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Verisign pays ICANN $20 million and gets to raise .com prices again

Kevin Murphy, January 3, 2020, Domain Registries

Verisign is to get the right to raise the price of .com domains by 7% per year, under a new contract with ICANN.

The deal, announced this hour, will also see Verisign pay ICANN $20 million over five years, starting in 2021, “to support ICANN’s initiatives to preserve and enhance the security, stability and resiliency of the DNS”.

According to ICANN, the pricing changes mean that the maximum price of a .com domain could go as high as $10.26 by October 2026.

Verisign getting the right to once more increase its fees — which is likely to be worth close to a billion dollars to the company’s top line over the life of the contract — was not unexpected.

Pricing has been stuck at $7.85 for years, due to a price freeze imposed by the Obama-era US National Telecommunications and Information Administration, but this policy was reversed by the Trump administration in late 2018.

The amendment to the .com registry agreement announced today essentially takes on the terms of the Trump appeasement, so Verisign gets to up .com prices by 7% in the last four years of the six-year duration of the contract.

ICANN said:

ICANN org is not a price regulator and will defer to the expertise of relevant competition authorities. As such, ICANN has long-deferred to the [US Department of Commerce] and the United States Department of Justice (DOJ) for the regulation of pricing for .COM registry services.

But ICANN will also financially benefit from the deal over and above what it receives from Verisign under the current .com contract.

First, the two parties have said they will sign a binding letter of intent (pdf) committing Verisign to give ICANN $4 million a year, starting one year from now, to help fund ICANN’s activities:

conducting, facilitating or supporting activities that preserve and enhance the security, stability and resiliency of the DNS, which may include, without limitation, active measures to promote and/or facilitate DNSSEC deployment, Security Threat mitigation, name collision mitigation, root server system governance and research into the operation of the DNS

That’s basically describing one of ICANN’s core missions, which is already funded to a great extent by .com fees, so quite why it’s being spun out into a separate agreement is a little bit of a mystery to me at this early stage.

Don’t be surprised if you hear the words “bung” or “quid pro quo” being slung around in the coming hours and days by ICANN critics.

The second financial benefit to ICANN comes from additional payments Verisign will have to make when it sells its ConsoliDate service.

This is the service that allows .com registrants, via their registrars, to synchronize the renewal dates of all of the domains in their portfolio, so they only have to worry about renewals on a single day of the year. It’s basically a partial-year renewal.

Under the amended .com contract, ICANN will get a piece of that action too. Verisign has agreed to pay ICANN a pro-rated fee, based on the $0.25 per-domain annual renewal fee, for the number of days any given registration is extended using ConsoliDate.

I’m afraid to say I don’t know how much money this could add to ICANN’s coffers, but another amendment to the contract means that Verisign will start to report ConsoliDate usage in its published monthly transaction reports, so we should get a pretty good idea of the $$$$ value in the second half of the year.

The amended contract — still in draft form (pdf) and open for public comment — also brings on a slew of new obligations for Verisign that bring .com more into line with other gTLDs.

There’s no Uniform Rapid Suspension policy, so domain investors and cybersquatters can breath a sigh of relief there.

But Verisign has also agreed to a new Registry-Registrar Agreement that contains substantial new provisions aimed at combating abuse, fraud and intellectual property infringement — including trademark infringement.

It has also agreed to a series of Public Interest Commitments, along the same lines as all the 2012-round new gTLDs, covering the same kinds of dodgy activities. The texts of the RRA addition and PICs are virtually identical, requiring:

a provision prohibiting the Registered Name Holder from distributing malware, abusively operating botnets, phishing, pharming, piracy, trademark or copyright infringement, fraudulent or deceptive practices, counterfeiting or otherwise engaging in activity contrary to applicable law and providing (consistent with applicable law and any related procedures) consequences for such activities, including suspension of the registration of the Registered Name;

There are also many changes related to how Verisign handles data escrow, Whois/RDAP and zone file access. It looks rather like users of ICANN’s Centralized Zone Data Service, including yours truly, will soon have access to the humongous .com zone file on a daily basis. Yum.

