[wg-c] Final final report

[Milton Mueller <mueller@syr.edu>]

The posting of 16 October failed to include the names of two
supporters, and failed to include a WG-C member in the list.
here is a revised version.

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.
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
Mikki Barry, Domain Name Rights Coalition
William Walsh, DSO Net
Christopher Ambler, Image Online Design
Joop Teernstra, IDNO
Anthony M. Rutkowski, NGI Associates
Paul Garrin, CEO, Name.space
Mark Langston

Other supporters:
Hans Klein, Computer Professionals for Social Responsibility
Don Mitchell, Vienna Virginia
Peter Deutsch, Shophound, Inc.
Richard Sexton, VRx
Kathryn Vestal, Esq. Billings, MT

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?