RE: [ga] Responses by .biz/info/org Registry Operators are Unacceptable

["Michael D. Palage" <Michael@xxxxxxxxxx>]

George:

You and I have had a number of constructive discussions via email on the
GA and BC list, as well as over the telephone on this topic. 

Although a lot has been said about the proposed .BIZ, .INFO and .ORG
contracts lets talk about what has not been said. Most of the vocal
people in this current debate could care less about the .BIZ, .INFO and
.ORG contracts, but only care about its potential impact in connection
with the VeriSign .COM contract. You yourself even admitted the same
during our exchange on the BC list, when you admitted that neither .BIZ
or .INFO had any market power. 

Now I think the proposed wording by the registry operators is not
unreasonable, and here is why. Both of us agree that the reasonable
expectation interests of registrants need to be protected. For the
purposes of this discussion lets use VALUABLE-DOMAIN-NAME.TLD that was
registered by a registrant for $9 of which $6 went to the registry
operator. Now lets suppose that the management of a registry operator
wanted to do something really stupid and greedy and decided to raise the
price of all renewals to $1000. Under the proposed wording of the
Afilias and Neustar modified contractual language that would not be
possible. Because all new and renewal registrations need to be charged
at a uniform rate, the only exception being in connection with marketing
programs. 

Thus the only way registry operator would be able to charge $1000
dollars per domain name year was if they charged all registrants (new
and renewal) $1000 per domain name year. Now if a registry operator was
stupid enough to try that particular move here is what would happen.
Because of the six month notice period, coupled with the ten year
maximum registration period, all registrants would max out their
registration agreements at the lower $6 rate. After the registry raised
their rates, there would likely be no new registrants into the space at
the $1000 per domain name year rate, and the registry would eventually
fail in 10 years after all of the existing registrants migrated toward a
new TLD. That is what would happen in .BIZ, .INFO and .ORG. Now perhaps
you could argue that registrants would pay the ransom to stay in the
.COM space, however, that is not relevant to the current issue at hand
regarding the pending .BIZ, .INFO and .ORG contracts.

Another hypothetical that has been discussed under the tiered variable
pricing models is how a registry operator could impose per domain name
pricing. Under the proposed restrictions this type of pricing would not
impact active domain name registrations. It would only potentially apply
to domain names that have never been allocated (i.e. single or two
letter domain names) or in connection with domain names that were
initially registered and then later deleted. In either case there is no
registrant's reasonable expectation interest to protect. Thus as long as
the registrant of VALUABLE-DOMAIN-NAME.TLD maintained his/her
registration, he/she would never be subject to any tiered variable
pricing models.

Having read most of the exchanges between you and Jeff Neuman, I believe
you have taken a number of his quotes out of context. This is
unfortunate because this is why many people avoid engaging in an open
dialog on this and other lists. With regard to your quotes by Neustar's
CEO Ganek, I believe you are comparing apples to oranges. For example
NeuStar does have a monopoly over the telephone number space in the
U.S., I have no choice but to use their service should I want a
telephone number within the North American number plan. Although each
registry operator is a sole source provider (monopoly) for their
respective TLD, as a consumer I have the ability to pick from any one of
a number of TLDs when deciding to create an online presence.

So here is the factual scorecard as I see it:

The ICANN Board has voted in favor of presumptive renewal in connection
with the following registry contracts: (.TRAVEL, .JOBS, .NET, .MOBI,
.CAT, .COM, and .TEL).

The ICANN Board has approved the following registry contracts (.COM and
.TEL) during the pendency of the Feb-06 PDP. 

Notwithstanding the ICANN Board's approval of the following registry
contracts (.TRAVEL, .JOBS, .NET, .MOBI, .CAT, .COM, and .TEL) that
potentially allowed for tiered/variable pricing, the current registry
operators have voluntarily agreed to include additional restrictive
language into their contracts.

Under the ICANN by-laws, ICANN shall not apply its "practices
inequitably or single out any particular party for disparate treatment
unless justified by substantial and reasonable cause, such as the
promotion of effective competition."

In accordance with paragraph 5.2 of the existing Neustar and Afilias
registry contracts, both registry operators are within the period of
time during which their contract should have been extended. The only
reason their contract would not have been extended is if the parties
could not reach an agreement and the registry contract would need to be
rebid. However, that is not the case as both ICANN and the registry
operators have agreed upon proposed terms to a new contract.

