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ICANN board meets to consider PIR acquisition TODAY

Kevin Murphy, November 21, 2019, 08:53:21 (UTC), Domain Policy

ICANN’s board of directors will gather today to consider whether the acquisition of Public Interest Registry by a private equity company means that it should reverse its own decision to allow PIR to raise .org prices arbitrarily.

Don’t get too excited. It looks like it’s largely a process formality that won’t lead to any big reversals, at least in the short term.

But I’ve also learned that the controversy could ultimately be heading to an Independent Review Process case, the final form of appeal under ICANN rules.

The board is due to meet today with just two named agenda items: Reconsideration Request 19-2 and Reconsideration Request 19-3.

Those are the appeals filed by the registrar Namecheap in July and rights group the Electronic Frontier Foundation in August.

Namecheap and EFF respectively wanted ICANN to reverse its decisions to remove PIR’s 10%-a-year price-raising caps and to oblige the registry to enforce the Uniform Rapid Suspension anti-cybersquatting policy.

Both parties now claim that the sale by the Internet Society of PIR to private equity firm Ethos Capital, announced last week, casts new light on the .org contract renewal.

The deal means PIR will change from being a non-profit to being a commercial venture, though PIR says it will stick to its founding principles of supporting the non-profit community.

I reported a couple of weeks ago that the board had thrown out both RfRs, but it turns out that was not technically correct.

The full ICANN board did in fact consider both appeals, but it was doing so in only a “preliminary” fashion, according to an ICANN spokesperson. ICANN told me:

On 3 November the Board considered “proposed determinations” for both reconsideration request 19-2 and 19-3. In essence, the Board was taking up the Board Accountability Mechanism Committee (BAMC) role, as the BAMC had not been able to reach quorum in early November due to certain recusals by BAMC members.

Once the Board adopted the proposed determinations (in lieu of the BAMC issuing a recommendation to the Board) the parties that submitted the reconsideration requests had 15 days to submit a rebuttal, for the Board’s full consideration of the matter, which is now on the agenda.

Normally, RfRs are considered first by the four-person BAMC, but in this case three of the members — Sarah Deutsch, Nigel Roberts, and Becky Burr — recused themselves out of the fear of appearing to present conflicts of interest.

The committee obviously failed to hit a quorum, so the full board took over its remit to give the RfRs their first pass.

The board decided that there had been no oversights or wrongdoing. Reconsideration always presents a high bar for requestors. The .org contract was negotiated, commented on, approved, and signed completely in compliance with ICANN’s governing rules, the board decided.

But the ICANN bylaws allow for a 15-day period following a BAMC recommendation during which rejected RfR appellants can submit a rebuttal.

And, guess what, both of them did just that, and both rebuttals raise the PIR acquisition as a key reason ICANN should think again about the .org contract changes.

The acquisition was announced a week ago, and it appears to have come as much of a surprise to ICANN as to everyone else. It’s a new fact that the ICANN board has not previously taken into account when considering the two RfRs, which could prove important.

Namecheap reckons that the deal means that PIR is now almost certain to raise .org prices. New gTLD registry Donuts was bough by Ethos affiliate Abry Partners last year, and this year set about raising prices across the large majority of its 200-odd gTLDs. Namecheap wrote in its rebuttal:

Within months of be acquired by Abry Partners, it raised prices in 2019 for 220 out of its 241 TLDs. Any statements by PIR now to not raise prices unreasonably are just words, and without price caps, there is no way that .org registrants are not used a source to generate revenue for acquisitions or to pay dividends to its shareholders.

It also said:

The timing and the nature of this entire process is suspicious, and in a well-regulated industry, would draw significant scrutiny from regulators. For ICANN not to scrutinize this transaction closely in a completely transparent and accountable fashion (including public disclosure of pertinent information regarding the nature, cost, the terms of any debt associated with the acquisition, timeline of all parties involved, and the principals involved) would demonstrate that ICANN org and the ICANN Board do not function as a trusted or reliable internet steward.

