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ICANN chair: “all options open” on .org deal

Kevin Murphy, March 10, 2020, 20:08:07 (UTC), Domain Policy

ICANN has not yet decided to approve the acquisition of Public Interest Registry by Ethos Capital, but has not ruled out rejecting the deal either.

That’s according to chair Maarten Botterman, speaking to his Governmental Advisory Committee this evening.

At the online-only ICANN 67 meeting, he was asked by GAC chair Manal Ismail whether ICANN is considering withholding its consent for the $1.13 billion deal, which would see the .org registry return to for-profit hands for the first time in 18 years.

“At this moment all options remain open. We are open-minded to taking all input into account before it is time for us to decide,” Botterman replied.

“ICANN will consider the request based upon the totality of the information received,” he also said.

ICANN has the ability, under its registry agreement with PIR, to reject a change of control such as an acquisition, if it believes it’s not in the public interest.

Critics of the deal believe it would allow private equity firm Ethos and its anonymous backers to price-gouge non-profits such as charities, which need the money more.

But Ethos has offered to cap price increases at 10% per year on average for the next seven years, reimposing a price cap that PIR negotiated its way out of last year.

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Comments (19)

  1. Snoopy says:

    “But Ethos has offered to cap price increases at 10% per year on average for the next seven years, reimposing a price cap that PIR negotiated its way out of last year.”

    This isn’t really reimposing it, what Ethos is proposing is watered down and after 7 years prices can soar through the stratosphere.

    10% is inappropriate also as inflation is near zero.

  2. Brad Mugford says:

    The community has spoken loudly and clearly on this.

    The bottom line is basically no one believes a 10% increase per year is either justified, or deserved.

    Additionally, people just don’t trust a brand new private equity company with a public asset as important as .ORG.

    The deal is clearly not in the public benefit.

    Brad

  3. John says:

    Brad is right:
    “The bottom line is basically no one believes a 10% increase per year is either justified, or deserved.”

    There is absolutely no justification for higher prices in the .ORG domain extension – when the prices have been falling.

    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 due to a competitive bidding process (PIR put the back-end operations out for competitive bid in 2016.) Some have suggested the cost savings will even be more profound in 2019 and beyond.

    To PIR and Ethos Capital – do you care to share how much lower the cost to operate .ORG will be in 2019, 2020, 2021, 2022 and beyond?

    Or are these numbers “confidential” like everything else you choose/wish not to disclose?

  4. John says:

    My concern is that Ethos Capital continues to spread false information regarding competition and how they compete in the market. Ethos argues they operate in a “highly-competitive” market.

    Just two weeks ago, on February 26th, Erik Brooks made the following statements:

    “In fact, .ORG pricing is constrained by the competitive market of registrars and registrants.”

    “we will always be constrained by operating in a highly-competitive environment, competing with .COM, .NET, .CHARITY, .FOUNDATION and other TLDs. An affordable price is critical for attracting new customers to .ORG.”

    But these statements from Ethos Capital are entirely false.

    The market is NOT highly competitive.

    The market is .ORG domain names – and there is only one monopoly operator.

    .ORG has massive market power. PIR is the only supplier of .ORG registration services.

    Because the switching cost are enormous – domains do not serve as substitutes for one another. Therefore, domain names are highly inelastic.

    Thus, when the price for one domain extension goes up – it does not shift customer demand to other domain extensions.

    Because of high switching costs, consumers are locked-in and held hostage to their domain names.

    Furthermore, .ORG has massive market power as the trusted choice for non-profits and organizations all throughout the world. If a non-profit or organization chooses to use a different domain extension other than .org – it lacks consumer trust and it puts that organization at a severe disadvantage. Name one non-profit that uses another domain extension other than .ORG! I argue it would be significantly more difficult for that organization to fundraise using an alternate domain extension.

    Bottom line – .ORG does not compete against other domain extensions.

    Because domain names are not substitutes for one another – there is nothing to discipline pricing by the monopoly operator. Thus, the supplier can charge whatever amount it desires, and registrants would be forced to pay whatever amount arbitrary set by the operator.

