ICANN rejects a whole bunch of new gTLD policy stuff

ICANN has delivered some bad news for dot-brands, applicants from poorer countries, and others, at the weekend rejecting several items of new gTLD policy advice that the community spent years cooking up.

The board of directors on Sunday approved a scorecard of determinations, including the rejection (or non-adoption) of seven GNSO recommendations that it deems “would not be in the best interests of the ICANN community or ICANN”.

In reality, it’s the latter that seems to have been foremost in the board’s mind; most of the rejections appear to be geared toward reducing ICANN Org’s legal or financial exposure.

Notably, dot-brands are denied some of the relief from cumbersome or expensive requirements that the GNSO had wanted rid of.

The board rejected a recommendation that would exempt them from the Continued Operations Instrument — a financial bond used to pay an Emergency Back-End Registry Operator should the applicant go out of business.

“[T]he Board is concerned that an exemption from an COI for Spec 9 applications would have financial impact on ICANN since there would be no fund to draw from if such a registry went into EBERO,” the board wrote.

It also rejected a request to exempt dot-brands from rules requiring them to contractually ban and monitor abuse in their TLDs. The GNSO had argued that single-registrant TLDs do not suffer abuse, but the board said this could lead to abuse from compromised domains going unaddressed.

“The Board concludes that Recommendation 9.2, if implemented, could lead to DNS abuse for second-level registrations in a single-registrant TLD going unaddressed, unobserved, and unmitigated,” it said.

Applicants hoping to benefit from the Applicant Support Program — which in 2012 offered heavily discounted application fees to poorer applicants — also got some bad news.

The GNSO wants the support to extend to other costs such as application-writing services and lawyers, which naturally enough put the frighteners on the board, which noted “such expansion of support could raise the possibility of inappropriate use of resources (e.g. inflated expenses, private benefit concerns, and other legal or regulatory concerns)”.

The board also rejected a couple of recommendations that could be seen as weakening its role as ultimate authority over all things gTLD.

It rejected a proposal to remove the controversial covenant not to sue (CNTS) from the application process unless other recommendations related to appeals processes are implemented.

ICANN said that because it has not yet approved these other recommendations, it has rejected this recommendation.

The board also rejected a recommendation that would have limited its ability to reject a gTLD application to only when permitted to do so by the rules set out in the Applicant Guidebook.

The idea was to prevent applications being arbitrarily rejected, but the board said this “may unduly limit ICANN’s discretion to reject an application in yet-to-be-identified future circumstance(s)”.

The rejections invoke part of the ICANN bylaws that now requires the GNSO Council to convene and either affirm or amend its recommendations before discussing them with the board. Presumably this could happen at ICANN 78 next month.

The bylaws process essentially gives the board the ultimately authority to throw out the GNSO recommendations if it can muster up a two-thirds supermajority vote, something it rarely has a problem achieving.

New gTLD prices could be kept artificially high

ICANN might keep its new gTLD application fees artificially expensive in future in order to deter TLD warehousing.

Under a policy recommendation out from the New gTLDs Subsequent Procedures working group (SubPro) last week, ICANN should impose an “application fee floor” to help keep top-level domains out of the hands of gamers and miscreants.

In the 2012 application round, the $185,000 fee was calculated on a “cost-recovery basis”. That is, ICANN was not supposed to use it as a revenue source for its other activities.

But SubPro wants to amend that policy so that, should the costs of the program ever fall before a yet-to-be-determined minimum threshold, the application fee would be set at this fee floor and ICANN would take in more money from the program than it costs to run.

SubPro wrote:

The Working Group believes that it is appropriate to establish an application fee floor, or minimum application fee that would apply regardless of projected program costs that would need to be recovered through application fees collected. The purpose of an application fee floor is to deter speculation and potential warehousing of TLDs, as well as mitigate against the use of TLDs for abusive or malicious purposes. The Working Group’s support for a fee floor is also based on the recognition that the operation of a domain name registry is akin to the operation of a critical part of the Internet infrastructure.