Namecheap also takes issue with the fact that ICANN’s ruling on its RfR (pdf) draws heavily on a 2009 economic analysis by Professor Dennis Carlton, which concluded that price caps were unnecessary in the new gTLD program.

The registrar trashes this analysis as being based on more opinion than fact, and says it is based on outdated market data.

Meanwhile, the EFF’s rebuttal makes the acquisition one of four reasons why it thinks ICANN should reverse course. It said;

ICANN must carefully reexamine the .ORG Registry Agreement in light of this news. Without the oversight and participation of the nonprofit community, measures that give the registry authority to institute new [Rights Protection Mechanisms] or make other major policy changes invite management decisions that conflict with the needs of the .ORG community.

Quite often, RfRs are declined by ICANN because the requestor does not present any new information that the board has not already considered. But in this case, the fact of the PIR acquisition is empirically new information, as it’s only week-old news.

Will this help Namecheap and the EFF with their cause? The board will certainly have to consider this new information, but I still think it’s unlikely that it will change its mind.

But I’ve also learned that Namecheap has filed with ICANN to trigger a Cooperative Engagement Process procedure.

The CEP is an often-lengthy bilateral process where ICANN and an aggrieved party attempt to resolve their differences in closed-door talks.

When CEP fails, it often leads to an Independent Review Process complaint, when both sides lawyer up and three retired judges are roped in to adjudicate. These typically cost both sides hundreds of thousands of dollars in legal fees.

CEP and IRP cases are usually measured in years rather than months, so the PIR acquisition could be under scrutiny for a long time to come.

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Comments (14)

  1. John says:

    The worst part of this whole thing – ICANN completely ignored US Department of Justice Antitrust division advice – that it should put TLD contracts out for bid at the end of each term to fulfill its completion mandate. The DOJ said offering lower prices – from a service that lacked any market disciplines – was a GOOD thing for consumers. The DOJ said prices going up – on a captive and locked-in base of consumers – was a BAD thing for consumers.

    The DOJ believes the public ultimately benefits from competition and competitive bidding is the only way to accomplish this due to the technical design of the Internet DNS, as there can only be a single registry operator at a time.

    Also, the Antitrust Division of the Justice Department wrote to ICANN
    expressing concerns that ICANN was taking an “ineffective approach” to promoting
    competition in the domain name system.

    The Justice Department concluded that ICANN “has
    not come close to fulfilling its obligations to employ competitive principles in its management of registry operations.”

    There is no other way to adequately constrain pricing to the competitive level without a competitive bidding process. Presumptive right of renewal excludes all forms of competition. Contracts that last forever – which will never be subject to any competition – allows the operator to act opportunistically by increasing prices. Because consumers (in this case .org registrants) are not able to switch.

    I think it is time that the ICANN board re-examine competition issues in the DNS. Some have suggested we have total market failure because domain names are not substitutes – because operators have the presumptive right of renew.

    ICANN board should read the following statement, written by PIR CEO John Nevett himself:
    https://archive.icann.org/en/committees/reconsideration/networksolutions-request-16mar06.htm

    Ironically, PIR put the backend operations out for public bid in 2016 and more than 20 companies submitted a bid to operate the registry. This resulted more than a 50% reduction in costs to PIR. However, none of that savings will be passed along to consumers – because ICANN refuses to put the .ORG Registry Contract out for competitive tender. All of those savings (more than $18 million per year) will flow to PIR (well now Ethos Capital) piggy bank. Furthermore, ICANN removed the existing 10% pricing cap (which was in place to protect consumers) back in June of 2019. This pricing cap was put in place in the early 2000’s for consumer protection.

    So ICANN is basically giving the middle finger to all registrants – telling them they could care less if they are forced to pay higher prices.

    One of ICANN’s core values is “to promote and sustain a competitive environment.” SeeICANN Bylaws Article I, Section 2.6 (Core Values). This core value is reflected in the Memorandum of Understanding between the Commerce Department and ICANN, which outlines ICANN’s operating principles. Under the MOU, ICANN and the Commerce Department agreed to promote the management of the DNS in a way that will allow market mechanisms to support competition to “lower costs, promote innovation and enhance user choice.”