The proposed amendments to the .com contract are now open for public comment here. You have until February 14. Off you go.

ICANN predicts shrinkage in new gTLD sector

Kevin Murphy, January 3, 2020, Domain Policy

ICANN will make less money from new gTLDs in its fiscal 2021 because fewer domains will be registered and renewed, according to its recently published draft budget.

The budget, released the day ICANN broke up for its Christmas holidays, shows that the organization expects to bring in $140.4 million in FY21, up a modest $300,000 on its FY20.

But it’s expecting the amount of money contributed by registries and registrars in the new gTLD sector to decline.

For FY21, it expects new gTLD registry transaction fees — the $0.25 paid to ICANN whenever a domain is registered, renewed or transferred — to be $5.1 million. That’s down from the $5.5 million currently forecast for FY20.

It expects registrar transaction fees for new gTLD domains to dip from $4.6 million to $4.3 million.

But at the same time, ICANN is predicting growth from its legacy gTLD segments, which of course are primarily driven by .com sales. All the other legacy gTLDs of note, even .org and .net, are currently on downward trajectories in terms of volumes.

For FY21, ICANN is forecasting legacy gTLD registry transaction fees to come in at $52.6 million, versus the $50.5 million it expects to see in the current FY20. In percentage terms, it’s about double the growth it’s predicting for the current FY.

Legacy gTLD registrar transaction fees are estimated to grow, however, from $31.2 million to $32.7 million.

In terms of fixed fees — the $25,000 every new gTLD registry has to pay every year regardless of transaction volume — ICANN is also predicting shrinkage.

It reckons it will lose a net seven registries in FY21, dropping from 1,170 to 1,163 by the end of June 2021. These are most likely dot-brand gTLDs that could follow the path of 69 predecessors and flunk out of the program.

ICANN also expects its base of paying registrars to go down by 100 accreditations, with no new registrar applications, causing fees to drop from $10.7 million this year to $9.6 million in FY21.

In short, it’s not a particularly rosy outlook for the gTLD industry, unless you’re Verisign.

ICANN’s financial year runs from July 1 to June 30 this year, and usually the December release of its draft budget includes some mid-year reevaluations of how it sees the current period playing out. But that’s not the case this time.

ICANN appears to be on-budget, suggesting that it’s getting better at modeling the industry the more years of historical transaction data it has access to.

The budget (pdf) is now open for public comment. I spotted a few errors, maybe you can too.

ASO uses super powers to demand ICANN turn over .org buyout docs

Kevin Murphy, January 2, 2020, Domain Policy

In an unprecedented move, ICANN’s Address Supporting Organization has exercised its special powers to demand ICANN hand over documents relating to the Ethos Capital acquisition of .org’s Public Interest Registry.

There’s a possibility, however small, that this could be the first shot in a war that could see the PIR acquisition scrapped.

Fair warning, this story is going to get pretty nerdy, which may not be compatible with the fuzzy-headedness that usually accompanies the first working day of the year. We’re heading into the overgrown weeds of the ICANN bylaws here, for which I apologize in advance.

The ASO — the arm of the ICANN community concerned with IP address policy — has asked ICANN Org for access to records concerning the $1.135 billion acquisition of PIR, which has attracted lots of criticism from non-profits, domainers and others since it was announced.

It’s unprecedented, and of interest to ICANN watchers, for a few reasons.

First, this is the ASO making the request. The ASO comprises the five Regional Internet Registries, the bodies responsible for handing out chunks of IP address space to ISPs around the world. It doesn’t normally get involved in policy related to domain names such as .org.

Second, it’s invoking an hitherto untested part of ICANN’s new bylaws that allows the certain community entities that make up the “Empowered Community” to make “Inspection Requests” of ICANN Org.

Third, and perhaps most importantly, there’s a hint of a threat that the ASO and other members of the EC may use their extraordinary powers to attempt to prevent the PIR acquisition from going ahead.

