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Re: [registrars] RE: Appeal to ICANN Finance committee to modify ICANN Budget proposal

  • To: "'Registrars Constituency'" <registrars@xxxxxxxx>
  • Subject: Re: [registrars] RE: Appeal to ICANN Finance committee to modify ICANN Budget proposal
  • From: Jean-Michel Becar <jmbecar@xxxxxx>
  • Date: Thu, 20 May 2004 19:33:53 +0900
  • In-reply-to: <200405192320.i4JNKp830069@pechora.icann.org>
  • Organization: Global Media Online INC. Tokyo - Japan
  • References: <200405192320.i4JNKp830069@pechora.icann.org>
  • Sender: owner-registrars@xxxxxxxxxxxxxx
  • User-agent: Mozilla Thunderbird 0.6 (Windows/20040502)
I reread again and again the document and talking with my colleagues we realized that the real problem is not how to finance...the real problem is the budget itself....100% increase and the biggest part of the increase is paid by the registars :-(
ICANN wants to increase its budget of almost U$8M and us, registrars we will pay U$6.4M of the increase....is it fair????
So I think we should try to find a way to make this budget revised to a lower level: 

Does ICANN really needs 59 people to operate?
Does ICANN really needs more than US$2M for Board Meetings and Other travels? (I'm able to travel to each ICANN meeting for US$4000 ~ 5000 and I'm living in the most expensive country for the flight tickets) Why ICANN should be involved in the IDN promotion shoudn't be the registries? 

Jean-Michel

Bhavin Turakhia wrote:


Hi all,

I noticed that many of you have responded on the registrars list. Tom,
Patricio etc I would urge you to also send in your responses to the budget
public discussion forum, since those are the comments that will be used to
whet this. So I would suggest to mark a copy to budget-comments@xxxxxxxxx

Best Regards
Bhavin Turakhia
Founder, CEO and Chairman
DirectI
--------------------------------------
http://www.directi.com
Direct Line: +91 (22) 5679 7600
Direct Fax: +91 (22) 5679 7510
Board Line (USA): +1 (415) 240 4172
Board Line (India): +91 (22) 5679 7500
-------------------------------------- 
-----Original Message-----
From: tbarrett [mailto:tbarrett@xxxxxxxxxxx] Sent: Thursday, May 20, 2004 2:29 AM 
To: 'Bhavin Turakhia'; 'Kurt Pritz'
Cc: 'Registrars Constituency'
Subject: RE: [registrars] RE: Appeal to ICANN Finance committee to modify ICANN Budget proposal
I have more point that I wanted to make before hitting the "send" button.
The ICANN budget assumes new revenue sources from cctld's, registry services and new registrar accreditations.
What happens if these revenue sources do not materialize as expected? Will ICANN have already committed itself to spending funds it will not receive? Who will it turn to to make up for the short-fall? This is why a growth cap is required. 

Best Regards,

Tom Barrett
EnCirca, Inc


-----Original Message-----
From: owner-registrars@xxxxxxxxxxxxxx
[mailto:owner-registrars@xxxxxxxxxxxxxx] On Behalf Of tbarrett
Sent: Wednesday, May 19, 2004 4:01 PM
To: 'Bhavin Turakhia'; 'Kurt Pritz'
Cc: 'Registrars Constituency'
Subject: RE: [registrars] RE: Appeal to ICANN Finance committee to modify ICANN Budget proposal
I have some serious concerns about the recent ICANN budget discussions.
1. The various business models deployed by registrars should not be an issue in determining the appropriate ICANN budget. The registrars should not allow this to be a distraction. The real issue, in my view, is to how to insure fiscal discipline and accountability (to ICANN tax-payers)in the ICANN budgeting process.
2. I'm dismayed to see that ICANN staff has factored registrar business models into their budgeting thinking as well. The ICANN staff and board should not be using various registrar business models as rationale for increased budget fees. Simply put, ICANN should be developing their budget based on their needs and not based on industry business models that may or may not exist in a few months. This is a slippery path. A more business-model-agnostic approach would be to simply add a ICANN transaction tax on the fees paid by the registries to ICANN.
3. As any business person knows, there are never the resources available to do everything on the budget "wish list". The process of prioritizing business needs and conducting "triage" is healthly for the business. Providing a business unlimited funds, to do anything it wants to do, is a recipe for failure. When an organization is not forced to make spending trade-offs, it leads to bloat.
Just as we registrars are forced to make hard choices to how to spend our available funds, so too, ICANN needs to make hard choices in how to spend its funds. This is not bad. This is good and will lead to a lean and efficient ICANN.
4. The only way ICANN will be forced to make hard choices, is to deny it the full budget it is asking. There needs to be a fiscal discipline and a growth cap imposed on ICANN funding. As a quasi-governmental body, ICANN generates funds through taxes from registrars and registries. As tax-payers, we need to push for a cap on the annual growth of taxes that we pay to ICANN. The ICANN staff and board should agree on this growth cap to help enforce fiscal discipline within the ICANN organization. Without this, ICANN will not be truly motivated to pursue other sources of revenue. A growth cap also helps create accountability by ICANN to its tax-payers. Without it, ICANN will simply come back year after year asking for more money. 