    When you only have one supplier – it produces inelastic demand. Because no other registry offers .ORG registry services – PIR does not compete against anyone else.

    The ICANN board needs to learn more about Price Elasticity of Demand – and understand domain names are highly inelastic. This is one of the most fundamental concepts ICANN does not seem to understand. Otherwise, it would have never agreed to removal of all pricing caps in June of 2019.

    ICANN board should commission a competition expert or hire an economist to help guide its decision – rather than rely on misleading information by Ethos Capital.

  5. John says:

    The .ORG domain extension has 10.4 million registrants (at end of 2018.)

    PIR has consistently said they have very high renewal rates (higher than .com and .net) – and in 2018 – their renewal rates were the highest levels ever reported at 77.4%

    Here is .ORG Renewal Rates by year:
    2013 – 73.9%
    2014 – 73.9%
    2015 – 74.0%
    2016 – 72.7%
    2017 – 75.7%
    2018 – 77.4%

    If it is true that .ORG competes against other domain extensions (and new gTLD’s) you would see exactly the opposite of what is happening. The renewal rates would be going down because registrants would be switching to other domain extensions. But this is not happening. The renewal rates continue to rise (and today appear to be at their highest levels ever.)

    Thus, out of 10.4 million registrants – 8.05 million registrants will renew their .org domain. Some have argued that market power is formed at the time of registration – once you register a domain name and build a web presence – you are locked into that domain name until you cease to exist. I argue 8.05 million registrants are locked-in and unable to switch.

    And those 8.05 million registrants will be forced to pay whatever amount the monopoly operator decides.

    Thus, there is absolutely no protection for consumers – or if the prices they will be forced to pay is reasonable.

  6. John says:

    In PIR’s 2018 annual report, they admitted the new gTLD program has not created new competition.

    When talking about the new gTLD program, in PIR’s own words:

    “It must be noted, however, that relatively few of these
    new gTLDs have achieved significant market share.
    Even amongst the relatively large new gTLDs, a
    number of these relied on free registrations to grow
    their base of domains under management (“DUM”). In
    many cases, as each registration anniversary passes
    a significant percentage of their base does not renew.
    Not only does this put pressure on the new registry
    operators, it also raises doubt about the long-term
    value of many new top-level domains–which in turn
    depresses registrations and renewals, further straining
    the viability of these extensions.”

    PIR has even admitted that .ORG is very different and unique:
    “Fortunately, .ORG stands
    apart from the rest
    of the domain name
    marketplace”

    To elaborate on PIR’s last point – .ORG has market power– it is extremely unique and does not have any alternatives – and is the only choice for non-profits.

    When Ethos claims they compete with .CHARITY, .FOUNDATION – they fail to mention the following stats:
    .Charity has 2,242 total registrations
    .Foundation has 15,953 total registrations
    And the number of active websites (or actual use in each extension is hardly anything.)

  7. John says:

    The ICANN board should pay close attention and listen to what the Founding CEO and Director of ICANN (Mike Roberts) recently said on February 21, 2020. Mike Roberts is also the founding Trustee and Director of ISOC.

    Mike Roberts said:

    “The chartering goals include ‘promote competition.’ As everyone knows, ICANN has actually been handing out monopoly licenses with no price constraints on the dubious theory that many monopolies will promote lower prices and provide the benefits of competition to the Internet community. That hasn’t happened, so what to do?”

  8. John says:

    Look at what Jon Postel said in June of 1996. Jon Postel is one the creators of the Internet:

    “Another concern with the current situation in the Domain Name
    System is that there is one registry for the top-level domain
    names and it is charging fees apparently unconstrained by
    effective regulation or competition; it is in a monopoly
    position. Given this, it is reasonable to introduce
    competition in the form of other registries to provide
    equivalent services.

    There is a question, though, about how equal the service must
    be to provide effective competition. Does the establishment of
    new registries provide effective competition with the existing
    registry and the most popular top-level domain (that is, the
    COM domain)?

    Will people be willing to change their domain name to get
    better service or lower price? A name acquires substantial
    value as it is used and it becomes a significant undertaking to
    change a name. It is unlikely that many companies registered
    in one domain (for example COM) will change to another (new)
    domain.”

