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Registries could become registrars by summer

Kevin Murphy, April 24, 2011, Domain Registries

The big incumbent top-level domain registry operators could apply to also become registrars as early as June this year, according to a just-passed ICANN resolution.

Last November, ICANN decided to dump its longstanding policy of generally not allowing TLD registries to also own and operate registrars.

While the rule was designed primarily for TLDs won under the new gTLD program, it will also retroactively apply to operators of existing gTLDs.

Neustar (.biz) has already publicly stated its intention to vertically integrate, and is keen for ICANN to lift its current 15% registrar ownership restriction before the new gTLD program kicks off.

According to a resolution passed by ICANN’s board of directors on Thursday, Neustar is not the only registry operator to make such a request.

The board last week…

RESOLVED (2011.04.21.13), the Board directs the CEO to develop a process for existing gTLD registry operators to transition to the new form of Registry Agreement or to request amendments to their registry agreements to remove the cross-ownership restrictions. This process would be available to existing operators upon Board approval of the new gTLD Program.

ICANN currently plans to approve the gTLD program June 20 at its meeting in Singapore.

That gives CEO Rod Beckstrom and his team just two months to come up with a process for allowing the likes of VeriSign, Neustar and Afilias to either amend their contracts or move to the standard contract outlined in the new TLD program’s Applicant Guidebook.

I see a potential source of tension here.

The registry agreement template in the Guidebook has been described by some as an “adhesion contract” due to its heavy balance in ICANN’s favor.

Existing registries will very likely prefer to simply delete the cross-ownership restrictions in their current contracts and incorporate the new proposed Code of Conduct rules.

On the other hand, some have suggested that registries should be obliged to adopt the new Guidebook agreement in full, rather than amend their existing deals, in the interests of equitable treatment.

Registrars still signed up to ICANN’s 2001 Registrar Accreditation Agreement only get the option to upgrade wholesale to the 2009 agreement, it has been noted.

Neustar wants to be a registrar ASAP

Kevin Murphy, March 10, 2011, Domain Registries

Neustar, registry manager for the .biz and .us top-level domains, has put the wheels in motion to acquire an ICANN registrar accreditation as soon as possible.

It’s the first major gTLD operator to formally request permission to “vertically integrate” since ICANN announced last November that it was prepared to lift the ownership caps that have previously kept registries and registrars quite strictly separated.

Neustar’s .biz contract currently forbids it from owning more than 15% of an ICANN registrar.

In a letter to ICANN sent this afternoon, Neustar vice president of law and policy Jeff Neuman said the company wants this provision deleted:

We are asking for this language now to allow Neustar to compete fairly for new gTLDs on the same terms and conditions as registrars entering the new gTLD registry market.

It is critical to resolve this issue immediately to ensure that Neustar is able to compete on a level playing field with the new entrants into the marketplace and to promote the efficiencies and innovation for consumers as advocated by the ICANN Board.

ICANN shocked the industry last year when its board of directors decided to allow registries and registrars to own each other.

The decision meant that niche community and brand TLDs will be able to sell direct to registrants, without having to secure the support of reluctant big-name registrars.

It also meant that existing gTLD operators will be able to own registrars for the first time.

As a caveat, designed to protect consumers from gaming registries, ICANN proposed a Code of Conduct designed to limit the cross-pollination of data that could be abused.

Similarly, the Code calls for registries to treat all approved registrars equally, regardless of ownership stakes, to avoid competition concerns.

Neuman wrote that Neustar is prepared to have language along the lines of the current draft Code of Conduct, but “no more restrictive”, incorporated into the .biz registry contract.

Other incumbent gTLD registry operators, notably VeriSign and Afilias, are bound by similar contractual restrictions and will presumably also pursue their options along the same lines in future.

Why ICANN dropped registrar ownership rules

Kevin Murphy, February 13, 2011, Domain Registries

ICANN has quietly published a list of 10 reasons explaining why it decided to start allowing domain name registrars and registries to buy each other.

Last November, ICANN’s board of directors voted to drop so-called “vertical integration” rules that previously prevented registries owning more than a small percentage of registrars.

Now, under the forthcoming new top-level domains program, the likes of eNom and Go Daddy will be able to apply to become gTLD registries, and registries like VeriSign and Neustar will be able to apply to run their own registrar businesses.

The decision was unexpected, appeared to be a U-turn, and ICANN’s explanation was not articulated sufficiently to sate critics such as the US Department of Commerce.

So now ICANN has published a “Draft Rationale” (pdf), a 17-page document that outlines some of the thinking that went into the decision.

In a nutshell, ICANN dropped the VI rules to increase competition, to avoid antitrust lawsuits, and because the harms that could arise due to cross-ownership are best addressed by other means.

