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Is Verisign a Monopoly? Does It Matter?

Senator Elizabeth Warren and Rep. Jerry Nadler recently wrote a letter complaining that VeriSign overcharges for .com domains due to its market power. They sent it to the Department of Justice and the National Telecommunications and Information Administration (NTIA). While you can make a reasonable case that the claim is true, two more interesting questions are “Why now?” and “Why bother?”

The letter was reported in a story in Wired. Oddly, a short press release on Warren’s website links to the Wired story; Nadler’s website doesn’t mention it yet, and I can’t find a copy of the letter anywhere, just some short quotes in the Wired piece.

To briefly summarize a lot of history, Verisign has been the sole registry for .com for thirty years. In the 1990s, what was then called Network Solutions got a government contract to sell names on .com, .net, and .org. In the early 2000s, as ICANN was starting, the domain business was split into registries that sell names wholesale to registrars that sell them retail to anyone. There is one registry for each top-level domain, and several thousand competing registrars that sell names from many registries. VeriSign spun off its registrar business which was still called Network Solutions, while keeping the registries for .com and .net. A separate deal around the same time transferred the .org registry to PIR, a subsidiary of the non-profit Internet Society.

VeriSign has a cooperative agreement with NTIA, which, until 2018, set a cap on the price for .com. In 2018, it was amended with a complex formula that allows VeriSign to raise the price by 7% per year in four years out of six. The wholesale price was $7.85, so now, after four increases, it’s $10.26. This is the price that registrars pay for renewals; initial registrations can be, and usually are, discounted, and each registrar can mark the price up or down as much as they want.

There was a fair amount of grousing about this in 2018 since there was no cost justification for the increases, just vague assurances that it’s OK because the market is now competitive. Hence the question, “Why now?” since there is nothing different now.

As to whether VeriSign is a monopoly, well, they sure act like one. The .com registry has about 150 million names, which is over twice as large as all of the other “generic” (ICANN contracted) domains combined. A quick look at VeriSign’s financial statements shows that they are fantastically profitable. Last year their revenue was $1.49 billion, of which $1.0 billion was profit, or about 67%, a fraction most companies can only dream of.

These numbers suggest that VeriSign could cut the price in half and still make money. But that leads to the question “Why bother?”

The $10.26 wholesale price for .com is in line with other top-level domains. It’s about the same as PIR charges for .org, and less than what most of the new registries charge for new TLDs like .biz or .review. Moreover, if we imagined that the wholesale price of .com was cut in half, that’s $5/yr, which will make no difference to anyone except domain speculators. If you’re setting up a website, you need hosting and site design and a lot of other services beyond the domain name. If the annual combined price dropped from, say, $100 to $95, so what? You can claim that it’s not fair for VeriSign to extract all that money and you wouldn’t be wrong, but the unfairness is spread pretty thin.

We have recent experience of what happens when registries sell domains cheaply, and it’s not pretty. New TLDs often have unrealistic ideas about how many names they would sell, so they panic and have a fire sale, offering lots of names very cheaply. Who wants to buy lots of cheap names? Criminals, that’s who. There is a clear line showing that the lower the price, the more abuse a TLD has. At this point, .com is in the middle of prices, and its rate of abuse is in line with that. If a $5 price drop doubled the amount of domain abuse we all have to deal with, that would be a poor trade.

Finally, what realistic remedies are there? There is no way to break up the .com registry since, for straightforward technical reasons, the names all have to be in a single database.1 The simplest option would be to stop or roll back the price increases, but as described above, there’s no reason to think that would have any practical benefits. Another might be to put the contract out for bid to see if someone else can do it, but that is very risky. No matter what you think of their business practices, VeriSign is technically very competent, and their registry has been running 100% of the time with no outages for decades. No other registry handles a TLD even half the size of .com, and even if you think someone else could probably do it, how much pain are you prepared to experience to find out?

After decades of growth, the number of domains in .com peaked last year and is now slowly shrinking. This means that while .com is a cash cow, its growth prospects are nonexistent other than via price increases, which further limits interest from other potential operators.

So, in summary, yeah, VeriSign makes a lot of money for .com, way more than any costs could justify, but it’s hard to see how that is significantly hurting its users and harder to see what changes would be an improvement.