Thus the ICANN Board has two options as I see it:

(1) Approve the registry contracts that are materially the same as the
recent registry contracts the Board has approved, and allow validly
constituted policy development processes to make the appropriate changes
as currently set forth in the registry agreements; or

(2) Reject the contracts and explain the substantial and reasonable
cause why they have singled out these registry operators for disparate
treatment.

Just my two cents for what they are worth.

Best regards,

Michael D. Palage




-----Original Message-----
From: owner-ga@xxxxxxxxxxxxxx [mailto:owner-ga@xxxxxxxxxxxxxx] On Behalf
Of George Kirikos
Sent: Friday, October 13, 2006 2:00 AM
To: ga@xxxxxxxxxxxxxx
Cc: biz-tld-agreement@xxxxxxxxx; info-tld-agreement@xxxxxxxxx;
org-tld-agreement@xxxxxxxxx
Subject: [ga] Responses by .biz/info/org Registry Operators are
Unacceptable


Hello,

ICANN has posted the responses of the .biz, .info and .org registries
regarding the proposed new contracts at:

http://www.icann.org/announcements/announcement-1-12oct06.htm

They are unacceptable, and the proposed contracts should continue to be
rejected.

1) Tiered/Differential pricing -- Each of the registries proposes that
new language be added to the contracts that would continue to leave in a
big loophole to implement differential pricing. In particular, they
would allow it:

"to the extent a variable pricing model for active Registered Names has
been implemented in any other new or existing gTLD"

(effectively the equivalent language in all 3 proposed revisions)

This is an enormous loophole. Indeed, it's a loophole that may
*ALREADY* have been triggered, or be able to be triggered due to
existing contracts for newer gTLDs that don't have any theoretical
restrictions on pricing (e.g. it might be allowed in .asia or .mobi,
where more pricing policy discretion was given to the registry
operators). All it would take is *1* new gTLD to introduce differential
pricing, and these three registries would be permitted to do the same.
And of course by logical progression, VeriSign would want the same for
.com/net.  

The big difference is that registrants in any new gTLD that permitted
diffferential pricing knew this ex ante. Here, in the legacy
.biz/info/org agreements, the registry operators want to change the
rules for registrants ex post.

It's funny, because when this was first brought up, some registries were
suggesting that differential pricing was something that they didn't even
think was permitted in their first drafted contracts:

http://gnso.icann.org/mailing-lists/archives/ga/msg04293.html

"AGAIN, I AM NOT SURE WHERE YOU GET THE PERCEPTION THAT WE ARE ABLE TO
CHARGE DIFFERENT PRICES FOR DIFFERENT DOMAIN NAMES."

And argued that they couldn't get away with raising prices:

http://gnso.icann.org/mailing-lists/archives/ga/msg04292.html

"Although you insinuate that we could raise prices, do you honestly
believe that we could really get away with raising prices and not suffer
a huge loss in the demand for our services?  We operate in a real
economic market and not in a theoretical hypothetical world.  In other
words, do you really think .BIZ could get away with raising prices above
that for a .com domain name and survive?  We do not.  We believe that if
we were to raise prices without a corresponding increase in .com prices,
registrants would switch from .BIZ to .com or .net in a heartbeat."

In other words, the registries "played dumb". In their new comments,
they continue to "play dumb". However, I believe they are much smarter
than that.

What matters is not this rhetoric of the registries about "Oh, we'd
never be able to raise prices", or that "we'd never do differential
pricing". What matters is what's in the actual contracts. The contracts
propose removing price caps. Registries do not need price caps to be
removed if they plan to REDUCE prices --- they only need price caps to
be removed in order to RAISE prices. And though they say they don't want
differential pricing, their proposed contracts say if *ANY* other gTLD
registry somehow gets it, then we want it too! Sheesh. How stupid do
these registry operators think that ICANN and the public are?

Given the poorly scrutinized contracts for .mobi, .cat, .tel, .asia,
.eu, etc., where differential pricing might be introduced one day, even
on a limited basis, that springs the trap on .biz/info/org holders under
the proposed new contract language. 

It's clear even stronger language is needed than that proposed by these
registry operators, that gives greater certainty to helpless
registrants. If indeed these registry operators believe that they can
never price higher than .com, perhaps one simple solution is to put in
the identical caps as exist on .com. With identical caps to .com,
nothing would prevent the registry operators from lowering the prices to
registrants below those caps, if that is their noble intention. If
instead it's their evil intention to raise prices, they would be
thwarted.