Before we unpick all of this, this is what the ASO has sent to ICANN, according to its December 31 statement:

As a Decisional Participant in the Empowered Community and pursuant to ICANN Bylaws section 22.7, the ASO hereby submits this Inspection Request to inspect the records of ICANN, including minutes of the Board or any Board Committee, for the purpose of determining whether the ASO’s may have need to use its empowered community powers in the near future relating to the potential assignment of the .org Registry Agreement. For this purpose, the ASO seeks to inspect any ICANN records which pertain to or provide relevant insight to the process by which ICANN will consider (and potentially approve) the assignment of the .org Registry Agreement, including the process by which input from the affected community will be obtained prior to ICANN’s consideration and potential approval of the assignment.

The Empowered Community is the entity that replaced the US government as ICANN’s primary overseer, following the IANA transition in late 2016.

Its members cover the breadth of the ICANN community, comprising the ASO, Generic Names Supporting Organization, Country Code Names Supporting Organization, Governmental Advisory Committee and At-Large Advisory Committee. Each member is a “Decisional Participant”.

Since the transition, its only real functions have been to approve appointments to the ICANN board of directors and to rubber-stamp the budget, but it does have some pretty powerful tools at its disposal, such as the nuclear ability to fire the entire board.

One of the powers enjoyed by each Decisional Participant, which has never been invoked publicly, is to make an Inspection Request — a demand to see ICANN’s accounts or documents related to the board’s decisions.

In this case, the ASO wants “records which pertain to or provide relevant insight to the process by which ICANN will consider (and potentially approve) the assignment of the .org Registry Agreement”.

But will it get this information? It seems the Inspection Request bylaw is a little bit like ICANN’s longstanding freedom-of-information commitment, the Documentary Information Disclosure Policy, with some key differences that arguably make the IR process less transparent.

Like DIDP, the IR process gives ICANN Org a whole buffet of rejection criteria to choose from. It can refuse requests for reasons of confidentiality or legal privilege, for example, or if it thinks the request is overly broad.

It can also reject a request if “is motivated by a Decisional Participant’s financial, commercial or political interests, or those of one or more of its constituents”, which makes the fact that this request is coming from the ASO particularly interesting.

If the GAC or the GNSO or the ccNSO, or even the ALAC, had made the request, ICANN could quite reasonably have thrown it out on the basis of “commercial or political interests”.

That’s not the case with the ASO, which makes me wonder (aloud, it seems) whether the ASO had received any nudges from other members of the EC before filing the request.

Inspection Requests also differ from DIDP in that any documents that are turned over are not necessarily published, and ICANN can also force the Decisional Participant to file a non-disclosure agreement covering their contents.

ICANN can even demand that an ASO member shows up at its Los Angeles headquarters in person to read (and, if they want, copy) the docs in question.

In short, ICANN has a lot of wriggle room to refuse or frustrate the ASO’s request, and it has a track record of not being particularly receptive to these kinds of demands.

The grey-hairs out there will recall that Karl Auerbach, one of its own directors, was forced to sue the organization back in 2002, just in order to have a look at its books.

But what’s perhaps most tantalizing about the ASO’s request is its excuse for wanting to inspect the documents in question.

It says it need the info “for the purpose of determining whether the ASO’s [sic] may have need to use its empowered community powers in the near future relating to the potential assignment of the .org Registry Agreement”.

One way of interpreting this is that the ASO needed to state a reason for its request and this is pretty much all it’s got.

But what powers does the Empowered Community have that could potentially cover the acquisition of PIR by Ethos? It certainly does not have the power to directly approve or reject the transfer of control of a gTLD contract.

The EC has nine bulleted powers in the ICANN bylaws. Some of them are explicitly about things like budgets and bylaws amendments, which could not possibly come into play here. I reckon only four could feasibly apply:

(i) Appoint and remove individual Directors (other than the President);

(ii) Recall the entire Board;

(viii) Initiate a Community Reconsideration Request, mediation or a Community IRP; and

(ix) Take necessary and appropriate action to enforce its powers and rights, including through the community mechanism contained in Annex D or an action filed in a court of competent jurisdiction.

