[wg-c] Final position paper

[Milton Mueller <mueller@syr.edu>]

NEW GTLDS: COMPETITION, INNOVATION, AND CULTURAL DIVERSITY.
A POSITION PAPER FROM MEMBERS OF WORKING GROUP C

SUMMARY
This Position Paper documents the strong demand for new gTLDs and advocates the
following policies. ICANN should declare in advance its intention to add 500 new
gTLDs over the next three years. Additions should take place in a gradual but
progressive manner and should be halted only if proven threats to stability develop.
After the three-year period there should be no fixed limit on the number of new TLDs
or registries. Artificial limits on the name space should not be used as a form of
intellectual property protection, especially once a UDRP has been adopted. The
content of the top-level name space should be driven by applications submitted by
prospective registries. End users and suppliers, interacting in a marketplace,
should determine the market structure of registries, registrars, and the name space.
ICANN’s role should be strictly limited to the coordination of their activities and
to defining the minimal technical and operational criteria needed to maintain the
stability of DNS.

Working Group C members
Milton Mueller, Syracuse University School of Information Studies
Rod Dixon, J.D., LLM, Rutgers University-Camden
Timothy Denton, BA, BCL, Telecom and Internet Law and Policy
William Walsh, DSO Net
Christopher Ambler, Image Online Design
Joop Teernstra, IDNO
Anthony M. Rutkowski, NGI Associates
Paul Garrin, CEO, Name.space

Other supporters:
Mikki Barry, Domain Name Rights Coalition
Hans Klein, Computer Professionals for Social Responsibility
Don Mitchell, Vienna Virginia
Peter Deutsch, Shophound, Inc.
Richard Sexton, VRx

1. Adding new gTLDs to the root is an important part of ICANN’s mandate
ICANN was created because the institutions that preceded it were unable to resolve
the intense political and economic conflicts created by demand for new top-level
domain names. The US Department of Commerce White Paper included “oversee policy for
determining the circumstances under which new TLDs are added to the root system” as
one of the 4 key purposes of the new corporation. Thus, ICANN’s handling of new TLDs
is an important test of its DNS stewardship. We urge a flexible, diverse, and open
approach to this problem.

2. Demand for new gTLDs
There is abundant evidence of significant end user demand for expanding the name
space. While some users will continued to be satisfied registering under ccTLDs, a
very large number prefer gTLDs and want alternatives to .com, .net, and .org.
Evidence of the intense demand for new, semantically interesting gTLDs is enumerated
below:

a) Second-level domain names under the dot com TLD routinely change hands for
enormously inflated prices. (See Table) These are not cases of “cybersquatting” but
legitimate trades of ordinary, untrademarked words. High prices reflect the
artificial scarcity of common names in existing gTLDs, and the premium on .com names
in particular.

Domain Name Price
Bingo.com US$ 1.1 million
Wallstreet.com US$ 1.03 million
Rock.com US$ 1.0 million
Eflowers.com US$ 1.0 million
Drugs.com US$ 800,000
University.com US$ 530,000
Computer.com US$ 500,000
Blackjack.com US$ 460,000
BBC.com L 200,000
Business.com US$ 150,000
Internet.com US$ 100,000
Trade.com US$ 40,000

b) There are widespread complaints among users that it is becoming increasingly
difficult to find simple domain names in the NSI gTLDs. The basis for these
complaints was verified in an April 14, 1999 Wired News survey, which found that of
25,500 standard dictionary words, only 1,760 were free in the .com domain. At the
time of that article, only about 7.5 million domain names had been registered. More
than 3 million have been registered in the ensuing five months.

c) Currently, the weekly growth rate of domain name registrations is over 270,500.
Projecting that growth rate into the future would put the number of domain name
registrations at 67 million by 2003. Current gTLDs simply will not be able to
contain such growth.

d) The growing demand for domain names cannot be satisfied by ccTLD registries. The
problem is not capacity, but consumer choice. Most users prefer gTLDs. 74% of the
world’s domain names are registered in gTLDs; 61% are in dot com. The gTLD’s share
of total domain name registrations has remained constant since 1997. This is true
despite the fact that the proportion of Internet users outside North America has
grown significantly in the same period. Internet users’ preference for gTLDs over
ccTLDs has remained evident despite the limited choice of gTLD names available now.
Expanding the number of gTLDs and making their semantic content relate to different
cultures and languages will make this preference even stronger. We believe that TLD
policy ought to reflect end user preferences, not top-down, preconceived notions of
where users “ought” to register.

e) On the supply side, there are numerous potential suppliers of registry services
willing and able to administer new gTLDs. These include, but are not limited to,
Core, Image Online Design, Name.space, VRx, and MHSC. Thousands of registrants have
paid to reserve domain names under TLDs not carried in the legacy IANA root. Several
ccTLD registries, such as .NU, .CC, and .TO, have transformed themselves into gTLDs,
marketing their names globally as alternatives to .com, .net and .org. It is obvious
that these businesses perceive a serious demand for gTLD services.

