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I attempt to answer ICA’s questions about the “terrible blunder” .org acquisition

Kevin Murphy, November 19, 2019, Domain Policy

The Internet Commerce Association launched a withering attack on ICANN late last week, accusing the organization of a “terrible blunder” by lifting pricing restrictions on .org domain names.

As by now you’re no doubt aware, .org manager Public Interest Registry was acquired last week by a private equity firm with ties to ICANN’s former CEO, in a deal likely to have delivered hundreds of millions of dollars, if not more, to former owner the Internet Society.

The deal means PIR is now almost certain to exercise its newfound right to raise its prices arbitrarily, adding tens of millions to its annual top line at the expense of .org registrants.

While such a price increase is likely to have little impact on most registrants — an annual increase of even 100% would only add about $10 to the per-domain cost — it would certainly prove onerous to many of the high-volume domain investors ICA represents.

So ICA chief Zak Muscovitch whipped off a letter to ICANN (pdf) on Friday, demanding that ICANN use its contractual powers to terminate PIR’s registry agreement and put .org out for open tender. He wrote:

If you were led to believe that removing price caps on .Org domain names was a sound approach because the registry would remain in the hands of a nonprofit foundation, you have clearly been misled. If you were led to believe that despite being the effective owner of the .org registry, you were somehow forced to let your service providers tell you how much they can charge, instead of the other way around, you have been led astray. If you have been told that .Org does not have market power within the nonprofit sector, you have been led astray. If you have been told that competition from other gTLDs will constrain .org prices, you have been led astray.

I think the letter has about as much chance of working as an ice sculptor in hell, but Muscovitch does include a list of seven questions for ICANN that I’m going to attempt to answer to the best of my ability here.

First, he asks:

Were you aware whether ISOC was in talks to sell the registry when you approved the removal of the price caps?

I put the same question to PIR CEO Jon Nevett last week, and he told me: “I don’t know when the talks started with ISOC and the buyer, but neither ICANN nor PIR knew about it when finalizing the .ORG [Registry Agreement].”

I’ve no particular reason to believe he’s lying.

If ISOC was in such talks at that time, why was this material fact not disclosed to you by the registry operator, prior to you approving the renewal agreement?

The acquisition talks between ISOC and Ethos Capital certainly could have been going on prior to the .org contract being signed, which happened June 30 this year.

The main piece of evidence here is that Fadi Chehadé of private equity firm and presumed Ethos affiliate Abry Partners registered the domain ethoscapital.org on May 7, according to Whois records. A company of the same name was formed in Delaware a week later.

Given that Ethos appears to be an Abry vehicle set up purely to acquire PIR, it seems likely that talks were already underway at this point.

The domain ethoscapital.com, which Ethos is currently using as its primary, seems to have been acquired on the secondary market around August. The acquisition was announced November 13.

To Muscovitch’s question, though, I return to Nevett’s line that PIR knew nothing about the acquisition talks before the RA was finalized.

The RA was finalized and opened to public comment in March.

It’s quite possible Ethos and ISOC entered talks in the three months after the deal had been finalized but before it had been signed.

When did you first learn of the negotiations to sell the .Org registry?

An excellent question I’ve also posed but as yet have no answer to.

Did you base your decision to approve the removal of price caps, at least in part, on the expectation or belief that the registry would continue to be operated by a nonprofit organization with a public commitment to maintaining a stable pricing environment, instead of on behalf of a private equity firm whose objective is to maximize profits for its funders?

Cheekily, I’m going to take ICANN at its word and say the answer is “yes”.

One of the controversies concerning the .org renewal was that ICANN seemingly ignored thousands of comments calling for the retention of price caps.

This, ICANN has denied, saying that it “reviewed and evaluated” every comment.

Among the very few comments that weren’t outright condemnations of the decision to remove price caps were two nuanced, arguably ambivalent, analyses from two influential ICANN structures — the At-Large Advisory Committee and the Non-Commercial Stakeholders Group.