Sincerely Yours,

Tom Barrett
EnCirca, Inc.


-----Original Message-----
From: owner-registrars@xxxxxxxxxxxxxx
[mailto:owner-registrars@xxxxxxxxxxxxxx] On Behalf Of Bhavin Turakhia
Sent: Wednesday, May 19, 2004 2:04 PM
To: 'Kurt Pritz'
Cc: 'Registrars Constituency'
Subject: [registrars] RE: Appeal to ICANN Finance committee to modify ICANN Budget proposal 



Hi Kurtz,
Thanks for the fairly detailed response. I too definitely see your view point and appreciate the time and effort that ICANN and other participants have spent on this exercise. Trust me, despite my personal passion on this subject I cannot match the time effort you all would have spent on this document. Nevertheless I am of opinion (as are other Registrars) that there are certain key areas in this proposed budget that should change. This opinion is NOT based on quick irrational thinking, but as a concerted logical reasoning. I am quite positive and certain that all of us as Registrars will be able to convince ICANN on our viewpoints and am very happy for the audience and the discussion process.
I have run through your email in a blazing speed reading fashion :) and thank you indeed for taking the time to pen out such a detailed response. I will read it once more with the attention and time it deserves shortly and then respond back with my viewpoint. 

Best Regards
Bhavin Turakhia
Founder, CEO and Chairman
DirectI
--------------------------------------
http://www.directi.com
Direct Line: +91 (22) 5679 7600
Direct Fax: +91 (22) 5679 7510
Board Line (USA): +1 (415) 240 4172
Board Line (India): +91 (22) 5679 7500
-------------------------------------- 
-----Original Message-----
From: Kurt Pritz [mailto:pritz@xxxxxxxxx]
Sent: Wednesday, May 19, 2004 11:15 PM
To: 'Bhavin Turakhia'
Cc: ivanmc@xxxxxxxxxxxx; tricia.drakes@xxxxxxxxxxxxxxxxxx; tniles@xxxxxxxxx; twomey@xxxxxxxxx; 'Dan Halloran'; 'Registrars Constituency'; 'Divyank Turakhia'; 'Namit Merchant'; 'Rob Hall'; 'Elana Broitman'; 'Tim Ruiz'; webmaster@xxxxxxxxxxxxxx; fausett@xxxxxxxxxxx; ali@xxxxxxxxxxxx; froomkin@xxxxxxxxxxxxx; vinton.g.cerf@xxxxxxx; 'John Jeffrey'; 'Kieran Baker' Subject: RE: Appeal to ICANN Finance committee to modify
ICANN Budget 
proposal

Bhavin Turakin, Chairman & CEO
Directi.com

[in plain text and pdf formats]


Dear Bhavin:
Thank you for your letter outlining the concerns you have with the proposed ICANN Budget. It is clear and well thought out. I
know that
your letter was addressed to Vint Cerf. Vint and I communicated to determine an appropriate response and he has contributed to the composition of this letter.
Please know that the ICANN staff put a great deal of
thought and work
into the proposed budget model. That effort included considerable discussion of the effects of rate increases on large and small registrars, barriers to entry, and the DNS marketplace.
Please take this response to your paper as constructive
discussion and
not argument. The ICANN staff, board and various constituencies discussed several finance models and their effects on the
ICANN budget
and on the community. Many hours were spent in this
activity - just as
are you doing now. Many of the arguments you make were
considered - 
most were adopted as part of the plan.
First, the lack of public forum you mentioned has been
cured. It was
under construction when ICANN received your letter. It will 
be posted.