3. The WG-C Recommendations
WG-C’s report to the DNSO proposes to add only 6-10 new gTLDs to the root as a
“testbed.” It would then engage in an evaluation period before adding any more.
There is no commitment or presumption that more would be added, and the duration and
criteria of the evaluation are not specified. An entirely new process would have to
be initiated to add more. Although many of the signatories of this report supported
the 6-10 proposal as the lowest-common denominator for widespread agreement in the
working group, we believe that the proposal is far too limited and imposes undue
restrictions on competition, innovation, and cultural diversity.

4. An Alternative Proposal
The following policy better reflects the mandate of ICANN and the needs of the
Internet:
a) ICANN announces its intention to accept applications for 500 new gTLDs over the
course of the next three years.

b) The applicants for these new gTLDs would be added at a gradual pace – e.g., 10
the first six months, 40 the next six months, 150 the second year and 300 the third
year.

c) A defined proportion of the new gTLDs should be reserved for names that reflect
distinct cultural/linguistic groups. ICANN’s 5 geographic regions could be used as
the basis for these reservations.

d) Instead of an open-ended “evaluation” period, we propose that ICANN define clear,
objective, quantitative indicators of problems that would justify an interruption or
cessation of the process of adding new gTLD registries and names to the root. In
other words, new gTLDs should be considered innocent until proven guilty. After the
third year there should be no artificial limit on the number of gTLDs.

A proposal similar to this one received the support of about 35% of the voting
working group participants in a straw poll conducted by the WG-C chairs. Below, we
enumerate the reasons for the more open, diverse, and competitive approach to the
new TLD problem.

4.1 Competition Policy
The most important reason to specify at the outset a specific and large number of
gTLDs is to ensure a competitive market and a level playing field in the provision
of domain name registration services under new gTLDs. Only 6-10 new gTLDs, with no
commitment to add more later, risks creating an oligopoly of registries and a
monopoly under each name. Competition would be attenuated, and the incumbents might
have a vested interest in slowing or stopping the addition of new competitors. The
initial grantee(s) will have a significant and unfair competitive advantage. They
will be able to capitalize on the pent-up demand for new names in the short term.

4.2 Market Certainty
A highly restricted initial rollout, with no commitment to move forward, makes the
initial grant of the gTLD to new registries a far less rational process for
consumers and producers alike. The public will not know whether new alternatives
will be available in the near future, and hence their choice of a supplier may be
based on the assumption that the new gTLDs are the only option. A small number of
new gTLDs encourages pre-emptive and speculative registrations that are based on the
possibility of continued artificial scarcity. Prospective competitors will have no
idea when they will be allowed into the market or whether they will be allowed at
all. Limiting the number makes the initial assignment decision more controversial
and arbitrary as well. ICANN will not be able to ensure that its initial award is
not a permanent and final grant of a very special privilege, similar to the NSI
monopoly of the past.

A pre-announcement of a larger number, on the other hand, makes it clear that the
initial winners of new gTLD awards can anticipate plenty of additional competition.
Investment and entry decisions of new competitors will be far more rational.
Consumption decisions will be based on the need for and value of the domain names
themselves, not on attempts to exploit artificial scarcity.

5. Trademark Concerns and new GTLDs.
Some concerns were expressed in WG-C that the number of new gTLDs should be
restricted and the pace of introduction slowed in order to guard against trademark
infringement. We believe that that argument is deeply flawed.

It is legitimate for the trademark and intellectual property interests to advocate
case-specific dispute resolution procedures to protect themselves from abusive
domain name registrations. It is not legitimate, however, for trademark holders to
demand what amounts to a blanket prohibition on entry into a market for a legal
service (domain name registration) solely to make their policing and enforcement
task cheaper and easier. Such a policy unfairly imposes costs and restrictions on
millions of innocent consumers and suppliers. Operating a TLD is not, per se,
abusive or infringing; infringing and speculative name registrations constitute a
tiny fraction of the total number of registrations in any TLD. Similarly, we know
that the existence of VCRs, photocopying machines and similar recording devices will
result in copyright violations. No one in this day and age proposes to ban them or
severely restrict the number that can be manufactured and sold for that reason.
Technology should be allowed to develop, and legal protections should be adjusted,
if necessary, to reflect new realities. We should not, therefore, restrict the
number of gTLDs based on concerns about their impact on trademark protection.