Here are the rationale’s 10 major bullet points in full:

  • None of the proposals submitted by the GNSO reflect a consensus opinion; as a result, the Board supported a model based on its own factual investigation, expert analysis, and concerns expressed by stakeholders and the community.
  • ICANN’s position and mission must be focused on creating more competition as opposed to having rules that restrict competition and innovation.
  • Rules permitting cross-ownership foster greater diversity in business models and enhance opportunities offered by new TLDs.
  • Rules prohibiting cross-ownership require more enforcement and can easily be circumvented.
  • Rules permitting cross-ownership enhance efficiencies and almost certainly will result in benefits to consumers in the form of lower prices and enhanced services.
  • Preventing cross-ownership would create more exposure to ICANN of lawsuits, including antitrust lawsuits, which are costly to defend even if ICANN believes (as it does) that it has no proper exposure in such litigation.
  • The new Code of Conduct, which is to be part of the base agreement for all new gTLDs, includes adequate protections designed to address behavior the Board wants to discourage, including abuses of data and market power. Data protection is best accomplished by data protection tools, including audits, contractual penalties such as contract termination, punitive damages, and costs of enforcement, as well as strong enforcement of rules. By contrast, market construction rules can be circumvented and cause other harms.
  • Case-by-case re-negotiation of existing contracts to reflect the new crossownership rules will permit ICANN to address the risk of abuse of market power contractually.
  • In the event ICANN has competition concerns, ICANN will have the ability to refer those concerns to relevant antitrust authorities.
  • ICANN can amend contracts to address harms that may arise as a direct or indirect result of the new cross-ownership rules.

The document still needs to be approved by the ICANN board of directors before it can be considered official.

It appeared without fanfare on the ICANN web site a little over a week ago.

Incumbents get the nod for new TLD apps

Kevin Murphy, December 27, 2010, Domain Registries

Domain name registries such as Neustar, VeriSign and Afilias will be able to become registrars under ICANN’s new top-level domains program, ICANN has confirmed.

In November, ICANN’s board voted to allow new TLD registries to also own registrars, so they will be able to sell domains in their TLD direct to registrants, changing a decade-long stance.

Late last week, in reply (pdf) to a request for clarification from Neustar policy veep Jeff Neuman, new gTLD program architect Kurt Pritz wrote:

if and when ICANN launches the new gTLD program, Neustar will be entitled to serve as both a registry and registrar for new gTLDs subject to any conditions that may be necessary and appropriate to address the particular circumstances of the existing .BIZ registry agreement, and subject to any limitations and restrictions set forth in the final Applicant Guidebook.

That doesn’t appear to say anything unexpected. ICANN had already made it pretty clear that the new vertical integration rules would be extended to incumbent gTLD registries in due course.

(However, you may like to note Pritz’s use of the words “if and when”, if you think that’s important.)

Neustar’s registry agreement currently forbids it not only from acting as a .biz registrar, but also from acquiring control of greater than 15% of any ICANN-accredited registrar (whether or not its sells .biz domains).

That part of the contract will presumably need to be changed before Neustar applies for official registrar accreditation or attempts to acquire a large stake in an existing registrar.

VeriSign and Afilias, the other two big incumbent gTLD registries, have similar clauses in their contracts.

ICANN director slammed vertical integration

Kevin Murphy, December 15, 2010, Domain Registries

ICANN really shook up the domain name industry last month when it said it was dropping rules that prevent registrars and registries from owning each other.

But two of its directors voted against the decision and one, George Sadowsky, entered a lengthy dissenting opinion in which he said the benefits of so-called “vertical integration” are “largely illusory”.

Vertical integration would allow existing registrars to apply to run new top-level domains. It would enable companies to more easily apply for “.brand” or small niche TLDs.

This has been banned in previous registry contracts, due in part to the potential for abuse of registry data and anti-competitive behaviour by registrars.

Sadowsky delivered a four-point objection to the VI resolution, which was passed in early November, according to minutes published this week.

He said that introducing VI at the same time as the new TLD program would create unpredictable and irreversible consequences for the industry, and questioned ICANN’s ability to enforce compliance with data-sharing rules.

in spite of the measures to be taken to ensure “good conduct,” the resolution has the potential to commingle all of the data, public and private, regarding a registry in one place, providing the possibility of easy and invisible sharing of data within a merged or co-owned entity regardless of the scope of any agreement with ICANN.

Such sharing is likely to be undetectable given the close affiliations among the entities. Data now forbidden to be shared between registries and registrars will be shared. Both auditing and enforcement by ICANN are unlikely to be effective, all the more so as we move from 20+ to hundreds of new gTLDs.

Data sharing would give registrars greater insight into valuable domains, potentially facilitating registrant-unfriendly activities such as warehousing.

Those companies which opposed VI, including Afilias and Go Daddy, have previously said that the potential for registrar abuse, harming registrars, was too great.

Sadowsky said:

Assuming that each gTLD registry must continue to treat all registrars equally, the real benefits of vertical integration are largely illusory, but those that can be easily obtained by the officially forbidden sharing of data are real

The minutes also show that Mike Silber voted against the resolution, saying he “believes there will be very unpleasant, unintended consequences”.

Harald Alvestrand, Ram Mohan, Thomas Narten, Jonne Soininen and Bruce Tonkin had conflicts of interest and were not in the room for the debate. The two voting directors, Tonkin and Alvestrand, officially abstained from the vote.

The minutes also contain this mysterious entry:

Confidential Issue
Pursuant to Article V, Section 5.4 of the ICANN Bylaws, the Board of Directors, by unanimous vote, determimed that, to protect the interests of ICANN, the matter under discussion should not be included in the minutes until such time as the Board designated the item should be published.

Anybody with any ideas what this might be, please feel free to theorize in the comments.