2) PDP-FEB06 - None of the registries wants to wait until PDP-Feb06. Of
course, that's unacceptable. The renegotiation of their contracts was
far in advance of their expiration, and attempted to preclude
competitive tenders by other prospective registry operators. Registries
are simply contractors. They're in no position to dictate timelines to
ICANN and to the public it represents that only benefit themselves.
Limiting the debate and further scrutiny of their contracts to find
other flaws is not in the public interest.

The last group that gave ICANN an ultimatum to make a decision on a
proposed contract on a specific date was ICM Registry, for .xxx. These
registry operators should suffer the same fate, if a decision on October
18th is demanded --- the Board should simply reject the proposed
contracts, period. The registry operators can then serve out the
remainder of their contracts, and then be subject to the renewal terms
contained therein, including the provisions from competing bids by other
prospective registry operators for .biz/info/org. Indeed, it is in the
public's interest that ICANN determine whether other prospective
registry operators might serve registrants of .biz/info/org more cost
effectively and/or with better service. Without a public tender or
"expression of interest" or similar process, ICANN is flying blindly and
by the seat of its pants, without any information. To make informed
decisions, one needs information, and these incumbent registries are
proposing to deny ICANN the opportunity to gather that information. It
would seem to me that the incumbent registry operators are scared that
competitors might emerge from that process, competitors who would
replace them, and thus they are trying to lock-in ICANN to long-term
(indeed perpetual) bad deals for consumers.

3) Presumptive Renewal: As discussed above, presumptive renewal should
not be a part of any new contracts. It's no surprise that all of the
registry operators wanted it. They say they "need" it, in order to
invest in their businesses.

Yet, somehow they were able to submit applications to run .biz/info/org
initially that did not give them presumptive renewal. Presumptive
renewal does not exist in most government contracts, or other business
contracts. They were aware of this from the beginning. ICANN will have
no trouble finding alternate registry operators who are willing to bid
on operation of the .biz/info/org registries for fixed terms. Indeed, I
imagine these same registry operators, and perhaps VeriSign, DENIC,
Nominet, and others would be aggressively bidding at even lower prices
than exist today for fixed term new deals. This would benefit consumers.

One only need look at the example of our friends at Neustar, who agreed
to LOWER their telephone database management pricing, in exchange for a
contract extension:

http://gnso.icann.org/mailing-lists/archives/ga/msg04807.html

"The contracts have been extended by 48 months to June 2015. Pricing
remains unchanged at $1.05 through the rest of the year, the company
said, and in 2007 transactions will cost 91 cents each regardless of
volume. Beginning in 2008 until the contract expires, transaction rates
will range from 95 cents to 75 cents depending on volume."

""You can't complete a telephone call in the U.S. without using
NeuStar," Ganek says. "We cannot charge monopoly rents; we have to share
the benefits of fast volume growth with our industry?"

As I wrote before, it is perfectly consistent to have renewals of
contracts with price cuts, and allow the registry operators to have
enough money to invest in infrastructure, yet share the benefits of
economies of scale with consumers. ICANN's feeble negotiators seem to
have ignored this economic reality, because they fall for the FUD spread
by incumbent registries.

You can't fault registry operators for trying to get a price increase,
and lock out competitors -- that's in the interest of their
shareholders.  But, ICANN should see through their smokescreen, and be
negotiating price cuts. There's no "presumptive renewal" for Neustar in
these telephoone deals, either.

How can Neustar, and the other registry operators, argue that they
require presumptive renewal, when they are signing very similar
technological deals like telephone database management that DO NOT
CONTAIN PRESUMPTIVE RENEWAL? (and certainly differential pricing doesn't
exist for telephone number management)

In conclusion, one must ask whether the registry operators think that
ICANN, its Board, and the public are that stupid, to not see that price
decreases, price caps, uniform pricing and fixed-length contracts are
the norm? While one must applaud the registries for trying to take
advantage of the likely inexperienced and inept ICANN staffers who think
these contracts are somehow acceptable, anyone with an iota of business
experience can see that these are terrible deals for the public.

In the wise words of Vint Cerf,

http://www.infoworld.com/article/06/07/17/HNnetneutralitypioneers_1.html
?BROADBAND

"What's worse than a regulated monopoly? The answer is, an unregulated
monopoly."

By approving these proposed contracts, ICANN would be creating new
unregulated monopolies, to the detriment of the public. ICANN's Board
hopefully has the business acumen and experience to reject these
proposed contracts, and ensure that any new proposed contracts reflect
price decreases, price caps that protect consumers, uniform pricing, and
fixed-length contracts.

Sincerely,

George Kirikos
http://www.kirikos.com/