Short of lawyering up or having the entire board taken out and shot, it seems like the most likely power that could be invoked at first would be the Community Reconsideration Request.

Judging by the bylaws, this is virtually identical to the normal Request for Reconsideration process, a process which very rarely results in ICANN actually reconsidering its decisions.

The major difference is that at least three of the five members of the Empowered Community has to vote in favor of filing such a request, and no more than one may object.

If they manage to muster up this consent — which could take many weeks — the fact that the reconsideration request comes from the “Community” rather than a single entity appears to make substantially no difference to how it is rejected considered by ICANN.

Threatening ICANN with a Community Reconsideration Request is a little like threatening to jump through an increasingly narrow series of hoops, only to find the last one leads into a pit filled with ICANN lawyers with laser beams attached to their heads.

A Community Independent Review Process, however, is a different kettle of snakes.

It’s substantially the same as a regular IRP — where ICANN’s fate is decided by a panel of three retired judges — except ICANN has to pay the complainant’s legal fees as well as its own.

ICANN’s track record with IRPs is not fantastic. It can and does lose them fairly regularly.

Could the ASO’s letter be the first portent of a community-led IRP bubbling up behind the scenes? Could such a move delay the PIR acquisition, putting Ethos’ plan for a profit-driven, price-raising .org on hold for a year or two? It’s certainly not impossible.

Now PIR rubbishes .org “downtime” claims

Kevin Murphy, December 30, 2019, Domain Registries

Two of Public Interest Registry’s top geeks have come out swinging against recent claims that .org will suffer days of downtime if PIR is acquired by Ethos Capital.

Chief technology officer Joe Abley and Susanne Woolf, senior director of technology community engagement, have penned a blog post calling the recent assertions by subcontractor Packet Clearing House “baffling” and “wrong”.

PCH claimed earlier this month that should PIR fall into for-profit hands, donations made to PCH would dry up, giving Ethos no choice but to either significantly increase .org prices or risk over three days of downtime per year.

PCH is a not-for-profit provider of DNS resolution services that contracts with Afilias to support .org and a couple hundred other Afilias-managed TLDs.

But PIR’s technologists today wrote:

PCH is a contractor to Afilias and has no business relationship with PIR; consequently PCH has no access to non-public financial information. We’re more concerned with the assertions that the current costs of maintaining DNS services are only sustainable if PIR remains a non-profit, and that a for-profit PIR will need to make deep cuts to funding for operations. These inferences are at odds with our knowledge and experience regarding the costs of providing solid DNS service. To be clear – they are wrong.

They go on to say “we find that PCH’s claims about their operational costs and funding models are baffling” and to suggest that if PCH is unhappy with .org’s forthcoming for-profit status, Afilias has plenty of competitors to choose from, writing:

If PCH is unable or unwilling to continue to provide service to Afilias at current pricing, Afilias has many options to ensure that .ORG continues to function at the high levels the technical community expects.

Afilias has already rubbished PCH’s claims in a letter to ICANN.

The $1.135 billion acquisition of PIR from the Internet Society is expected to close in the first quarter, but it’s currently undergoing some scrutiny by ICANN, which has to first approve the change of control.

Afilias denies .org will go down post-acquisition

Kevin Murphy, December 23, 2019, Domain Registries

.org domains will not suffer downtime as a result of Ethos Capital’s acquisition of Public Interest Registry, according to Afilias.

Afilias, which provides PIR’s back-end registry services, wrote to ICANN (pdf) last week to reject claims by DNS resolution subcontractor Packet Clearing House that .org could suffer more than three days a year of downtime if .org moves into commercial hands.

Chief technology officer Ram Mohan wrote:

Afilias — not PCH — is responsible for ensuring that .org names remain available 100% of the time. The Afilias global DNS network is diverse and robust; PCH is a contracted secondary DNS provider. Since Afilias began supporting .org in 2003, we have maintained an exemplary record of uptime, and will continue performing at world-standard levels.