The working group did not put a figure on what the fee floor should be, instead entrusting ICANN to do the math (and publicly show its working).

But SubPro agreed that ICANN should not use what essentially amounts to a profit to fund its other activities.

The excess cash could only be used for things related to the new gTLD program, such as publicizing the availability of new gTLDs or subsidizing poorer applicants via the Applicant Support Program.

ICANN already accounts for its costs related to the program separately. It took in $361 million in application fees back in 2012 and as of the end of 2019 it had $62 million remaining.

Does that mean fees could come down by as much as 17% in the next application round based on ICANN’s experience? Not necessarily — about a third of the $185,000 fee was allocated to a “risk fund” used to cover unexpected developments such as lawsuits, and that risk profile hasn’t necessarily changed in the last eight years.

Fees could be lowered for other reasons also.

As I blogged earlier today, a new registry service provider pre-evaluation program could reduce the application fee for the vast majority of applicants by eliminating redundancies and shifting the cost of technical evaluations from applicants to RSPs.

The financial evaluation is also being radically simplified, which could reduce the application fee.

In 2012, evaluations were carried out based on the applicant’s modelling of how many domains it expected to sell and how that would cover its expenses, but many applicants were way off base with their projections, rendering the process flawed.

SubPro proposes to do away with this in favor generally of applicants self-certifying that their financial situation meets the challenge. Public companies on the world’s largest 25 exchanges won’t have to prove they’re financially capable of running a gTLD at all.

The working group is also proposing changes to the Applicant Support Program, under which ICANN subsidizes the application fee for needy applicants. It wasn’t used much in 2012, a failure largely attributed to ICANN’s lack of outreach in the Global South.

Under SubPro’s recommendations, ICANN would be required to do a much better job of advertising the program’s existence, and subsidies would extend beyond the application fee to additional services such as consultants and lawyers.

Language from the existing policy restricting the program to a few dozen of the world’s poorest countries (which was, in practice, ignored in 2012 anyway), would also be removed and ICANN would be encouraged to conduct outreach in a broader range of countries.

In terms of costs, dot-brand applicants also get some love from SubPro. These applicants will be spared the requirement to have a so-called Continuing Operations Instrument.

The COI is basically a financial safeguard for registrants, usually a letter of credit from a big bank. In the event that a registry goes out of business, the COI is tapped to pay for three years of operations, enabling registrants to peacefully transition to a different TLD.

Given that the only registrant of a dot-brand gTLD is the registry itself, this protection clearly isn’t needed, so SubPro is making dot-brand applicants exempt.

Overall, it seems very likely that the cost of applying for a new gTLD is going to come down in the next round. Whether it comes down to something in excess of the fee floor or below it is going to depend entirely on ICANN’s models and estimates over the coming couple of years.

ICANN throws lifeline to flopping new gTLDs

New gTLD registries with lower than expected sales will now be able to reduce the amount of their “failure bond”.
ICANN has introduced a new Continued Operations Instrument Amendment Service, which will enable registries to raise or lower the amount of their COI depending on how business is going.
A COI is a letter of credit or cash in escrow that registries must secure in order to fund three years of emergency operations in the event that their businesses fail.
The amount of the COI is calculated from sales projection and ranges from $18,000 (for under 10,000 names) to $300,000 (over 250,000 names).
Let’s face it, at the moment the amendment service must surely be targeted largely at companies that over-estimated their future sales and secured a COI much larger than they needed.
If they’ve escrowed cash, the new service will allow some of that money to be freed up to spend on more useful activities.
ICANN said that if it determines that a registry has under-projected its sales, it will be able to refer it to the new service in order for the COI to be increased.
Currently, only four new gTLDs have over 250,000 names under management, judging by zone files.