Update: A friend pointed out that the NTIA cooperative agreement expires in a week on Nov 30 and due to some poor wording, NTIA could cancel it any time until then. But that would be counterproductive since it also says, “upon expiration or termination of the Cooperative Agreement, neither party shall have any further obligation to the other and nothing shall prevent Verisign from operating the .com TLD pursuant to an agreement with ICANN or its successor” so NTIA would just lose what little leverage it has now. The ICANN agreement also renews on Nov 30, and in that agreement, the renewal is mandatory.

  1. If anyone’s contemplating a response containing the word “blockchain” please don’t. 
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Verisign's Monopoly Is Not Just About the Price of .COM Rick Lane  –  Nov 27, 2024 5:44 AM

Your arguments regarding the price of .com are logical; however, the issue of Verisign’s monopoly extends beyond just .com pricing. It also concerns the monopoly power that Verisign holds within the DNS ecosystem, a power given it through the NTIA Cooperative Agreement and Amendment 35 without any US public or Congressional input or oversight. This monopoly power has significant implications for undermining ICANN’s “multi-stakeholder” process.

We have seen this in several instances, such as Verisign’s failure to implement a “thick WHOIS,” despite being an agreed-upon consensus “multi-stakeholder” policy of ICANN back in 2016 (and now required as part of NIS2). Furthermore, Verisign has collaborated with other “contracted parties” to narrow the definition of DNS Abuse by excluding CSAM and IP violations even though the US and EU DNS Abuse definitions include both. Even more troubling is that there has been an increasing trend of Verisign colluding with ICANN to secure its policy objectives. This has occurred through bilateral contract negotiations - such as those involving .com price increases, DNS Abuse definition, and ensuring an open, accurate, and accessible WHOIS - and ICANN policies involving NIS2 and the US cybersecurity reporting law (CISA).

A couple of follow-up questions for you John Michael D. Palage  –  Dec 5, 2024 8:39 AM

John, I agree with you that ICANN should not regulate prices. However, I believe some additional questions need to be answered before you conclude that “it’s hard to see how that is significantly hurting its users and harder to see what changes would be an improvement.”

Question #1: Would you agree that national competition authorities are the best bodies to enforce potential anti-competitive practices by a registration authority?

Question #2: Would you also agree that ICANN’s purpose is to lessen governments’ burdens and promote the global public interest in ensuring the security and stability of the global internet?

Question #3: Do you believe ICANN has a role in undertaking economic studies to evaluate the impact or functioning of new generic top-level domains in the marketplace?

Question #4: Do you believe it is possible for ICANN to undertake these economic studies without including the dominant company in the industry accounting for over 60% of the gTLD market?

Question #5: Do you find it odd that Verisign is one of the only registry operators not to have included in their registry agreement an obligation to “reasonably cooperate” with such studies?

Question #6: Do you find it odd that ICANN has not undertaken any economic studies in connection with the new gTLD, notwithstanding collecting upwards of half a billion dollars in connection with the 2012 round (application fees + auction proceeds)?

Question #7: Do you believe the failure of ICANN to undertake these economic studies negatively impacts the ability of government competition authorities to monitor/investigate registration authorities by making data available that it is uniquely able to collect and publish?

While the questions above were intended to be simple yes/no questions, this one will require a more substantive response.

Question #8: A growing number of people within the ICANN community feel that ICANN has been evolving into a defacto trade association with a veneer of multistakeholderism. Could you offer your opinion on why this is either a valid or unsubstantiated concern?

Question #9: Based on your answer above, do you believe ICANN should change its tax status from a 501(c)(6)  to 501(c)(3)?

I look forward to your answers to these questions so that we can continue a constructive dialogue.

Still so what John Levine  –  Dec 5, 2024 9:27 AM

The questions you're asking are interesting, but they're not what I was talking about. We all know that ICANN acts like the domain speculators' trade association; I said as much to Brian Krebs last week. I think we both agree that it would make sense to split off PTI to do the 501(c)(3) work and leave ICANN as a trade association, although there's some knotty problems including who pays for it (PTI's largest customer is the IETF who have never paid anything) and who if anyone gets to decide if there are yet more gTLDs.

My point was that even if Verisign is a de facto monopoly, so what? It's hard to see who's being damaged other than domain speculators, and there's no plausible remedy that wouldn't make things worse.