Afilias states for the record that, for .org and PIR’s other TLDs, we will continue our exemplary performance at pricing consistent with our current contract with PIR.

Not-for-profit PCH had claimed that US tax law would see almost $30 million of annual donations dry up if .org became a for-profit enterprise again.

Ethos would be forced to increase .org prices dramatically or under-invest in DNS and see days of downtime, the organization claimed.

PIR thinks 20-year domain regs are a good idea

Kevin Murphy, December 23, 2019, Domain Registries

Want to lock in the price of a .org domain for 20 years? Public Interest Registry thinks that might be a good idea.

In a blog post, head of policy Paul Diaz wrote:

PIR supports the ICANN community conducting policy work that could extend the maximum allowable registration term to 20 years. We’d look to ICANN to support the community’s policy work and, if consensus is reached, to change the longstanding ICANN policy that currently limits registration to 10 years uniformly across all registries.

Extending the maximum permitted reg/renewal to 20 years was suggested last week by ICANN’s Non-Commercial Stakeholders Group as one of a few ideas to protect registrants following PIR’s acquisition by for-profit investor Ethos Capital.

It’s worth drawing the distinction here that PIR is only saying it would support consensus policy work to introduce the new limit across all gTLDs, not just .org.

And it might be a bit of a pipe-dream anyway, at least in the short term.

ICANN’s volunteer community still languishes under its perpetual workload/burnout problems, and I doubt there’s a massive appetite to open up yet another Policy Development Process right now, particularly one with potentially significant technical and business model implications.

If a PDP were to open, why would the output limit regs to just 20 years? Why not 100? Why not make the limit arbitrary?

Diaz was less committal on NCSG’s suggestion that the Uniform Rapid Suspension process be removed from the .org contract, saying merely that PIR would comply with (not necessarily support) a consensus policy emerge removing URS from all gTLDs.

On NCSG’s demand that PIR/Ethos commit itself to freedom of speech in .org, Diaz noted that PIR has suspended 36,000 .org domains this year, almost all of which were due to technical abuse such as malware distribution, botnets and phishing.

Ten domains were suspended based on content, he wrote. Eight of those were publishing child abuse material and two were illegally selling opioids.

Amazon beats South America! Dot-brand contracts now signed

Kevin Murphy, December 23, 2019, Domain Policy

Amazon has prevailed in its seven-year battle to obtain the right to run .amazon as a branded top-level domain.

The company signed contracts for .amazon and the Chinese and Japanese translations on Thursday, despite years-long protests from the eight South American governments that comprise the Amazon Cooperation Treaty Organization.

This means the three gTLDs are likely to be entered into the DNS root system within a matter of weeks, after ICANN has conducted pre-delegation testing to make sure the registry’s technical systems are up to standard. The back-end is being provided by Neustar, so this is pretty much a formality.

.amazon is pretty much a done deal, in other words, and there’s pretty much nothing ACTO can do within the ICANN system to get the contract unsigned.

ACTO was of course angry about .amazon because it thinks the people of the Amazonia region have greater rights to the string than the American e-commerce giant.

It had managed to muster broad support against the gTLD applications from its Governmental Advisory Committee colleagues until the United States, represented on the GAC by the National Telecommunications Administration did a U-turn this November and withdrew its backing for the consensus.

This coincided with Amazon hiring David Redl, the most-recent former head of the NTIA, as a consultant.

The applications were originally rejected by ICANN due to a GAC objection in 2013.

But Amazon invoked ICANN’s Independent Review Process to challenge the decision and won in 2017, with the IRP panel ruling that ICANN had paid too much deference to unjustified GAC demands.

More recently, ACTO had been demanding shared control of .amazon, while Amazon had offered instead to protect cultural interests through a series of Public Interest Commitments in its registry agreements that would be enforceable by governments via the PIC Dispute Resolution Procedure.

This wasn’t enough for ACTO, and the GAC demanded that ICANN facilitate bilateral talks with Amazon to come to a mutually acceptable solution.