    Remarkable Jon realized this in 1996 – yet here we are 24 years later – ICANN still has not figured this out.

  9. Rubens Kuhl says:

    .org pricing caps removal is a decision already taken by ICANN Board, so pricing is not a factor for ICANN Board to approve or reject the .org deal. Even though there is an IRP on this, until the IRP makes a ruling, the decision that has been made stands.

    But the new corporate structure is very fishy, and that might be a reason for denying the deal.

    • Chris says:

      The new pricing structure is now reality thanks to ICANN. Which is exactly why they should take that into consideration when approving or rejecting the deal. As it increases the pricing risks for the registrants. And now they are about to add to those risks, by allowing the tld to change hands to a party that we know nothing about. Surely there is a limit to how many new risks for the registrants ICANN should allow to be introduced in such a short timespan.

      If you truly want the tld to offer stability, then it cannot be merely technical stability. Because if the registrants could one year afford a domain, while they can’t afford it the next year, for reasons they cannot foresee as apparently the terms of the contract change in favor of the registry (I assume to ensure it’s continuity) while the registry wants to get out of the business and sells the tld at the first opportunity, then you can’t exactly call the operation of the tld stable for its endusers.

      Ideally registrants can consider the pricing structure of a tld, the jurisdiction and who operates it, when they first register a domain, so they know that they can afford to build their web presence on that domain. But if the tld changes hands and the terms change as well, registrants will have to reconsider how viable their domains are. Which is a problem to endusers looking for a stable home.

      And if the tld does change hands, then it should be done through a transparent process. With parties that have been screened by ICANN. Not behind closed doors between parties with anonymous backers. This would benefit the registrants as they know who they are dealing with, and they will know that the new owners have a track record that shows they can offer a stable new home, but it might also benefit ISOC as they might get a better deal out of it, if more parties show their interest in the tld.

      • Rubens Kuhl says:

        Every decision based on pricing makes ICANN a pricing regulator, a role they are running from like hell.

        Unless the .org contract change is rolled back, no pricing issues can base ICANN board decisions.

        • John says:

          But ICANN is a price regulator. They are engaged in price regulation today. ICANN has been a price regulator since its inception.

          Also, just because Verisign told ICANN many times it is not a pricing regulator – does not make ICANN a non-regulator.

          • John says:

            Most importantly – if ICANN does not want to be a pricing regulator – it should have followed the United States Department of Justice Antitrust Division recommendations. But ICANN ignored DOJ and handed out non-bid, monopoly contracts anyhow – contracts which last in perpetuity.

            Because ICANN ignored DOJ advice – it can’t simply decide that it no longer wants to engage in price regulation. Who is actually regulating these monopoly, no-bid contracts – which will never be subject to any periodic bidding? Consumers ultimately benefit from competition.

            Because ICANN has excluded all forms of competition – consumers are harmed.

            Frankly, ICANN has a significant conflict of interest – as it receives most of its money from both Verisign and PIR and has a rich incentive to look the other way and let Verisign and PIR do whatever it wants.

            The system is fundamentally broken!

    • John says:

      Rubens – but the removal of all pricing caps in .ORG is what caused this entire mess.

      This Ethos Capital deal would have never happened if ICANN did not remove price caps.

      ICANN created this mess.

      ICANN negotiated the .ORG Registry contract with PIR (behind closed doors) outside of the multistakeholder model.

      ICANN ignored the almost 100% unanimous feedback opposing the deal – and removed all pricing caps anyhow.

      • Rubens Kuhl says:

        Contract negotiations are bilateral in nature in every industry, and the domain industry is no exception. It’s not only .ORG contract that had bilateral negotiations, look at every new contract amendment since 2012.

        The avenue for multistakeholder model is called consensus policies and they are limited by the picket fence, and it does not include pricing, even in contracts where pricing is part of the contract (like .com).

        For ICANN to have a mandate to control pricing, that would have to be included in the bylaws. Otherwise, it’s discretionary by ICANN… and ICANN clearly do not want to be in this role. It removed price caps from all contracts that were amended, long before .ORG and .com controversies.