New gTLD failure risk bond capped at $300k

New generic top-level domain applicants will have to find between $18,000 and $300,000 per gTLD to cover the risk of their business failing, according to ICANN.
ICANN revealed the figures, which have been calculated from prices quoted by 14 potential emergency back-end registry operators, in a pre-Christmas info-dump on Friday.
The so-called Continued Operations Instrument is designed to cover the cost of paying an EBERO to manage and/or wind down a failed gTLD business over up to three years.
All new gTLD applicants must either secure credit or put cash in escrow to cover the COI, the amount of which depends on how many domains under management they anticipate.
This table shows the size of the COI for various sizes of zone.
[table id=4 /]
This essentially means that any registry that plans to grow its gTLD into a commercially successful volume business needs to find $300,000 to cover the cost of its potential failure.
Only five previously introduced new gTLDs have topped 250,000 domains under management in their first five years: .info (with 8 million today), .biz, .name, .mobi and .tel (which peaked at 305,000).
Smaller gTLDs, comparable to a .cat, .jobs or .travel, will only have to find $40,000 to $80,000. It’s likely that the majority of .brand applicants will only need to secure the minimum $18,000.
While potentially expensive, it’s welcome clarity into new gTLD funding requirements, albeit coming just two weeks before ICANN begins to accept applications.
ICANN also threw a bone to potential applicants from countries with poor access to credit.
The organization previously only contemplated allowing credit from banks with an ‘A’ rating or higher, but it now says it will accept, in its discretion, financial instruments from the highest-rated institution available to the applicant.
ICANN said it may also consider becoming a party to these credit agreements, again in its sole discretion, but that such applicants could lose points when their application is scored as a result.

Clash over new gTLD risk fund

The ICANN community is split along predictable lines – domain registries versus intellectual property interests – in the latest controversy to hit the new top-level domains policy-making.
ICANN’s board of directors will meet this week to decide the fate of its new gTLD failure risk fund, an expensive buffer designed to protect registrants if new gTLD registries go bust.
The current plan is to ask each new gTLD applicant to front the entire cost of three years’ operation with a Continuing Operations Instrument – either a letter of credit or cash in escrow.
The idea is that if they go out of business, funds will be available to pay an emergency registry operator to, in the worst case scenario, gracefully wind down the gTLD.
Registries and some potential applicants are not happy about this idea. They say that the COI imposes too great a cost on start-up registries, which could lead to more failed businesses.
Since smaller businesses may not be able to secure letters of credit, they’ll have to escrow hundreds of thousands of dollars, rather than using the money to make sure they don’t fail in the first place.
Registries have proposed an alternative – a Continued Operations Fund – which would see all applicants deposit a flat fee of $50,000 into a central risk pool that ICANN would manage.
An ICANN public comment period on the COF that closed on Friday revealed the anticipated level of opposition from business and IP interests.
The main concern is that the COF represents a transfer of wealth from rich companies, which would easily and cheaply qualify for a letter of credit, to less well-funded applicants.
The COF “seeks to subsidize certain registry operators instead of allowing the market itself (via letter of credit based upon applicant viability) to determine the level of risk for each applicant”, Claudio DiGangi of the International Trademark Association wrote.
Steve Metalitz, president of ICANN’s Intellectual Property Constituency, echoed INTA’s concerns, adding the IPC’s suspicions about why the COF has been proposed:

[The COF] allows more underfunded applicants into the application pool which will in turn lead to more registry failures, cost to ICANN, and poor outcomes for registrants. While this may be good in the short term for members of the Registry Stakeholder Group (RySG) who desire to provide backend services to such underfunded applicants, the short term economic gain of members of one SG should not be prioritized over the risks to registrants and ICANN that the COF represents

One member of the IPC has suggested that if ICANN were to introduce a COF now, it would give opponents of the new gTLD program grounds to sue, under California insurance law, to put it to a halt.
On the pro-COF side, .org manger the Public Interest Registry said that the current COI plan discourages companies for applying for new gTLDs, which is at odds with ICANN’s goals of increasing competition in the registry space.
PIR’s director of policy Paul Diaz also points out that letters of credit will be hard to come by for companies in certain countries, which may lead to less geographically diverse applicants.
Somewhat surprisingly, Minds + Machines CEO Antony Van Couvering, perhaps sensing which way the wind is blowing at ICANN, has reluctantly backed the original COI model, but suggests a “simple short-term fix” to reduce the cost to applicants.
When determining the amount of the COI, applicants should be free to base it on their own “worst case scenario” registration volume projections, rather than their “most likely” models, on the basis that registries are unlikely to go out of business if they meet their revenue targets:

Presumably if you’re hitting your numbers you’re in good shape financially. It’s the low numbers you have to worry about. Setting the amount of the COI at this more reasonable and likely threshold will take care of the vast majority of failures.