On the more important issues:
As you probably recognized from the budget document, the
per annum fee
was developed in recognition of the fact that while some of ICANN's effort resulting from relationships with registrars is
proportional to
the size of the registrar, significant other effort
expended on behalf
of registrars is fixed for each registrar regardless of the
number of 
names registered.
An example of this latter activity is ICANN addressing issues with contractual compliance. There are costs related to consumer
protection
and compliance activities that do not vary with the number of names under registration. ICANN invests to maintain linkages with various government agencies to protect consumers and help ICANN do a better job of assuring that all registrars follow the rules of the road in fair fashion. As ICANN adopts a more proactive contractual
compliance
program during the next fiscal year, activities will incur per registrar, rather than per name expenses.
Other activities include administration of various databases and responses to business and technical queries.
So while ICANN proposed that some of the costs be allocated
on a per
registrar basis and that some form of such an allocation is fair, I take your queries to center around the question of whether the allocation methodology in the budget is fair. ICANN submits
that it is
fair, asks that you consider the following, and then asks that we continue the dialogue so that a consensus is reached. 

EFFECTS ON SMALLER REGISTRARS
ICANN believes that smaller registrars will not be forced
to leave the 
market place for two reasons:
1) Many or most of the smaller registrars can easily
afford the fee 
due to revenues received by use of access to the batch pool, and
2) The fee will be mostly forgiven for those registrars that do not employ their right to access the batch pool and for whom
the fee would 
severely affect the ability to carry on.
To the first point, it has been estimated by others that over 110 registrars presently derive revenue from using or selling their contractual right to access the batch pool in an effort to register deleted names. That revenue has been estimated at $20,000
to $30,000
per month for, in the words of one registrar, sitting and doing nothing. (These activities should be contrasted with the business models of registrars conducting standard marketing and registration operations where margins and revenue streams are tighter.)
There are a number of accreditation applications in the pipeline, including several with clear indications that the
accreditation is to
be used to gain access to the batch pool. ICANN anticipated none of those applicants will withdraw their application based upon the new fee structure. As stated in an earlier registrar posting concerning the budget, none of the existing registrars earning over $240,000 annually should protest the fee.
ICANN does not condone the use of accreditations that are used strictly for access to secure deleted names. In fact, when
faced with
an abnormally large spate of accreditation applications, ICANN temporarily halted the accreditation process and convened
an emergency
session of the ICANN Board to discuss whether large number of accreditations should be granted in an environment where so
many new 
accreditations were intended solely to access the batch pool.
With regard to the second point, forgiving fees in certain circumstances will avoid situations forcing smaller
registrars out of 
the market.
One registrar posting inferred that smaller registrars
might be better
off as resellers rather than have to bear the burden of fees as an accredited registrar. While this may be true in some cases,
ICANN also
recognizes that several small registrars, especially those
outside the 
United States, play a meaningful role in the DNS community.
As soon as the per annum fee was postulated, ICANN staff began discussing alternatives for fair, bright line rules for
establishing
forgiveness. One registrar posting suggested that ICANN
developed the
theory in a knee jerk reaction to comments made during the Budget Advisory Group meeting and had no ideas for creating the rules for such a procedure.
This is not true. As stated above, ICANN considered the issue ever since the per annum fees were suggested. Forgiveness was
not included
in an earlier version of the budget because many in the community stated that it was too difficult to develop a fair method
that could
not be "gamed." After discussion before and during the
Budget Advisory
group meeting, ICANN worked on developing a model that is fair and predictable.
The model was not included in the budget posting because it
is still
being tested with the opinions of various technical and business experts in the community. That testing continues. The model
will first
be built around determining which registrars are realizing revenues through use of the batch pool. At this point, it can be
said that the
model will require those receiving substantial revenue by
hitting the
batch pool to pay the per annum fee and that those
registrars can be
clearly and easily identified through the numbers and types of transactions incurred.
The second part of the model, will judge whether the
financial status
and business model of the registrar require some relief. I believe through interactions such as these exchanges of
information, the best
model will be devised. In any case, it is ICANN's position that deserving registrars should retain their accreditation.
The fees suggested in the budget indicate that qualifying
registrars
would pay approximately $10,000 annually (the $4,000
accreditation fee
plus a per annum fee of approximately $6,000) and be granted the ability to sell names from all registries, including
anticipated new 
sTLDs.