Do not sound like such a defeatist Michael D. Palage  –  Dec 5, 2024 2:31 PM

So, we have another common point of agreement, e.g. that ICANN is acting as a trade association. However, we seem to disagree on which trade members it is serving. I do not view ICANN as serving the domain name speculator community, but instead its contracting parties.

In order to free yourself from the defeatist attitude. Let's begin by defining a monopoly, and for this I will use Black's Legal Dictionary which provides the following definition: "A privilege or peculiar advantage vested in one or more companies, consisting in the exclusive right (or power) to carry on a particular business or trade." Under this definition ICANN has a monopoly over the IANA functions and Verisign has a monopoly over the .COM registry database. Hopefully, we can agree on this point/fact.

Now, in the current .COM agreement VRSN under 7.3 gets to raise prices 7% in the final 4 years of the current 6 year registry agreement no questions asked. However, if you look at the agreement from 2012, you will see that the ability for VRSN to raise .COM pricing was not unfettered. There were specific limitations on when it could raise prices. Specifically,"Registry Operator shall be entitled to increase the Maximum Price during the term of the Agreement due to the imposition of any new Consensus Policy or documented extraordinary expense resulting from an attack or threat of attack on the Security or Stability of the DNS."

Now what could have possible caused this difference in contractual terms, was it ICANN's General Counsel Mr Jeffrey holding VRSN's feet to the fire. Highly unlikely. Let's look at some old ICANN correspondence from NTIA and the US Department of Justice to perhaps get a better insight as to the dynamics at this time.

On page 4 of 11 of this PDF, Ms. Meredith Baker states the following: "[c]contrary to ICANN's apparent assumption, competition from existing TLDs - or from new gTLDs created pursuant to the RFP - is not likely to prevent the exercise of market power by new or existing TLDs, especially the .COM registry operated by VeriSign."

Ms. Baker continued stating "there will continue to be a need for Setion 7.3 of the .com registry agreement to replace the discipline that market competition does not provide in this setting."

This is why my original questions remain relevant to our discussion. Who benefits most from ICANN's failure to undertake comprehensive periodic economic studies empowered to it under most registry agreements?

If you have not figured out the answer to that question yet, perhaps the following hint might help. In 1999 all ICANN registry agreements had a provision to require all registry operators to submit a proposal to continue the operation of their gTLD. Verisign was the first gTLD Registry Operator to get a presumptive right of renewal in the 2001 Registry Agreement with ICANN (see Paragraph 25), although they still had to submit a proposal and jump through some hoops. However, in 2006 Registry Agreement Verisign entered into the current default Registry Agreement language which states "this Agreement shall be renewed upon the expiration of the term" unless the Registry Operator is in material breach and fails to correct it.

See John, the group that has received the most significant economic benefit from ICANN has been Verisign and the gTLD Registry Operators. Instead of having to resubmit bids to renew their registry agreement with ICANN periodically, ICANN handed them registry agreements in perpetuity. If ICANN were truly a trade association for the domainer community as you stated, the Registry Operators would not have all of the power they currently possess.

To be clear I do not object to a TLD operator raising prices because of inflation or in connection with enhanced services, e.g. registrant verification, enhanced abuse monitoring, trusted notifier programs for CSAM and fake online pharmacies, etc. In fact, one needs to look no further than the great work that DENIC is doing as one of the world's largest TLDs to comply with the European NIS 2.0 requirements. However, when a registry operator consistently raises prices without implementing best in class safeguards to minimize abuse within its TLDs then I have a problem. In the gTLD space, PIR has been doing great work in the area of DNS abuse mitigation and has not raised their prices in years.

Why do I remain optimistic? I hope that Gail Slater, upon confirmation as the new head of the DOJ's anti-trust division, will review the documentation from 2008 to see if there has been a material change in the market forces involving .COM. I would then like the DOJ to coordinate with the FTC to see how VRSN's .COM best practices measure up against commercially available solutions in the marketplace. With this information, the DOJ would be able to make a fact-based determination of whether .COM registrants and Internet users have been harmed by how Verisign has allocated the excessive proceeds associated with these fee increases.

whatever John Levine  –  Dec 5, 2024 3:37 PM

Hi, Mike. You're evidently more interested in making speeches than reading and responding to what I said, so I'd suggest writing up the speech and send it in as an article.

