The .org deal may be dead and buried, but calls remain for PIR to lose its contract

The Internet Society has revealed that the .org registry operator PIR is no longer for sale.

The news came in a statement from ISOC chair Andrew Sullivan late Friday, less than 24 hours after ICANN withheld its consent for the proposed $1.13 billion acquisition by private equity firm Ethos Capital.

ICANN had held the door open for Ethos and ISOC to resubmit a change of control request, and Ethos had said Thursday that it was evaluating its options, but it appears the decision has been made to keep PIR under ISOC’s wing.

In his statement, Sullivan expressed his dismay that ICANN had acted as a “regulator” by evaluating the deal using a public interest test rather than simply rubber-stamping it as it has in all other cases of registry acquisitions. He wrote:

It should concern the Internet community that ICANN has shown itself to be much more susceptible to political pressure than its limited mandate would recommend.

…

Now that we know that ICANN believes its remit to be much larger than we believe it is, we can state this clearly: neither PIR nor any of its operations are for sale now, and the Internet Society will resist vigorously any suggestion that they ought to be.

But who would want to, or could afford to, buy it? While ICANN has made it clear that PE firms are welcome to acquire other TLDs, it wants .org to remain in non-profit hands.

During the last few months of controversy, one other embryonic effort to take over .org was announced, led by founding ICANN chair Esther Dyson.

Called the Cooperative Corporation of dot-org Registrants (CCOR), it had no intention of handing over a billion dollars for .org, it simply wanted ICANN to assign the contract to its control.

It still wants that, or something like that. In a statement Saturday, CCOR said it “calls upon ICANN to proceed with the established multi-stakeholder led open request for proposals for stewardship of the dot-org domain”.

Unless it can be shown that PIR has seriously broken the terms of its Registry Agreement, the chances of ICANN randomly opening up .org to tender is pretty much zero.

CCOR goes on to say that it is still worried about .org falling into private hands and that it will lobby for legally binding policies “including the preservation of privacy, diversity and human rights, and freedom from censorship”.

1 Comment Tagged: .org, acquisition, ccor, ethos, ICANN, isoc, pir

“Dangerous precedent” as ICANN rejects $1.13 billion .org buyout

In a decision that will shock many, ICANN won’t let Ethos Capital buy Public Interest Registry from the Internet Society.

Its board of directors yesterday voted to reject PIR’s request for a change of control of the .org contract, saying that “the public interest is better served in withholding consent”.

Ethos responded angrily almost immediately, saying the decision “sets a dangerous precedent with broad industry implications” and that it is “evaluating its options”.

The ICANN resolution, which was published overnight, is justified by setting out the case that .org is a unique case: a large legacy gTLD with a mandate to serve non-profit entities.

The Board was presented with a unique and complex situation – a request to approve a fundamental change of control over one of the longest-standing and largest registries, that also includes a change in corporate form from a viable not-for-profit entity to a for-profit entity with a US$360 million debt obligation, and with new and untested community engagement mechanisms relying largely upon ICANN contractual compliance enforcement to hold the new entity accountable to the .ORG community. ICANN is being asked to agree to contract with a wholly different form of entity; instead of contracting with the mission-based not-for-profit that has responsibly operated the .ORG registry for nearly 20 years, with the protections for its own community embedded in its mission and status as a not-for-profit entity. If ICANN were to consent, ICANN would have to trust that the new proposed for-profit entity that no longer has the embedded protections that come from not-for-profit status, which has fiduciary obligations to its new investors and is obligated to service and repay US$360 million in debt, would serve the same benefits to the .ORG community.

Essentially, ICANN is holding ISOC to the by-and-for non-profits commitment that it made when it inherited the registry from Verisign back in 2002. You may recall I went into some depth on the history of .org back in December.

While noting the broad criticism from various parties — which included domainers and non-profits — about the proposed acquisition, the resolution makes specific reference to the investigation by the office of the California attorney general, which had made vague threats of legal action against ICANN.

Some commentators, including Jonathan Zuck and Michele Neylon — are worried that the AG’s influence now means ICANN has a new boss, and that special interest groups in future need only lobby his office in order to override community-built consensus.

But ICANN did not single out one reason for its decision, saying withholding consent was “reasonable in light of the balancing of all of the circumstances”.

Ethos, while not calling out the AG directly, made the broader claim that ICANN has acted outside its mandate by succumbing to lobbying by outside parties.