ALAC’s eight-page comment (pdf) was very much of the “on the one hand…” variety, but it paid special attention to ISOC’s public interest works when putting forward the view that uncapped pricing might be a good thing, noting (and quoting itself):

a significant portion of .ORG registration fees “are returned to serve the Internet community [through] redistribution of .org funds into the community by the Internet Society, to support Internet development.”… ISOC’s goals and priorities, while far broader than At-Large (and even ICANN), parallel those of At-Large and the interests of end-users. Many At-Large Structures are also ISOC Chapters, further demonstrating the commonality of interests.

NCSG, meanwhile, said in its comments (pdf) that price caps should remain, but increased from the 10%-per-year level. It acknowledged that some .org money flows into funding NCSG.

So there’s two influential groups, both with organizational and/or funding ties to ISOC, saying price increases may be a good thing because ISOC acts in the public interest.

And ICANN said it read and absorbed all the comments, so I’m cheekily going to say that yes, ICANN at least in part renewed the .org contract in the belief that PIR would continue to be a non-profit and act in the public interest.

Had you been aware of the planned sale of the .Org registry to a private equity firm, would you have treated the renewal of the .Org registry agreement and the removal of price caps as worthy of robust discussion and a vote by the Board, such that perhaps the terms of the agreement would have been modified?

I’m going to go out on a limb here and say hell, no. ICANN doesn’t want to be a pricing regulator, regardless of the registry operator, in my view. It’s only the US government that’s preventing it lifting price restrictions on .com, I reckon.

What involvement did your former CEO, Mr. Chehade and your former SVP, Ms. Abusitta-Ouri, have in the decision to employ the base gTLD registry agreement for legacy TLDs during their tenure, if any?

In Chehadé’s case, the answer is fairly clear. Even if he did not have a hands-on role in the decision to cajole legacy gTLD registries toward the 2012 agreement, it all happened on his watch so he bears ultimate responsibility.

It’s worth noting, perhaps, that most of the legacy gTLD agreements that migrated over to the new gTLD agreement’s standard language happened not only while Chehadé was at the helm, but also after he’d already accepted his new job at Abry.

He announced his early resignation in May 2015, telling the AFP at the time that he already had a job lined up in the commercial sector, but he declined to give specifics.

He’d probably made his mind up to quit some time before the announcement. He registered the domain name chehade.company, which he now uses for his investment vehicle Chehadé & Company, in the April.

He revealed he was joining Abry as senior advisor on digital strategy in August that year, but didn’t actually leave until March 2016.

During that interim, lame-duck period ICANN negotiated and signed (all in October 2015) renewals for 2003-round gTLDs .pro, .cat and .travel, all of which incorporated 2012 contract language related to, for example, the Uniform Rapid Suspension process.

Three months before Chehadé’s resignation announcement, ICANN signed a very similar deal with .jobs, the first time it had incorporated 2012 language into a legacy gTLD contract.

These contracts were all signed for ICANN not by Chehadé but by his long-time buddy, frequent co-worker and then-president of the Global Domains Division, Akram Atallah (who is now CEO of Donuts, which is owned by Abry).

Since Chehadé’s departure, ICANN has also taken the same contract renewal stance with TLDs including .xxx, .mobi, .museum and .aero.

By 2016 it had become standard operating practice at ICANN to nudge registries towards the 2012-round contract, as Atallah explained to then-ICA lead Phil Corwin at ICANN’s Hyderabad meeting in November 2016. Atallah stated (pdf):

So basically the negotiations are — the registries come and ask for something, and we tell them please adopt the new gTLD contract. And if they push back on it and they say they don’t want something, we can’t force them to take it. It’s a negotiation between two parties. And I think it’s within the remit of the corporation to negotiate its contracts. If the policy comes back and says that the URS is not something that we want to have as a policy, of course, we would support that.

As regards Nora Abusitta-Ouri, Ethos’s “chief purpose officer”, her former job title of “senior VP for development and public responsibility programs” suggests she had little to no involvement in gTLD contractual issues.

While her LinkedIn profile doesn’t mention it, she appears to have become chief engagement officer at Chehadé & Company after her stint at ICANN ended in July 2016.

What restrictions do you have in place with respect to cooling-off periods for former executives?

Fuck all, clearly.