One question: if you think that regulating VRSN's prices is a remedy, how does that work? I'm not aware of DoJ or FTC ever doing that and I don't know what authority they'd have. My preferred remedy is to take .COM away from them and shut it down. That'll show them.

Answer to your question Michael D. Palage  –  Dec 5, 2024 5:27 PM

John, respectfully you have been the one that has been non-responsive to my questions while I have merely attempted to engage in fact-based discussion on an important topic. So allow me to answer the specific question you posed in your last response. I believe national competition authorities such as the Department of Justice or DG COMP are a potential mechanism by which Verisign's conduct in the domain name market can be addressed. While the DOJ under US law does not have the authority to regulate pricing it does have the authority under the Sherman Antitrust Act to break up companies. Therefore, if the investigation that I called for in my previous response was to lead to a determination that Verisign was abusing its market position in connection with the operation of the .COM registry, I believe suitable remedies under the Sherman Antitrust Act would be the divestiture of the .NET and the .WEB gTLDs from Verisign. I believe this would be an impetus to enhance free market competition in the domain name industry. In fact, this would be highly analogous to what Verisign had to do back in 2001, when it had to divest .ORG and competitively rebid .NET. Regarding your question about previous actions by the DOJ or FTC this requires a little backstory and history lesson. The USG has historically delegated NTIA as the point on all things ICANN related. NTIA in the past has coordinated regularly calls with multiple US agencies to discuss ICANN and DNS related matters. Not surprisingly, NTIA has relied upon the DOJ closely over the years. For example in 2006, when Verisign was given the much more friendly presumptive right of renewal terms, NTIA released this fact sheet, see https://www.ntia.doc.gov/files/ntia/publications/icanncom_fact_113006.pdf In this fact sheet you will see the following statement: ”During the course of its review, the Department of Commerce sought the advice of the Department of Justice’s Antitrust Division on competition issues raised by the new .com Registry Agreement. The Department also consulted with the federal agencies with equities in Internet security and stability.” Ms Baker’s communication to the ICANN Board Chair in 2008 (cited above) includes a letter from the Deborah A. Garza from DOJ addressed to Ms. Baker DOC/NTIA. (My apologies for attributing the text of Ms. Garza to Ms. Baker in my previous post.) In this letter, Ms. Garza acknowledges that the Department of Commerce’s “request of advice.” The full quote from this letter which I previously cited reads “there will continue to be a need for Section 7.3 of the .com registry agreement to replace the discipline that market competition does not provide in this setting, as well as continued DOC oversight of the ,com registry under the Cooperative Agreement, which precludes VeriSign from amending or renewing the ,com agreement without DOC approval.” This safety valve provided the DOC the ability to leverage DOJ expertise in the area of anti-trust when reviewing each .com contract under the old cooperative agreement, which they did repeatedly. This included the period of time when VeriSign did not raise its registry prices. As noted in the recent NTIA statement, NTIA lost this important safeguard during the previous Trump administration, see https://domainnamewire.com/2018/11/01/breaking-u-s-gov-grants-verisign-com-price-hikes/ and https://domainnamewire.com/2024/12/01/ntia-issues-bizarre-statement-about-com-pricing/ It is my opinion Verisign’s attorneys bamboozled the previous Trump administration into adding the “mutual agreement” clause to the Cooperative Agreement. For anyone watching American politics, the Trump 2.0 administration appears to be about retribution and remaking the US government. Unlike in 2018 when DOC/NTIA had the wool pulled over their eyes by Verisign, this time the incoming Trump administration seems to have a clear game plan in place. I would recommend for everyone to read Tony Rutkowski’s CircleID article on Project 2025: The Internet and Cybersecurity. You can have the last word, John. Not how I envisioned spending my Thursday afternoon but now it is time to watch Thursday Night Football. Go Packers !!!

Tax Status Correction Michael D. Palage  –  Dec 5, 2024 8:50 AM

Sorry for the typo - ICANN is currently a 501(c)(3), my question is should its tax status be changed to 501(c)(6)?

Nope John Levine  –  Dec 5, 2024 5:34 PM

“John, respectfully you have been the one that has been non-responsive to my questions ...”

Sorry, if you want to depose me, you’ll have to pay my usual eye watering consulting rate. I’m done.

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