Its statement, which I think contains hints at future legal action, reads in full:

Today’s decision by ICANN sets a dangerous precedent with broad industry implications. ICANN has overstepped its purview, which is limited to ensuring routine transfers of indirect control (such as the sale of PIR) do not impact the registry’s security, stability and reliability. Today’s action opens the door for ICANN to unilaterally reject future transfer requests based on agenda-driven pressure by outside parties. It allows ICANN to base its decisions on a subjective interpretation of what it deems to be relevant in these transactions, rather than following its own clear and specified legal directive.

This decision will suffocate innovation and deter future investment in the domain industry. ICANN has empowered itself to extend its authority into areas that fall well outside of its legal mandate in acting as a regulatory body. Today’s decision also creates an uncertain and unpredictable business environment, where the enforceability and value of the ICANN contract itself may be called into question now that the rules of transferring ownership are open to influence by outside interests. Ethos is evaluating its options at this time.

In the same statement, PIR called the decision “a failure to follow its bylaws, processes, and contracts” and ISOC said ICANN “has acted as a regulatory body it was never meant to be”.

While the decision could be chalked up as a win for domain investors and civil libertarians that had challenged the acquisition, it has implications that may not entirely please them.

Assuming the deal stays dead, PIR is no longer promising to only increase prices by 10% a year. It will be able to raise its registry fee arbitrarily, whenever it likes, subject to notice periods and the usual uniform pricing rules.

Domainers will have to hope there’s no sour grapes at ISOC, or they could be looking at big price hikes before long.

And for those interested in censorship, remember PIR is no longer committing to a Stewardship Council that would help protect free speech in .org domains.

The ICANN decision came in spite of a last-minute plea from former chair and ISOC co-founder Vint Cerf, who in a letter (pdf) described the deal as a “wedge issue” that could be leverage to force ICANN into an existential crisis, with outside interests such as the ITU pushing itself as a replacement.

ICANN also received eleventh-hour submissions from the German government (which was against the deal) and German trade group Eco (which was vague but appeared to be for the deal).

11 Comments Tagged: .org, acquistion, ethos, ICANN, isoc, pir

ICANN may scrap its $0.18 reg tax in coronavirus “solidarity”

ICANN is thinking about whether to temporarily waive the $0.18 it charges registrars (and therefore registrants) whenever a gTLD domain name is registered.

Execs said the idea was being considered during a conference call explaining ICANN’s new budget this afternoon.

The idea was floated by GoDaddy policy head James Bladel during the call, and supported by others, but it appears it had already also occurred to ICANN.

Bladel suggested that it might not make a big impact on registrants’ wallets, but that it would be a show of “solidarity” with registrars and registries that have waived domain recovery fees to help registrants that have been hit by coronavirus.

ICANN said it was looking at the idea but did not commit one way or the other.

Should such a waiver come into effect, it’s not clear whether it would be uniformly passed on to registrants.

4 Comments Tagged: coronavirus, godaddy, ICANN

Domain industry likely to suffer from coronavirus as ICANN slashes budget by 8%

ICANN is predicting a miserable time for the domain name industry due to the coronavirus pandemic, today announcing that it’s slashing its revenue outlook for the next year by 8%.

The organization expects to receive revenue of $129.3 million for the fiscal year beginning July 1. That’s $11.1 million lower than its previous estimate, which was made in December.

ICANN’s budget is based on projections based on previous industry performance and its accountants’ conversations with registries and registrars, so this is another way of saying that it expects the industry to suffer due to the pandemic.

ICANN said in its newly revised budget:

ICANN org funding may be impacted because the economic crisis stemming from the pandemic has the potential to impact the funding from domain name registrations and contracted parties through the end of FY20 and into the first months of FY21. ICANN org also anticipates there may be long-lasting effects of such impacts. At the time this document is published, the impact cannot yet be quantified.

The drill-down is not great, showing that ICANN expects registries and registrars in both legacy and new gTLDs to be hit.

New gTLDs are predicted to be hit hardest, with revenue from registry transaction fees dropping by a full 33% from its FY20 forecast. That’s a drop from $6.7 million to $4.5 million.

Extrapolating from its $0.25 registry fee, that means ICANN thinks there will be 8.8 million fewer billable transactions — registrations, renewals and transfers in new gTLDs with over 50,000 names — for the year ending June 30, 2021.