    As a result of ICANN’s unwillingness to put its contracts out for competitive bidding (and ignoring DOJ Antitrust Division advice) – ICANN is now enabling (by acting as a co-conspirator) supracompeitive pricing on a captive base of 10+ million .ORG registrants who are locked in. This has very serious antitrust implications under US and European Antitrust laws.

  2. John says:

    Former ICANN Board Member pointed out very large concerns with ICANN paid and commissioned economic reports – used to justify the new gLTD roll-out.

    Among the greatest sources of concern has been the failure of ICANN staff to
    issue a complete public response to the ICANN Board’s October 2006 demand that
    ICANN Staff:

    commission an independent study by a reputable economic consulting firm or organization to deliver findings on economic questions relating to the domain registration market, such as:

    – whether the domain registration market is one market or whether each TLD functions as a separate market,

    – whether registrations in different TLDs are substitutable,

    – what are the effects on consumer and pricing behavior of the switching costs involved in moving from one TLD to another, what is the effect of the market structure and pricing on new TLD entrants, and

    – whether there are other markets with similar issues, and if so how are these issues addressed and by whom?

  3. John says:

    Also, ICANN is attempting to justify this change by saying that the goal was to move all TLD’s over to the same base contract. But this is 100% contradictory to ICANN published statements saying that “much greater consideration” will need to be given before moving any legacy TLD’s over the new contract developed specifically for the new gTLD program.

    Old legacy TLD’s are entirely different from the new gTLD’s – they have vast market power and should be treated accordingly.

    Not complete deregulation.

    http://www.circleid.com/posts/20190423_spurious_justifications_for_eliminating_caps_on_legacy_domains/

    https://domainnamewire.com/2019/03/19/the-problem-with-price-hikes-on-legacy-tlds/

  4. gpm group says:

    It would be good to hear from GDD the fantastic benefits they secured for .org registrants as a result of their negotiating skills.

  5. John Laprise says:

    Glad to hear the Board is taking swift action. As a former ALAC member I know that multiple ACs and SOs are very, very angry about this and are actively working on advice against this acquisition.

  6. B says:

    Many Thanks John for detailed comments! This opaque PIR deal is a scandal that may trigger more review of the ICANN revolving door and the wholly unjustified insider positions of PIR and Verisign monopoly licensing. Certainly there should be open competitive tenders for .com .net .org registry operations! No need to justify contracts worth billions of dollars? that is wrong and seems corrupt.

  7. John says:

    Surprisingly, PIR put the back end technical functions of the registry out for bid in 2016. More than 20 companies contested for the rights to operate the registry. As a result, in 2018, PIR began to realize the benefits from competitive bidding:

    Year Cost to operate the .ORG Registry
    2010 $27,672,049
    2011 $28,704,215
    2012 $29,081,068
    2013 $31,970,956
    2014 $33,173,705
    2015 $34,978,686
    2016 $37,978,497
    2017 $37,806,841
    2018 $18,066,321

    In 2018, PIR’s cost to operate .org were slashed in half. This cost reduction was achieved through a competitive bidding process.

    But on the other hand – ICANN is not willing to put the master .ORG out for bid. This will never be subject to a competitive bid – ever. And to add insult to injury, ICANN is deregulating and removing all pricing caps– which were specifically put in place to protect consumers.

    ICANN has created and continues to facilitate total market failure in the DNS.

    PIR does not own .ORG – it is only the outsourced provider. ICANN owns these namespaces.

    PIR does not have the ability to sell this vast global namespace.

  8. Don says:

    “PIR does not own .ORG – it is only the outsourced provider. ICANN owns these namespaces.

    PIR does not have the ability to sell this vast global namespace.”

    Vastly important points to keep in mind!

  9. John says:

    Whole new “John” here, not the one above. I just want to say:

    I’m shocked, shocked to learn they investigated the matter and determined there was nothing wrong and opinions to the contrary were groundless.