        Although collecting money via registries and registrars, that money comes from registrants. Registrars and registries are pass-thrus for the money to reach ICANN, and registrants always remind contracted parties of that fact in ICANN discussions.

        • John says:

          Rubens,

          You claim “it’s discretionary by ICANN” to control pricing.

          But ICANN is currently controlling pricing. ICANN is currently regulating prices. They are doing this today! ICANN sets the upper limit on what TLD operators are able to charge. ICANN has been doing this since its inception.

          Go back and look at what ICANN has done on every legacy TLD – it has controlled prices by setting upper limits on what the operator is able to charge. Because the operator possess a monopoly on that particular TLD. Each TLD will never be subject to any competition because it has the right to operate the TLD in perpetuity.

          Look at .NET for example. ICANN renewed the .NET agreement with VeriSign in 2017 – and is allowing VeriSign to increase prices by 10% per year. This is price regulation. ICANN has set the upper limit on the amount VeriSign is able to charge for a .NET registration and renewals.

          Even worse – ICANN has established a special and completely arbitrary extra fee which it collects from Verisign. For every .NET domain name – ICANN receives $0.75 per domain name from Verisign. Which is $0.50 higher than all other TLD’s.

          No other TLD has this type of arrangement. Not to mention it gives serious rise to concerns about the ICANN / Verisign relationship.

          • Rubens says:

            .net is the only agreement with prices set by ICANN, for now. It’s probably just a calendar cycle and by the time the next .net agreement comes along there will be no price limits in that contract as well. And people told me that the USD 0.75 is in addition to 0.25, making USD 1 per domain.

            .com prices are a long time definition of US Gov; when ICANN agreed to raise .com prices in the past, US Gov said no. Guess what ? US Gov got a new administration less prone to control private sector prices, and Verisign got the price raise.

  10. I’m not sure that Kevin’s statement that “ICANN has the ability, under its registry agreement with PIR, to reject a change of control such as an acquisition, if it believes it’s not in the public interest.” is right.

    The applicable provision is:
    “7.5. Change of Control; Assignment and Subcontracting. […] [N]either party may assign any of its rights and obligations under this Agreement without the prior written approval of the other party, which approval will not be unreasonably withheld. For purposes of this Section 7.5, a direct or indirect change of control of Registry Operator […] shall be deemed an assignment.”

    So it looks like ICANN may not withhold approval on the PIR deal if doing so would be objectively unreasonable. I imagine that an arbitrator would look at past consents, burdens and benefits to ICANN from the deal, financial stability and reputation of Ethos, among other factors to determine the reasonableness of withholding consent.

  11. Greg Thomas says:

    1) Is it appropriate that there is such certainty in a registry operator’s capture of their concession that monetization is even possible? The presumptive renewal and resulting entitlement are the anti-competitive Alpha and Omega in the DNS and someone should mention that to Attorney General Becerra in Sacramento.
    2) The community shouldn’t be taken in by thin and cheap talking points, which are patronizing and insult the common sense of a 2-year old, and which are being dished out by phony people with phony titles that are just soothsayers paid to pacify the unruly “great unwashed.” Ethos can make empty commitments to stewardship so easily because they know that everything will be interpreted differently later and, in any event, they know they are committing — not themselves — but the insurance company or hedge fund that they sell .org to after a nip and tuck and a new coat of wax enables them to capture the value that ISOC is leaving on the table by accepting an underpriced offer. Ethos knows the first time is always the hardest but if they get through this then there’s “a sucker born every minute” that will pay a premium for cash-generating assets that hedge a balance sheet.
    3) ISOC isn’t behaving as custodians or even as legitimate asset owners with skin in the game so much as someone that doesn’t care how much they get for contraband TVs because they “fell off a truck” and didn’t cost anything but a little sweat equity in the first place. If ISOC is done with .org then put the contract out to bid. Value creation doublespeak, securitization, and other arbitrage parlor tricks shouldn’t be inflicted on the most public interested registry in the so-called public interest DNS.

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