Expected revenue from registrars selling new gTLDs has also been slashed by a third, down from $5.3 million this year to $3.5 million next year.

Legacy gTLDs are expected to fare a little better.

ICANN predicts transaction revenue from legacy gTLDs to decrease over the period, down to $47.7 million in FY21 from $49 million in FY20. Registrars selling legacy gTLDs are expected to bring in revenue of $29.7 million, down from $33.3 million.

That also represents shrinkage measured in the millions of domains.

It gets worse. ICANN is also expecting the number of registries and registrars to decrease even faster over the course of the next year.

It thinks it will end June with 1,174 fee-paying registries, but for this to decrease by 62 in FY21. It decreased by 29 in FY20. Many of these will probably be unused dot-brands having their contracts cancelled.

On the registrar side, it expects to lose 380 accreditations in FY21, compared to a loss of 104 this fiscal year, to end FY21 with 1,977 registrars.

ICANN does not expect its voluntary contributions from ccTLDs and Regional Internet Registries to decrease, but it does expect to lose a few hundred thousand bucks from the absence of sponsorship of its in-person meetings.

This overall predicted decrease in funding has led to a matching decrease in planned expenditure, with ICANN saying it will operate with “increased prudence, frugality, and with heightened conditions of necessity”.

It’s going to save 20% less on travel — $12.4 million — due to coronavirus-related restrictions, but seems to still be planning to take the industry to Hamburg in October for ICANN 69 (even though Munich has cancelled Oktoberfest this year).

ICANN also plans to delay some projects and to reduce its average headcount by 15 to 395.

The lower budget projections come even as some registries —including CentralNic, which looks after some very large new gTLDs — have said they expect the financial impact of coronavirus to be minimal.

The revised budget is published here and ICANN’s board may approve it as early as next week.

1 Comment Tagged: budget, coronavirus, ICANN, new gTLDs

Decision on .org deal may come sooner than you think

If you’re against the acquisition of .org and are thinking about an objection or spot of lobbying at the eleventh hour, be aware: this is the eleventh hour.

The deal, which would see Ethos Capital buy Public Interest Registry from the Internet Society for over a billion dollars, is on the agenda for a meeting of the ICANN board of directors this Thursday.

ICANN and Ethos have agreed to a May 4 deadline for a decision, but is whispered that the board plans to give the deal the nod, or not, at the Thursday meeting.

Given how long it usually takes for ICANN to post the results of its board meetings, typically a few days, there’s a decent chance that PIR, Ethos and ISOC could be given formal approval before any opponents have time to react to the resolution.

I think it could go either way.

The one thing I have a fairly high degree of confidence in is that I do not expect a unanimous vote.

While I think ICANN’s institutional instincts are to approve, the breadth and depth of the outrage over the deal may be difficult for some directors to ignore.

If it were only domain investors objecting, approval would be a slam dunk. But here we also have non-profits, civil liberties groups and governments crying foul.

Perhaps most importantly, there’s the objection of the California attorney generalobjection of the California attorney general to consider.

He has power over ICANN because it’s a non-profit registered in his state, and he’s said “will take whatever action necessary to protect Californians and the nonprofit community”.

His last letter to ICANN is believed to have caused the board to remove the .org deal from the agenda at its last meeting and seek a deadline extension from PIR.

One plausible interpretation of that chain of events is that the board was ready to give Ethos the nod, but the AG’s letter gave it pause.

4 Comments Tagged: .org, acquisition, ethos, ICANN, isoc, pir

ICANN meeting got “Zoombombed” with offensive material

An ICANN meeting held over the Zoom conferencing service got “Zoombombed” by trolls last month.

According to the organization, two trolls entered an ICANN 67 roundup session for Spanish and Portuguese speakers on March 27 and “shared inappropriate and offensive audio and one still image” with the legitimate participants.

The session was not password protected (rightly) but the room had (wrongly) not been configured to mute participants or disable screen-sharing, which enabled the offensive material to be shared.

The trolls were quickly kicked and the loopholes closed, ICANN said in its incident report.

ICANN appears to have purged the meeting entirely from its calendar and there does not appear to be an archive or recording, so I sadly can’t share with you the gist of the shared content.

Zoombombing has become an increasingly common prank recently, as the platform sees many more users due to the coronavirus-related lockdowns worldwide.

