between prospective registry operators maximizes consumer benefits, and registry operators receive “normal” profits. The most efficient registry operators will be the ones to be awarded the contracts, since they can operate the TLD at the lowest cost.

Until there’s a Domain Registrant’s Statement of Rights that gives registrants far greater protection than exists today, you’ll have to get in line behind us when looking for one-sided contractual changes.

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