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Verisign loses right to increase .com prices

Kevin Murphy, November 30, 2012, 13:11:37 (UTC), Domain Registries

Verisign has sensationally lost the right to increase .com prices under a new deal struck with the US Department of Commerce.

In a statement to the markets just now, the company announced that the .com contract approved by ICANN earlier this year has now also been approved by Commerce, but with no more price increases:

Verisign’s current pricing of $7.85 per domain name registration will continue for the six-year term of the Agreement. Second, Verisign no longer has the right to four price increases of up to seven percent over the six-year term.

The company will only be able to increase prices with prior Commerce approval in response to “extraordinary” circumstances such as a security problem, or when the competitive landscape changes.

For example, if .com loses its “market power”, pricing restrictions could be lifted entirely, subject to Commerce approval.

Similarly, if ICANN approves a Consensus Policy that changes Verisign’s cost structure, the company could apply for price-increasing powers.

The deal is a huge blow for Verisign’s shareholders, wiping tens — potentially hundreds — of millions of dollars from the company’s top line over the coming six years.

Its share price is sure to nose-dive today. It’s already trading down 15% before the New York markets open.

It’s also an embarrassment to ICANN, which seems to have demonstrated that it’s less capable of looking after the interests of registrants than the US government.

That said, the new contract appears to have kept ICANN’s new fee structure, meaning the organization will be about $8 million a year richer than before.

In a Securities and Exchange Commission filing, Verisign said the new pricing provisions came in Amendment 32 to its Cooperative Agreement with Commerce:

Amendment 32 provides that the Maximum Price (as defined in the 2012 .com Registry Agreement) of a .com domain name shall not exceed $7.85 for the term of the 2012 .com Registry Agreement, except that the Company is entitled to increase the Maximum Price of a .com domain name 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 as described in the 2012 .com Registry Agreement, provided that the Company may not exercise such right unless the DOC provides prior written approval that the exercise of such right will serve the public interest, such approval not to be unreasonably withheld. Amendment 32 further provides that the Company shall be entitled at any time during the term of the 2012 . com Registry Agreement to seek to remove the pricing restrictions contained in the 2012 .com Registry Agreement if the Company demonstrates to the DOC that market conditions no longer warrant pricing restrictions in the 2012 .com Registry Agreement, as determined by the DOC. Amendment 32 also provides that the DOC’s approval of the 2012 .com Registry Agreement is not intended to confer federal antitrust immunity on the Company with respect to the 2012 .com Registry Agreement and extends the term of the Cooperative Agreement through November 30, 2018.

On a conference call with analysts, Verisign CEO Jim Bidzos said that the deal was in the best interests of the company. It still gives the company the presumptive right for renewal, he said.

Growth, he said, will come in future from an expansion of its .com installed base, new IDN gTLD variants, and providing back-end registry services to other new gTLDs.

“We’re still a growth company,” he said.

“We have a patent portfolio we haven’t really exploited,” he said, referring to about 200 patents granted and pending. “We think there’s a revenue opportunity there.”

Larry Strickling, assistant secretary at Commerce, said in a statement:

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 full Amendment 32 is posted here.

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Comments (8)

  1. It’s better than having price increases, but still means consumers will be losing $500 million/yr compared to a competitive tender situation. Consumers deserve much better than this weak agreement.

    BTW, the sentence “pricing restrictions may be removed entirely if Verisign demonstrates to the Commerce Department’s satisfaction that market conditions no longer warrant such restrictions” is very problematic, as it could open up the entire tiered/differential/variable pricing debate, whereby VeriSign could charge a different renewal price for each and every domain name (e.g. $1 billion/yr to renew Google.com, $5 million/yr for Hotels.com, and so on). Clearly the NTIA/DOC/DOJ needs to ensure that never happens.

  2. Philip Corwin says:

    Not quite fair to say ICANN less liable to protect public than DOC, because ICANN neutered itself in 2006 and would have breached the contract by insisting on any changes in presumptive renewal or pricing increases now — only DOC had power to address, as pointed out in ICA letter sent to DOC. Glad that DOC took at least half of ICA advice, although still believe .Com base price should have been reduced by $2 to .Net level.

  3. KD says:

    Phil – actually I think he was spot on with that comment. He said

    >> ICANNN [is]… less capable of looking
    >> after the interests of registrants

    You said

    >> ICANN neutered itself in 2006

    In my opinion you are both spot on. ICANN neutered itself in 2006 therefore it became less capable of looking after the interests of registrants.

  4. It’s older than that. ICANN neutered itself in 2001, when the topic of “presumptive renewal” was first voted on by the Board. Karl Auerbach voted against it. See his take at:

    http://www.cavebear.com/cbblog-archives/000263.html
    http://www.icann.org/en/groups/board/documents/minutes-02apr01-en.htm

    and take a look at the older agreements.

  5. Protect the monopoly says:

    “We have a patent portfolio we haven’t really exploited.”

    And how exactly would they propose to do so?

    Threaten to sue any rising registries or back-end providers that threaten to compete on a .com scale, unless they take a license?

    Or does VRSN have some technology that other registries and back-end providers would be anxious to use?

    Let’s hope it’s the latter. One might imagine VRSN’s portfolio being sold off to a troll if the company were to get desperate for revenue.

  6. Philip Corwin says:

    Whatever VRSN does to “exploit’ its patents, it won’t be “desperate for revenue”. Even with the price freeze .Com will still generate $800 million per year in cash flow, and that will increase in tandem with sny rise in total registrations.

  7. KD says:

    Philip. I totally agree. VeriSign is in an amazing position guaranteeing $800 million a year. In fact, I think their current deal is better than the old one. If the value of .com’s tank they have a great option to remove price restrictions. This is better for the company with the massive 2013 gTLD launch. It is a safety layer. You know that Verisign proposed this, and this was not a proposal by the DOC! And for their company the current deal is better than raising the prices every 4 out of 6 years.

    What is extremely creepy is that they are now resorting to threatening to “use” their patent portfolio. Patents are great for unique and un-intuitive things. But realize companies own patents for URL’s. And for frames. And for cookies! What sort of patents are they talking about here? The fact VeriSign is even bringing this up sounds COMPLETELY DESPERATE!! They just lost their ability to keep printing more money every year! The fact they made this treat says they are obviously scared!

    In the end, I suspect this is the start of a massive stock price fall for VeriSign over the next 6 years. They just lost their ability to keep printing something like 4% more money every year. (annualized) And after being stupid enough to sell their SSL business – they are left with nothing but the .com contract – which we all know should not be evergreen!! The only thing they have is the hope the contract is renewed again in 6 years. But I HOPE and THINK that some entity called the ICA might help shed light that that is not right for the world. VeriSign is now desperate to keep this evergreen contract, but we all know it is a sham and $8.03 is four times what it should cost. It might be 4 or 5 years until anything can be done about this, but we know VeriSign is now in a bind and is weak enough to threaten to exploit their patent portfolio.

    Interesting times!

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