1 Comment Tagged: glitch, ICANN, icann 67, security, zoom, zoombombing

CentralNic does not expect big coronavirus impact as it posts almost-doubled revenue for 2019

CentralNic has added its name to the list of domain name companies not expecting to see a significant financial hit from coronavirus.

The company this morning posted its full 2019 results and first-quarter 2020 trading update, saying it expects to be “resilient” to the pandemic.

For 2019, the company saw revenue grow by 95% to $109.2 million. Profits at the adjusted EBITDA level was $17.9 million, again almost double the 2018 results.

Pre-tax loss was $8.2 million, compared to $5 million for the previous year. At the operating level, CentralNic lost half a million bucks, but that was smaller than the $3.6 million it lost in 2018.

The first quarter trading update was even rosier. It expects revenue to come in at $56 million — the same revenue figure as for the whole of 2018 — with adjusted EBITDA of $8.1 million.

The growth is of course all coming from recent acquisitions. CentralNic sees itself as an industry consolidator. It has recently integrated the reseller-focused businesses Key-Systems, Hexonet, PartnerGate, TPP Wholesale and Toweb, as well as retail registrar Ideegeo and domain monetization outfit Team Internet.

The company said it has delayed a planned shareholder dividend — its first — in order to keep more cash on hand for even more acquisitions.

On coronavirus, CentralNic said:

Despite [the pandemic], trading for the Group in Q1 2020 was in line with expectations, despite the global business restrictions to slow the progress of COVID-19… As a profitable provider of online subscription services with high cash conversion and solid organic growth, we do not expect CentralNic to be severely affected by COVID-19, but we will take the necessary precautions to preserve our cash and review our acquisition pipeline and financing plans to ensure that we maintain stability and optimise our business strategies in the new global climate.

It’s the third domain company in recent days, after Verisignafter Verisign and Dutch ccTLD registry SIDNDutch ccTLD registry SIDN, to say that they don’t expect to be badly hit by the pandemic.

Comment Tagged: centralnic, coronavirus, earnings

Verisign expects to sell fewer domains because of coronavirus

Verisign doesn’t expect its domain name base to grow as fast as previously expected this year, due to the coronavirus pandemic.

On Thursday night, it ever so slightly downgraded its guidance for the year, saying it expects domains to grow by between 2% and 3.75%, compared to a previous high-end estimate of 4%.

It’s not a lot, but given how many domains Verisign has under management it still adds up to hundreds of thousands of domains and a few million in lost potential revenue.

CEO Jim Bidzos told analysts that the updated guidance reflected a “more cautious” outlook given the “uncertainty presented by Covid-19”.

It’s encouraging news for anyone wondering how the pandemic will effect the domain industry: the market-leading registry does not expect a big impact.

Verisign’s domain base totaled 160.7 million at the end of the quarter — 147.3 million in .com and 13.4 million in .net — which equates to growth of 3.8% over Q1 2019.

The growth is coming from .com — total .net regs were down by about 400,000 year over year.

The update came during Verisign’s first-quarter earnings call, which once again showed the .com registry printing money. It even managed to report net income higher than revenue, due to some quirks in its historical tax recognition.

For the three months to March 31, the company had net income of $334 million, compared to $163 million a year earlier, on revenue that was up 2% at $313 million.

Even discounting that bottom-line tax-related boost of $168 million, profits were up. Operating income was $206 million, up 3%, and the operating margin was up from 65.4% to 66%.

Even before the perhaps inevitable price increases next year, Verisign’s still managing to grow its margins organically, demonstrating that any prices hikes will be going straight to its bottom line and its shareholders’ pockets.

The company bought back $245 million of stock during the quarter and has another $826 million tucked away for further repurchases.

Comment Tagged: .com, .net, earnings, verisign

Coronavirus lockdown is working out great for at least one registry

The Dutch ccTLD registry has revealed that its volume of new registrations has been growing rapidly since the Netherlands implemented its coronavirus lockdown measures.

“Since the measures came into effect, Dutch entrepreneurs and private individuals registered over 85,000 .nl domain names, 10,000 more than in the same period in 2019,” SIDN said today (translated from the Dutch by Google).

Only about 2% to 3% of these names relate directly to the pandemic, the registry said.

There were 5,930,715 .nl domains registered as of April 20, an increase of about 17,000 from the start of the month.

