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Groups make flawed case that .com is a cartel

Kevin Murphy, June 27, 2024, 18:51:48 (UTC), Domain Registries

Three pressure groups in the US have called on the government to strip Verisign of its .com contract, saying the company is operating as a “de facto cartel” with ICANN that has allowed its shareholders to milk the public for billions.

But their argument has a pretty significant hole in it, based on an apparent misunderstanding of how Verisign funds ICANN.

The American Economic Liberties Project, the Demand Progress Education Fund, and the Revolving Door Project have written to the Department of Justice and National Telecommunications and Information Administration to demand that they “cut off” Verisign.

The NTIA is the third party in the triumvirate with ICANN and Verisign that controls who gets to run the immensely powerful .com TLD. It’s the NTIA that gets to decide whether Verisign is able to raise its registry fees, how often and by how much.

The Obama administration froze the fee for its last six-year run, but the caps were lifted under Trump, giving Verisign four 7% increase options over the current six-year deal, all of which it has chosen to exercise.

The price of a .com registration or renewal has gone up from $7.85 in 2018 to $10.26 later this year. Verisign enjoys some of the highest profit margins of any public company in the US as a result, with much of its cashflow diverted into share buybacks.

This has to stop, and the .com contract should be open for bidders, the three groups said in their letters:

Ending this contract will force the initiation of a competitive open-bidding process, ultimately bringing down costs for those who must register a domain name. ICANN and VeriSign function as a de facto cartel and the NTIA should stop sanctioning the “incestuous legal triangle” that serves as a shield to deflect overdue antitrust scrutiny into their otherwise likely illegal collusive relationship.

While the letters raise many good points, they’re the same good points that have been raised every few years for the last quarter century. The US government response seems to depend entirely on whether the current occupant of the White House wears a blue tie or a red tie.

Where the argument is flawed is in the statement: “ICANN has a vested interest in VeriSign making as much money as possible, as VeriSign pays ICANN for each annual domain name registration.”

This is not quite correct, as ICANN’s current financial problems can attest.

In reality, while it is true that Verisign is by far the biggest contributor to ICANN’s budget, the dollar value is tied not to how much money Verisign makes, but to how many registrations and renewals it processes.

ICANN gets a quarter for every domain-year, basically, regardless of whether Verisign charges $7.85 or $10.26, so ICANN’s vested interest is in Verisign selling as many domain-years as possible, not its bottom line. If .com shrinks, so does ICANN’s budget.

And that’s exactly what has happened over the last couple of years. As Verisign’s prices have gone up, volume has started to go down, first in China and more recently in the US.

While I don’t believe the company has explicitly linked its volume decline to its price hikes, it’s said that a solution to the problem is new promotional activities later this year, so draw your own conclusions.

ICANN’s budget has taken a hit as a result. The Org said in April that it was looking at an $8 million shortfall and last month said it was laying off 7% of its staff to try to save $10 million.

The fact that it’s just canned 33 staff is pretty decent argument against the cartel claim, and I expect it to form part of ICANN’s response.

The three groups’ letters may be on more solid ground with its claim that ICANN has enjoyed a “$20 million cash bonus” that they describe as a share of Verisign’s “ill-gotten rent to maintain its market power.”

That’s a reference to the $5 million a year for five years additional payment that Verisign agreed to when it renegotiated its registry contract with ICANN in 2020.

Nominally to help fund ICANN’s DNS “security and stability” efforts, the optics of this side deal have always been terrible, the granularity of the accounting transparency has been criticized as lacking, and I’ve frequently referred to the payment as a “bung”.

But that payment is strictly bilateral and not part of Verisign’s deal with NTIA.

The NTIA arrangement has presumptive renewal of six-year terms, but NTIA can revoke it with 120 days notice. That means it will have to act before August 2 if it decides to terminate Verisign’s contract.

You can read the letters in full here.

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Comments (3)

  1. Rubens Kuhl says:
    June 27, 2024 at 7:54 pm

    The .net ICANN fee of 75 cents instead of the standard 25 cents is also something curious in the ICANN-Verisign relations. Not as shady as the bung, though.

    Reply
  2. Jeff Neuman says:
    June 27, 2024 at 8:55 pm

    Same comment as I left on another site:

    Without commenting on the actions of VeriSign over the years (and without any judgement), I agree that there is no contractual mechanism for NTIA to cancel the .com Agreement or force a recompete. Section 6 of Amendment 35 is very clear that there is an automatic renewal of the Cooperative Agreement unless the Dept. of Commerce issues a letter to Verisign saying it does not want to renew.

    However, the Cooperative Agreement is also clear that if such a letter is sent, the expiration of the .com Agreement does not mean the NTIA can recompete .com. It only means that “neither party shall have any further obligation to the other and nothing shall prevent Verisign from operating the .com TLD pursuant to an agreement with ICANN.” In other words, the only thing that achieved by not renewing the Cooperative Agreement is that VeriSign’s operation of the TLD will be governed solely by the ICANN Agreement (where there is a presumptive renewal).

    This would mean that ICANN would be the only party to allow/disallow additional price changes, changes to the restrictions on vertical integration, etc. But like the Cooperative Amendment, the ICANN Agreement would not allow ICANN to ever recompete .com unless there was a serious uncured breach of the ICANN Agreement which is confirmed by an arbitration AND Verisign is unable to cure that breach after such a determination. In other words, nearly impossible to ever happen.

    Reply
    • Dan says:
      June 29, 2024 at 4:27 am

      How is that kind of term ever a fair contract?

      It’s wild that ICANN ever let it get put in in the first place, crazy to sign a contract which completely removes your own ability to practically end the contract within a reasonable period.

      Reply

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