But these talks never really got underway, largely due to ACTO internal disputes during the political crisis in Venezuela this year, and eventually ICANN drew a line in the sand and approved the applications.

After rejecting an appeal from Colombia in September, ICANN quietly published Amazon’s proposed PICs (pdf) for public comment.

Only four comments were received during the month-long consultation.

As a personal aside, I’d been assured by ICANN several months ago that there would be a public announcement when the PICs were published, which I even promised you I would blog about.

There was no such announcement, so I feel like a bit of a gullible prick right now. It’s my own stupid fault for taking this on trust and not manually checking the .amazon application periodically for updates — I fucked up, so I apologize.

PICs commenters, including a former GAC vice-chair, also noticed this lack of transparency.

ACTO itself commented:

The proposed PIC does not attend to the Amazon Countries public policy interests and concerns. Besides not being the result of a mutually acceptable solution dully endorsed by our countries, it fails to adequately safeguard the Amazon cultural and natural heritage against the the risks of monopolization of a TLD inextricably associated with a geographic region and its populations.

Its comments were backed up, in pretty much identical language, by the Brazilian government and the Federal University of Rio de Janeiro.

Under the Amazon PICs, ACTO and its eight members each get a .amazon domain that they can use for their own web sites.

But these domains must either match the local ccTLD or “the names of indigenous peoples’ groups, and national symbols of the countries in the Amazonia region, and the specific terms OTCA, culture, heritage, forest, river, and rainforest, in English, Dutch, Portuguese, and Spanish”.

The ACTO nations also get to permanently block 1,500 domains that have the aforementioned cultural significance to the region.

The ACTO and Brazilian commenters don’t think this goes far enough.

But it’s what they’ve been given, so they’re stuck with it.

ICANN throws out second .org appeal, so URS stays

Kevin Murphy, December 18, 2019, Domain Registries

The Uniform Rapid Suspension process is to stay in .org, after the ICANN board of directors rejected an appeal from the Electronic Frontier Foundation.

The EFF had challenged the inclusion of URS in the recently renegotiated .org Registry Agreement, on the basis that the anti-cybersquatting system was designed for post-2012 new gTLDs and was never supposed to be deployed in legacy gTLDs such as .org.

In a Request for Reconsideration, the EFF had argued that ICANN had ignored the many commenters opposed to its inclusion in the contract, and that the board had shirked its duties by delegating the renegotiation to ICANN’s executive leadership.

But the board disagreed on both of these counts, saying in its resolution and accompanying 36-page analysis (pdf) that at no point had the organization broken its bylaws.

ICANN did not ignore the anti-URS comments, the board said, it simply decided that on balance the public interest was better served by having URS in the contract.

The Requestor has not demonstrated that ICANN Staff failed to seek or support broad participation, ascertain the global public interest, or act for the public benefit. To the contrary, ICANN org’s transparent processes reflect the Staff’s continuous efforts to ascertain and pursue the global public interest by migrating the legacy gTLDs to the Base RA.

Additionally, the board was well within its rights to delegate negotiation and approval of the RA to the CEO, the board decided. The fact that the EFF disagrees with that position does not amount to a basis of reconsideration, it found.

Since the EFF filed its RfR back in August, we’ve had the news of the $1.135 billion acquisition of .org manager Public Interest Registry by Ethos Capital, which will see it convert from a non-profit to a for-profit concern.

The EFF has since had the chance to put allegations to ICANN that its staff was aware of the deal before it was announced, and that the acquisition should have factored into its consideration of the RA renewal.

But ICANN flatly denies that it knew about the deal, which was announced four months after the renewal:

Since neither the Board nor ICANN Staff were aware of the PIR acquisition when the decision to renew the .ORG RA was made, there was no material information not considered, and therefore this is not a proper basis for reconsideration.

The Ethos Capital acquisition of PIR, which was announced more than four months after the execution of the .ORG Renewed RA, did not impact ICANN Staff’s determination that ICANN’s Mission and Core Values were best served by migrating the .ORG RA to the Base RA.