    (Just practicing for later.)

  10. John says:

    I’m the old John here – not the new one above.

    You think Ethos will ever say – because we were able to reduce our costs by more than half – we will pass along the savings to both registrars and registrants?

    Not a chance in hell – no private equity company would reduce prices and shrink top line revenues.

    Thus, this sale to Ethos is in clear violation of ICANN’s own bylaws and its competition mandate.

    ICANN only has one option – exercise its rights and put the .ORG contract out for competitive tender. It is ICANN’s only way to promote competition – because domain names are not substitutes and registrants and end consumers are locked in and held hostage to their domain names. Consumers are not switching domain names and they are unable to do so.

    Many companies will compete for the rights to operate .ORG – which will likely lead to lower prices for 10+ million registrants. Companies will also compete on security and stability – and it is reasonable to conclude through a competitive bidding process, some companies will make proposals that will do a better job of promoting security and stability than the current operator.

    Competition has so many benefits.

    But never running a competitive bidding process (handing out contracts which last for eternity) – means ICANN will never realize the benefits from a competitive bidding process.

  11. John says:

    This will be my last post – in summary, my main point is as follows:

    ****
    By excluding any form of competition – and never holding a competitive bidding process = harm to consumers
    ****
    By not running a competitive bidding process – ICANN is causing direct harm to both registrars and registrants. This is anticompetitive.
    ****

  12. Don says:

    This shockingly nontransparent sale and the actions of ICANN that directly contributed to it are already damaging dot org’s reputation.

  13. kp says:

    Wake up ICANN!!!

    Instead of allowing the Internet Society to make billions, in one fell swoop you can:

    a.) Lease/sell the rights to run .org for the next 5 or 10 years to someone who can put a proper plan in place and commit to you what they will do in the public’s best interest.

    b.) You can make TONS of money on this. Some speculate this deal is worth a billion dollars.

    c.) You do registrants a favor by protecting them and actually doing THE RIGHT THING.

    d.) Why and how is the Internet Society even allowed to “sell” such rights like this? Does this not even spell an insane amount of problems? Not only for today and for .org, but for all legacy TLDs?

    Time is enough you get out from under the bedsheets with the registries, make more money for ICANN’s longer term success, and see what the world needs. It needs a re-aligned ICANN that is focused on protecting the Internet, not handing out multi-billion dollar monopoly deals to past CEO’s!

    I see the long term success of ICANN aligning with protecting the Internet at large, not just a few registries, and in turn this actually is the most profitable thing for ICANN and gives ICANN perpetual funds when it continues to re-negotiate deals with registries to ensure they are not price-gouging, they are operating fairly, and actually making the Internet a better place. For such important legacy TLDs, to ensure they are not tarnishing the TLDs that are home to so many people who have no real choice but to pay what the monopolies dictate. Don’t believe me? I DARE YOU to change your brand from ICANN.org. Sell the domain ICANN.org to someone else, prove to the world how easy it is to give this up. You can’t.

    ICANN needs to re-align itself only a tiny bit for true long-term success. As others have said, I fear serious antitrust issues against ICANN for how it is currently acting and what sort of shenanigans it is not just “allowing” but actually the “orchestrator” of…

    If it is true that the US DOJ has told/warned/suggested to you that you need to enable competition and put these contracts out for competitive bid, are you not mortally afraid your recent actions are truly showing the world how corrupt ICANN is, which has been lead so far astray? Is the time upon us now that ICANN might be signing it’s ultimate fate by asking for world regulators to come in and split up/break up/force ICANN out of the business it is in? I think 2019 has shown the world what is really going on. Too bad, you had such opportunity, but truly squandered it away by such awful decisions.

  14. Beezlebub says:

    Time to put ICANN up to a no confidence vote.

    Problem is, without significant protections in place, whatever replaced ICANN would fall prey to the same powerful forces that are working upon ICANN and ultimately resulting in these biased policy decisions.

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