[ga] My analysis of proposed changes to NSI contract

[DPF <david@farrar.com>]

To further some debate on the proposed contract revisions I am listing
below what appears to be the major parts of the proposals and what are
the pros and cons of each.

I am sorry that NSI is refusing to allow ICANN more time to study the
proposed changes.  But that is their decision and one they may have to
live with more than anyone else.  In view of such a (deliberately)
short time to consider the proposals I hope the ICANN BoD will only
vote in favour of the proposals if they consider they are *clearly*
better for the Internet community.  If they only consider them of
equal value one should stay with the status quo which had far more
consultation and community support.

>1. The existing Registry Agreement covering .com, .net and .org 
>would be split into three separate Agreements, one for each registry.

This is positive for the Internet community and sensible.  It is not a
huge issue either way but makes more sense to have each TLD with its
own contract.

>2. The term of the .org Registry Agreement would be shortened by 
>almost one year to 31 December 2002, at which time VeriSign would 
>permanently relinquish its right to operate the .org registry

This is probably good.  It depends on whether fees are likely to be
lower or higher by having registry split off (there are economies of
scale) and also whether it will still be possible through Registrars
to register names under multiple TLDs easily.

>In addition, VeriSign would establish an endowment of $5 million for 
>the purpose of funding the reasonable operating expenses of a global 
>registry for the specific use of non-profit organizations

This is good as without this prices for *.org are more likely to rise.
However has any costings been done of whether this is a large enough
amount (only provides $300,000 a year interest) to fund costs of such
a registry?  Is $5 million plucked out of the air or chosen fro some
reason?

>, and would make global resolution resources available to the operator 
>of the .org registry for no charge for one year and on terms to be 
>determined thereafter, for so long as it operates the .com registry. 

I don't actually understand what resolution services are being
referred to here.  I'm sure someone more knowledgable can specify
these for me.

>3 The term of the .net Registry Agreement would be extended only 
>to 1 January 2006, or twenty-two months shorter than the automatic 
>extension in Section 23 of the existing agreement would produce

Allowing net to come up for tender earlier is obviously good.  However
I would not get too excited over a mere 22 months.  We're still
talking about having it for another five years.

>At that time, the .net TLD registry would be opened to competitive 
>proposals, under a standard adapted from the existing agreement

This is basically neutral.  NSI has exactly the same chance of keeping
*.net in 2006 than it would in 2007.  

>, but with VeriSign having only the option of rapid arbitration rather than 
>litigation (as in the existing agreement) to review an ICANN decision to 
>select someone else to operate the registry, should that occur.

This is positive as avoiding litigation is good.  However again *.net
registrations are less than 1/4 the size of those of *.com.  I also
suspect many *.net registrations are done to match a name registered
in *.com.

>4. The existing agreement would be amended to provide that (1) it 
>applies only to the .com registry; (2) to conform it in many but not all 
>respects to the template of the registry agreements that will be 
>entered into by the new global TLD registry operators

This has been held up as some major gain yet details have been hard to
come by.  The best analysis seems to be from Peter de Blanc who said
"Clever lawyers would find a lot less to be creative about in the new
contract.".  This is useful of course.  I do wonder if the existing
contract is so deficient whether the same staff were used to draw it
up, as did the proposed new contract!!

>to provide a presumption favoring renewal of VeriSign's right to 
>operate the .com registry 

This is the part that gives me the most trouble - even more than
reversing the policy on splitting the Registrar business out.

First we need to remember that *.com accounts for around 65% of all
domain name registrations in the world (www.domainstats.com).  This is
not some new untested TLD but the main one the world uses. I am very
hesitant about giving any company a presumptive right of renewal to
*.com until such a time as it is under say 33% of the world market -
ie competition is working.  If Verisign wanted to negotiate this in a
couple of years it might be fine but at this stage giving away an
eternal presumptive right to *.com seems to be blunt nuts.

The argument is now just about whether NSI would keep *.com.  Kent
argues that even under existing contract it could tie ICANN up in
lawsuits.  That may be the case (incidentally I don't believe policy
should be made on the basis of we had better give it to them anyway as
they will sue us if we don't, even if they are not the best company to
provide the service), but it ignores the competitive pressures on
price and service which will be lost if NSI gain a presumptive right
to *.com.  Anyone who has worked in a competitive industry knows what
a difference having to retender can make.

So a huge big negative for the Internet community on this point.
*.com comprises 65% of the world's domains and is just too big to give
a presumptive right to, at this stage.

>In addition, VeriSign will commit to invest no less than $200 million 
>in research and development activities, and resulting improvements, 
>in order to increase the efficiency and stability of the .com registry. 

This sounds good but again I wonder what the figures really mean.
Perhaps NSI would be spending this money anyway as a sensible
investment to make more money.  This comes to $30 million a year.  I
would be interested in more details of what exactly will be funded
with this expenditure.  $200 million for the rights to *.com forever
seems a bloody good deal if I was a NSI shareholder but it is hard to
see how what the actual benefits for Internet community is.  

>5. The requirement in Section 23 for the separation of legal ownership 
>of the VeriSign registry and registrar businesses would be eliminated, 

How anyone can not call this a policy reversal I do not know.  I mean
this is almost the main reason ICANN was created.  To have the staff
offer it up as a bargaining piece with no consultation is simply
staggering, but anyway onto the merits.

There are several pitfalls here.  Firstly once the ban on being a
Registrar is gone there is nothing to stop NSI aggressively acquiring
other Registrars to end up again as a huge near monopoly.  Also even
with full competition NSI still have more domain entries than every
other Registrar combined and are almost five times larger than the 2nd
largest Registrar.

The ICANN staff assert there have been no complaints about NSI giving
unfavourable treatment to other Registrars (I note though that at
least one Registrar disputes that).  This however is in an environment
where NSI knows it will be losing its Registrar business.  There is
some risk that the combination of keeping its Registrar business and
gaining a near permanent grip on *.com, could lead to an environment
where there are more complaints.

I can not see the merit in agreeing to a policy where we create a
permanent potential conflict of interest with one company being
Registry and Registrar.  I believe the Internet community will be far
far better served with NSI concentrating on being a superb Registry
and 190 other companies concentrating on providing excellent *.com
registrar services.

>7. In all three of these new registry agreements, the existing limits on 
>VeriSign's responsibility to share in the cost recovery efforts of ICANN 
>would be amended to conform to the relevant provisions of the registry 
>agreements with the other registry operators that have been negotiated. 

Okay can someone who knows the details please clarify whether this in
practice is likely to mean a cent more to ICANN or not, and if so how
much.

>B. Registry Operator may, at its option and with thirty days written notice 
>to ICANN and to all ICANN-accredited registrars, revise the prices charged 
>to registrars under the Registrar License and Agreement

This is a new clause not in the existing contract.  It seems to allow
NSI to increase prices easier than it can at the moment.  This IMO is
a bad thing.  In fact with registrations doubling every year or so I
suggest we should be looking at price decreases only.  Again if
someone can provide exact meaning that would be good.


My overall conclusion is that the proposed changes are risky,
impossible to reverse and overall the benefits to the Internet
Community are not matched by the disadvantages they bring.  They
increase the chance of monopolistic behaviour which seems to go
against everything ICANN was set up to do.

There are parts of the proposal which have merit and with some changes
could be made more acceptable.  However to my regret NSI and the ICANN
staff have made this an all or nothing deal which is not open to
compromise.  Therefore I believe the ICANN Board is duty bound not to
agree to the proposal and enforce the existing agreements which have
widespread community support.

DPF
--
david@farrar.com
ICQ 29964527
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