In conclusion, like almost all filers of RfRs, the EFF is SOL.

Another RfR, filed by the registrar NameCheap and related primary to .org pricing, was similarly rejected by ICANN’s board a few weeks ago.

ICANN is, however, currently quizzing Ethos and PIR seller ISOC for more details about the acquisition before it approves the change of contractor.

Warning (or threat?) prices must go up or .org will suffer DAYS of downtime

Kevin Murphy, December 18, 2019, Domain Registries

Public Interest Registry’s new commercial owner will have to raise domain prices significantly, or .org web sites will suffer over three days of downtime every year, one of its subcontractors has warned.

The claim came in a surprising, confusing letter (pdf) to ICANN’s top brass from Packet Clearing House, a major provider of DNS Anycast services.

PCH claims that Ethos Capital, which is in the process of buying PIR from the Internet Society for $1.135 billion, can only make a profit on the deal if it significantly ups the price of .org domains while simultaneously cutting infrastructure spending.

But its numbers don’t make a whole heck of a lot of sense to me, unless you interpret them as a threat to throw .org under a bus.

PCH is a non-profit company in the business, partly, of selling DNS Anycast services. This is the technology that allows domain names to be resolved by a server as close to the end user as possible, cutting down on internet travel time and load-balancing resolution across the world.

For 15 years, it has been providing such services to Afilias, which is the back-end registry services provider for .org and hundreds of other TLDs. Some of the money PIR makes selling .org domains therefore flows from PIR to Afilias to PCH.

While PCH is hardly a household name, even in the domain name industry (in almost 10 years, I’ve mentioned its name once), the letter, sent last week and published by ICANN last night, attempts to open the kimono a little to reveal how much it costs to reliably resolve a major gTLD.

According to PCH, “annual operational cost necessary to ensure the reliable and performant availability of .ORG” has grown from $11 million in 2004 to $30 million today.

Does that mean Afilias pays PCH $30 million a year to help resolve .org? No.

PCH says that in 2019, $1.3 million will come “indirectly from .ORG registration revenue”, with the remaining $29 million “met through tax-deductible contributions from PCH’s many donors”.

As a non-profit, PCH accepts donations from more than 30 listed sponsors, including Afilias and ICANN, as well as household names such as Amazon, Google and Netflix.

According to PCH’s letter, if .org is transferred into for-profit control, this $29 million will dry up. The letter states:

Under IRS tax law, tax-deductible donations to non-profits cannot accrue to the benefit of a for-profit. Therefore if .ORG is transferred to a for-profit entity, we cannot ask our donors to continue to subsidize its operation, 96% of .ORG’s current operational funding will disappear, and the reliability of its operation will sink from that of .COM and .NET to the least-common-denominator of commodity domains, which generally suffer several days of outage per year.

It estimates .org’s potential downtime at 3.12 days per year. It’s not saying that would happen in one big 72-hour chunk, but it still averages out at about 12 minutes per day

This amount of interruption would put PIR firmly on ICANN’s naughty step when it comes to the registry’s contractual uptime commitments — it has to provide 100% DNS service availability every month, under pain of losing its contract.

But why would those PCH contributions dry up?

Is PCH seriously saying that its donors are chucking in $29 million a year specifically to subsidize .org resolution services? Why on Earth would they do that, when .org brings in revenue of over $90 million per year and PIR only pays Afilias $18 million for registry services?

PCH provides Anycast for 243 gTLDs and 120 ccTLDs. The vast majority of these are managed by for-profit entities. There simply are not 243 non-profit gTLDs out there. Not even close.

In fact, most of the gTLDs PCH serves appear to be for-profit Afilias clients, including many dot-brands.

Goodness knows how PCH segments its income and expenditure, but it seems very likely that PCH’s donors are already financially helping to provide resolution services for commercial registries.

Could we interpret this letter as a threat to deliberately degrade .org’s performance, should the Ethos transaction go through? I’m not sure, but I think it’s a plausible read.