A survey of registrants carried out for SIDN found that 100% of them intended to use their domains for online-only activities, as opposed to using them to promote a bricks-and-mortar business, for the first time.

SIDN’s good luck may not be shared by all in the industry, however.

ICANN, which is funded by a tax on registration fees, is to host a call next week in which it will explain how it will have to adapt its budget to respond to the impact of the pandemic.

If we take Verisign’s .com as a benchmark, its zone file has grown by roughly 383,000 domains since the end of March. In the same period last year, the increase was 434,000.

Tonight, Verisign is due to report its first-quarter numbers, and no doubt we will get some color on how its bosses think the virus will affect the market.

3 Comments Tagged: .nl, coronavirus, sidn

Coronavirus could cause “high risk of widespread outages”, ICANN says

There’s a “high risk of widespread outages” in the DNS if ICANN can’t get enough people in the same room for its next root DNSSEC ceremony because of the coronavirus pandemic.

That’s according to ICANN’s own board of directors, which yesterday published a contingency plan that — in the worst case scenario — could see parts of the internet come to a screeching halt in July.

The problem is with the elaborate “ceremonies” that ICANN and its IANA/PTI unit uses to make sure the internet can support DNSSEC — the secure version of the DNS protocol — all the way from the root servers down.

Every quarter, ICANN, Verisign and a select few “Trusted Community Representatives” from all over the world meet in person at one of two secure US-based facilities to generate the public Zone Signing Keys for the root.

In addition to the complex cryptographic stuff happening in the computers, there’s a shedload of physical security, such as retinal scans, PIN-based locks, and reinforced walls.

And the “secret key-holders”, memorably fictionalized in a US spy drama a few years ago, actually have physical keys that they must bring to these ceremonies.

The events are broadcast live and archived on YouTube, where they typically get anything from a few hundred to a few thousand views.

Obviously, with the key-holders dotted all over the globe and most under some form of coronavirus-related lockdown, getting a quorum into the same facility at the same time — originally, Culpeper, Virginia on April 23 — isn’t going to be possible.

So IANA has made the decision to instead move the ceremony to the facility in El Segundo, California, within easy driving distance of ICANN’s headquarters, and have it carried out almost entirely by ICANN staff, wrapped in personal protective equipment and keeping their distance from each other.

The TCRs for El Segundo live in Mauritius, Spain, Russia, Tanzania, Uruguay and on the east-coast of the US, according to ICANN.

Four of these key-holders have mailed their keys to different IANA staff “wrapped in opaque material” and sealed in “tamper-evident bags”. These IANA employees will stand in for the TCRs, who will be watching remotely to verify that nothing fishy is going on.

Verisign and the independent auditors will also be watching remotely.

That’s the current plan, anyway, and I’ve no reason to believe it won’t go ahead, but ICANN’s new contingency plans do provide four alternatives.

It’s already discarded the first two options, so if the current, third, plan for the ceremony can’t go ahead before June 19 for some reason, all that would be left is the nuclear option.

Option D: Suspend signing of the DNS root zone

This is the final option if there is no conceivable way to activate the KSK and perform signing operations. There would need to be a massive education campaign at short notice to have resolver operators disable DNSSEC validation. There is a high risk of widespread outages as it is not possible to ensure global implementation, and high risk this will fatally compromise trust in DNSSEC in general as a technology.

This is considered highly unlikely, but nonetheless the final option. Without exercising the option, in the absence of a successful key signing ceremony, DNSSEC validation would be unsuccessful starting in July 2020.

The reason for this scenario is that DNSSEC keys have a finite time-to-live and after that period expires they stop functioning, which means anyone validating DNSSEC on their network may well stop resolving the signed zones.

ICANN typically generates the keys one quarter in advance, so the current key expires at the start of July.

However, the planned April 23 ceremony will generate three quarters worth of keys in advance, so the root should be good until the end of March 2021, assuming everything goes according to plan.

Clearly, the idea that half the planet might be on the verge of lockdown wasn’t taken into consideration on February 12, the last ceremony, when ICANN’s biggest problem was that it couldn’t get into one of its safes.

If you’re interested in more about the ceremony and the coronavirus-related changes, info can be found here.

2 Comments Tagged: ceremony, coronavirus, DNSSEC, ICANN, ksk, zsk