Even if one does not agree with the reasoning above, the adoption of a UDRP by ICANN
completely severs any linkage between the number of gTLDs and concerns about
trademark protection. Under the UDRP, contact information will be accessible and
accurate, and challenges to registrations will be easy and inexpensive.
Cybersquatters have lost every court case in which they have been challenged at any
rate, and all objective indications are that the problem is declining. The UDRP
should serve as an additional deterrent.

Finally, we would point out that narrow restrictions on the number of gTLDs actually
contribute to many “cybersquatting” problems. Name speculation is fueled by the
premium value attached to domain names in gTLDs. That premium value is largely a
product of artificial scarcity in the TLD space. Also, if there are only four or
five new gTLDs, the most logical course of action for major trademark holders will
simply be to pre-emptively register names across all gTLDs. That defeats the purpose
of adding gTLDs.

6. Diversity and Competition in Registry Models
Perhaps the most controversial issue in Working Group C concerned the proper
economic model for registries and the process for selecting names. All of the
following questions were debated at length:
a) Should registries be shared, exclusive, or should both be allowed?
b) Should registries be non-profit, for-profit, or should both be allowed?
c) Should ICANN define the names to be added to the root, or should applicants come
to ICANN with proposals for names? Should the names available represent a fixed,
standardized taxonomy?

All of these questions can be boiled down into one fundamental issue. Does ICANN
control the market structure for domain name registrations and then license specific
firms to fit into its pre-ordained structure? Or, do end users and suppliers,
interacting in a marketplace, determine the market structure of registries,
registrars, and names, and ICANN in turn coordinates their activities?

We believe that the latter alternative is the best one and the only policy
consistent with ICANN’s mandate. ICANN should not impose any specific business model
upon registries, nor should it centrally impose any specific pattern of names. It
should allow the choices of end users in the marketplace to decide which models and
names succeed and which fail.

We believe that discussion of business models has been distorted by the case of
Network Solutions and its near-term market dominance. The White Paper sought to
remedy NSI’s monopoly on gTLDs by requiring sharing in .com, .net, and .org. But the
policy approach to NSI’s short-term dominance should not dictate how the domain name
market works in the long term. Indeed, we believe that ICANN lacks the authority to
set itself up as an economic regulator and impose specific business models

The content of the top-level name space should be driven by applications submitted
by prospective registries. Registries should contract with registrars on a free
market basis, with no pre-ordained pattern. Competition in the marketplace and user
preferences will determine which approaches succeed. Regulatory and legal remedies
to consumer protection problems that develop should be left to professional
regulators in national governments. ICANN should concentrate exclusively on
technical and administrative coordination of registry operators to ensure stability,
interoperability, and accountability. It should establish basic qualifications for
top-level domain name registries, and these should be confined exclusively to
technical stability and financial responsibility.

The following are the reasons for this approach:

6.1 Product differentiation and innovation may require integration of the
registrar-registry function.
A registry that wants to create a distinct identity and unique features for a TLD
may need to control who registers within it. It may also want to control the
front-end software interface for registration or other technical and business
parameters. For example, a TLD devoted to North American aboriginals, as was
proposed to WG-C, may want to ensure that specific tribal names are only assigned to
legitimate members of that tribe. Or a privacy-enhanced gTLD, which was also
proposed in comments to WG-C, may want to dictate certain technical parameters and
protect the integrity of its data. Either requirement might best be implemented by
integrating the registry-registrar function. This should be an option available to
applicants.

6.2 Imposing uniform models on new entrants will probably make it more difficult for
them to compete with NSI.
Dot com already has enormous market dominance and a huge economic premium is
attached to names in that TLD. Com and the other NSI gTLDs are already shared, and
their wholesale price is regulated. If new entrants into the marketplace are forced
to adhere to the exact same business model, their ability to generate the profits,
mindshare, and investment required to challenge NSI may be hampered.

6.3 Compulsory sharing requires detailed technical and economic regulation.
As the US Department of Commerce has learned, imposing “equal access” upon a
registry requires: a) fixing the wholesale price; b) ensuring that the same SRS
software is used; c) trying to determine the economic costs of the registry; d)
regulating the price for transferring names from one registrar to another; and other
complex monitoring and regulatory/contractual issues. ICANN lacks the resources and
the expertise to engage in such activity on a global basis. Furthermore, ICANN is
not the only line of defense against abuse of market power. Antitrust actions,
national-jurisdiction price regulation, consumer fraud proceedings, and other
remedies are available.

6.4 The benefits of sharing can be realized without making it compulsory.
Shared-registry TLDs are an option in the marketplace. The NSI gTLDs are already
shared. Several ccTLDs are also operating on that model. If consumers express a
clear preference for the price and service delivered by this model, then it will be
emulated. If, however, consumers willingly choose services offered by businesses
following a different model, why should ICANN interfere?