Regardless, we have to take PCH’s claims about the loss of sponsorship money at face value if we want to follow the rest of its calculations.

If the .ORG domain is sold for USD 1.135B, wholesale price and number of domains remain unchanged over the remaining nine years of the delegation (USD 900M gross), and operational reliability is maintained (at a cost of USD 270M), the buyer would take a net loss of USD 470M, or -6.33% CAGR. Private equity does not purposefully enter into loss-making deals. We may therefore conclude that the above scenario is not the intended outcome of the proposed sale.

That calculation seems to assume that PIR/Ethos/Afilias picks up the slack caused by the loss of the purported $29 million subsidy, rather than continuing to pay $1.3 million per year.

But PCH goes on to calculate that Ethos could make a profit on the acquisition only if it raises prices at over 10% a year AND refuses to chip in the missing $29 million.

If the .ORG domain is sold for USD 1.135B, prices are increased by 10% annually (USD 1.357B gross), and operational spending is slashed by 99%, (USD 2.7M), the buyer would make a net gain of USD 220M, or 1.99% CAGR, while increasing down-time to more than three days per year.

1.99% CAGR is not a return for which private equity would typically take this magnitude of risk. The unavoidable conclusion is that any private equity buyer who spends $1.135B to buy the .ORG domain must not only increase prices by more than 10% annually, but also cut operational costs to the minimum levels we see available at the low end of the market, with disastrous consequences for .ORG registrants and the public who depend upon them.

Again, all of these calculations appear to rely upon the notion that $29 million of voluntary donations from Amazon, Netflix, IBM, et al disappear when the acquisition is finalized.

It’s difficult to say how much PCH spends on its DNS infrastructure across the board, or how it accounts for its donations. The company does not make any financial information available on its web site.

Wikipedia reports, in an edit apparently made by PCH executive director Bill Woodcock, that the company had revenue of $251 million last year.

I assume the vast majority of that comes from and supports its primary business, which is building and maintaining internet exchange points around the world.

The only 990 tax return I could find for a “Packet Clearing House” in the San Francisco bay area shows an entity with barely $2 million of revenue in 2018.

To return to the letter, PCH concludes:

Three days per year of interrupted communications for millions of not-for-profit organizations would unacceptably damage the stability and functionality of the Internet, and more broadly of society globally.

We believe that stability and functionality should be central to any consideration by ICANN of change of control or contract modifications in relation to the .ORG TLD. As we demonstrate, the proposed transaction, or any financially-similar one, guarantees a disastrous effect on stability. Please do not approve it.

It’s a pretty shocking request, coming from an organization with a 15-year relationship with .org.

Perhaps PCH is concerned that PIR, under new management, will dump Afilias as back-end provider, leading to a loss of business for itself? Maybe, but that only appears to be a piddling $1.3 million out of a $251 million budget.

A more pressing question is arguably whether ICANN, which is currently probing ISOC and Ethos for additional information about the acquisition, finds PCH’s arguments persuasive.

ICANN has so far proved unresponsive to community concerns about pricing, but technical stability is its absolute raison d’etre. If there’s any risk at all that .org will start regularly missing its uptime targets, ICANN is duty bound to take those concerns seriously.

Russian company approved as gTLD escrow provider

Kevin Murphy, December 16, 2019, Domain Policy

ICANN has approved Russian internet exchange point MSK-IX as its 10th gTLD data escrow provider.

The organization said that week that Joint Stock Company “Internet Exchange “MSK-IX” has been added to its roster of companies fighting for gTLD registries escrow business.

MSK-IX is mainly in the business of operating an internet peering hub — a location where ISPs can connect their networks to backbones and to each other — in Moscow.

It becomes the fourth escrow provider in Europe, and the only one in Europe outside of the EU.

There are also five approved providers in Asia and only one — original provider Iron Mountain — in North America.

ICANN says it is not currently looking for any more providers.

gTLD registries are contractually obliged to periodically put their domain and registrant data into escrow, on the off-chance they go out of business and domains need to be transferred to a different company.