ICANN only received comments from eight people on the COF proposal, and unsurprisingly they’re all (with one possible exception) looking out for their own financial interests.
Without a crystal ball, deciding which model will be “best” for the new gTLD program is a very tough call, but ICANN’s board of directors is expected to do so on Thursday.

New gTLD risk fund rubbished by .brand advocate

Proposals to change the way new top-level domains are insured against failure will put the whole new gTLD program at risk, according to an intellectual property lawyer.
Speaking at a session at the ICANN meeting in Dakar today, Paul McGrady of the law firm Greenberg Traurig said the changes could even lead to a lawsuit that would delay the January 2012 launch of the program by at least a couple of years.
The debate was sparked by a proposal from the registries to restructure the Continued Operations Instrument, a financial backup designed to fund gTLD operations after their businesses fail.
ICANN currently plans to ask each applicant to submit a COI sufficient to cover the cost of running their own gTLD for three years in the form of cash in escrow or a letter of credit.
But the registry proposal calls instead for a Continued Operations Fund that would pool the risk between applicants, with each applicant paying just $50,000 up-front.
While the COI implicitly assumes that all new gTLDs could crash and burn, the COF assumes that only a small number of businesses will fail, as I reported earlier this month.
But McGrady, apparently speaking for the Intellectual Property Constituency, gave a startlingly different interpretation of the COF, from the “.brand” applicant perspective.
A .brand applicant can secure a letter of credit sufficient to cover the COI for as little as $2,000, he said. A $50,000 payment to the COF would dramatically increase its costs, he said.
“That money is taken from the .brand applicant and given to the shaky start-ups that shouldn’t be applying anyway,” he said. “It’s a redistribution of wealth.”
“If you can’t meet the [Applicant] Guidebook’s current requirements, you are dramatically under-capitalized,” he said. “Don’t apply.”
He said that if ICANN decides to add the $50,000 cost before January, it’s likely that some of those brands that oppose the program anyway will use it as an excuse to sue for delay.
“If the ICANN community would like to tee up for a litigation issue which could bring round one to a halt before it opens, this is it,” he said.
He further said that any back-end registry services providers targeting .brand clients had better distance themselves from the COF proposal if they want to get that business.
“Anyone in the room with a vested interested in this process moving forward, this is not the issue to back,” he said.
While the specific proposal up for debate was drafted by the Public Interest Registry and Afilias, the concept of a COF is has the backing of the ICANN registry stakeholder group.
As far as FUD goes, McGrady’s presentation was pretty blatant stuff, but that does not necessarily mean it’s not true.
His tone seemed to cause some consternation in the room.
Likely applicant Ron Andruff said that McGrady was employing a “scare tactic about how things might get delayed because big corporations don’t want to park money”.
Several others pointed out that smaller community applicants and applicants from certain countries may be unable to secure a letter of credit as easily as a large brand applicant.
Those applicants would have to put cash in escrow, tying it up and making it harder to market their gTLDs… thus leading to a greater chance of failure.
But McGrady stuck to his “redistribution of wealth” line.
“What we’re talking about is a last-minute change to the Guidebook to benefit applicants that don’t have sufficient funds,” he said.
He was not alone speaking out against the COF idea.
Richard Tindal of likely gTLD applicant Donuts said that many projections about new gTLDs are being made by a small number of registries that are making similar assumptions.
If these assumptions turn out to be flawed, the risk of gTLD failures could be bigger than expected.
“If a hurricane hits a house in the street, it’s going to hit all the houses in the street,” he said.
The COF/COI debate is open for public comment until December 2.