EFFECTS ON LARGER REGISTRARS
I understand your viewpoint that under the present scenario, larger registrars will save a huge amount of money compared to a
budget where 
they would be paying 37 cents a transaction instead of 25 cents.
Looking at the other side of the same coin, the larger
registrars (and 
all
registrars) are paying at least 7 cents per transaction
more than in
the present budget year. Using the numbers developed on your spreadsheet, NSI is being asked to pay $536K more than last year, Tucows $273K more, GoDaddy $253K more and so on. It is true
that these
amounts are smaller percentage increases than paid by smaller registrars, but these amounts can materially affect the
business model 
of the larger registrars.
The fairness argument applies equally to these registrars.
The larger
registrars are paying 40-50% increases in fees and that increase is applied to a numerically large base. Your model suggests it
is fairer
that the larger registry fee increase should be as high as
$1.4MM or 
108%.
In the cases of smaller registries, the six-figure increases heads asymptotically to the $20-$30K range in fairly rapid order. As discussed above, most of these registrars derive
significant revenue
from sources other than the straight registration of domain
names and
can afford the fee. Many others can be forgiven a large
portion of the 
fee.
As in all fairness discussions, the topic of a judging the
percentage
of a big number against a percentage of a small number must be considered. In the ICANN proposed model it was thought that
the larger
registrars were paying a considerable increase by any
standard while
the smaller registrars' payments were increased by amounts
consistent 
with their business models.

EFFECTS ON THE ICANN BUDGET
If the programs described in the ICANN budget are effectively implemented, many registrars should not abandon their accreditation. In fact, and based upon the number of accreditation applications in queue, ICANN expects the number of accreditations to increase significantly between now and the start of the fiscal year.
There are
indications in these applications that most of these new registrars will derive significant income through their access to the 
batch pool.
As stated above, ICANN does not condone this business model but a special meeting of the board concluded that applications
could not be
denied based upon apparent business model absent substantial more study into this subject matter. As I stated earlier, ICANN
estimates
that none of the existing applications for this purpose will be withdrawn given the new fee structure.
Similarly, new registrars will not be precluded from forgiveness at the time of the first quarterly invoicing. ICANN does stand for promotion of competition. It is also understood however, that potential registrars should have robust financing and a
solid business
pan before entering the field. (As counterpoint to your discussion, when larger registrars discussed potential resources, it
was offered
that a $17-$19K fee should be reasonable to an ongoing, robust registrar operation.)
Given all this, it is anticipated that ICANN will have over 250 accredited registrars by the start of the fiscal year. The
increased
numbers should ensure the planned for revenue stream while allowing some reductions in rates to the smaller registrars. 

Effects of new sources of revenue
ICANN agrees with every registrar posting regarding the
generation of
new sources of revenue. ICANN's business model should not
be based on
sole or few sources of revenue. It is not sound practice.
New sources
of revenue are intended to limit any increases to the
registrar fees
and to reduce them. Those revenues will be realized in time for or before the following fiscal year.
Where the budget ascribed to holding the 25 cent fee constant, it should also be taken as making the same commitment to the per annum fee. 

CONCLUSION
I realize this writing does not address all your concerns. However, there is a basis from which to work. The fact that many small registrars have significant revenue streams means that
there are not
as many registrars adversely impacted by the fee structure
as some may
have thought. Also, I believe we can develop a method for
waiver of a
portion of the fees that is objective and does not result in differences and partiality.
Given the above two conditions above, a fair model can be
created in a
budget that: significantly increases cash fees from large
registrars,
charges registrars availing themselves of the batch pool a very reasonable fee, moves to forgives the debt of smaller registrars, adjusts to significant changes in the marketplace and plans
for other 
sources of revenue.
Having written this document, I know the work that went into yours. Everyone at ICANN appreciates the passion that went into
your effort
and we all generally agree with your principles. As stated
above, this
document is not intended as an end. We are looking forward to your comments and those from the community. 

Sincerely,

Kurt Pritz
ICANN
4676 Admiralty Way, #330
Marina del Rey, CA  902
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