With 86 days to go, the cost of new gTLDs is still unknown

If you’re planning to apply for a new generic top-level domain or two, wouldn’t it be nice to know how much it’s going to cost you?
It’s less than three months before ICANN opens the floodgates to new gTLD applicants, but you’re probably not going to find out how big your bank account needs to be until the last minute.
With 86 days on the clock until the application window opens, and 177 until it closes, there are still at least two huge pricing policies that have yet to be finalized by ICANN.
The first relates to reduced application fees and/or financial support handouts for worthy applicants from developing nations. I’ll get to that in a separate piece before Dakar.
The second is the controversial Continued Operations Instrument, a cash reserve designed to ensure that new gTLDs continue to operate even if the registry manager goes out of business.
In the current Applicant Guidebook, prospective registries are told to prove that they have enough money – either with a letter of credit or in a cash escrow – to keep their gTLD alive for three years.
To be clear, the COI money doesn’t go into ICANN’s coffers; applicants just need to show that the cash exists, somewhere.
The funds would be used to pay the Emergency Back-End Registry Operator (whichever company that turns out to be) in the event of a catastrophic gTLD business failure.
With hundreds of new gTLDs predicted, many of them likely to be laughably naive, we’re likely to see plenty of such failures.
With that in mind, ICANN wants to make sure that registrants and end users are not impacted by too much downtime if they put their faith in incompetent or unlucky registries.
It is estimated that the COI will amount to a six-figure sum for almost all commercial registries. For generics with a higher projected registration volume it could easily run into the millions.
It’s controversial for a number of reasons.
First, it raises the financial bar to applying considerably.
Forget the $185,000 application fee. Under the COI provision, applicants need to be flush enough to be able to leave millions of dollars dormant in escrow for at least five years.
It’s been sensibly argued that this money would be better devoted to making sure the registry doesn’t fail in the first place.
Second, even though the Guidebook gives .brand applicants the ability to shut down their gTLDs without the risk of another provider taking them over, it also expects them to create a COI.
This appears to be an unnecessary waste of cash. If a single-registrant .brand gTLD fails, the registry itself is the only registrant affected and the COI is essentially redundant.
Third, some applicants are thinking about low-balling their business model projections in order to keep their COI to a manageable amount.
This, as the better new gTLD consultants will tell you, could be a bad idea. When applications are reviewed the evaluators will be looking for discrepancies like this.
If you’re making one set of financial projections to investors and another to ICANN, you risk losing points on and possibly failing the evaluation.
Anyway, with all this in mind (and with apologies for burying the lead) ICANN has just said that it’s thinking about completely revamping the COI policy before applications are accepted.
Seriously.
ICANN’s Registry Stakeholder Group community has made a proposal – which appears to be utterly sensible on the face of it – that would reduce costs by pooling the risk among successful applicants.
The RySG said it that the COI “should not be so burdensome as to actually become a roadblock to the success of new registries by causing capital to be tied up unduly.”
Rather than putting up enough cash to cover its own failure, each successful applicant would pay $50,000 up-front into a Continued Operations Fund that would cover all potential registry failures.
The COF would be administered by ICANN (or possibly a third party), and would be capped at $20 million. In a round of 400 new gTLDs, that target would be reached immediately.
If the COF fell short of $20 million, each registry would have to pay $0.05 per domain name per year into the fund until the cap was reached.
It’s a shared-risk insurance model, essentially.
While ICANN’s COI policy is ultra-cautious, implicitly assuming that ALL new gTLDs could simultaneously fail, the COF proposal assumes that only a small subset will.
Reverse-engineering the RySG’s numbers, the COF appears to cover the risk of failure for registries representing some 10 million domain-years.
ICANN has opened up the proposal to public comments until December 2.
This means we’re unlikely to see any concrete action to approve or reject the COF alternative until, at the earliest, about a month before the first round application window opens.
ICANN likes cutting things fine, doesn’t it?