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

["Elana Broitman" <ebroitman@xxxxxxxxxxxx>]

We are scheduling a call on this matter on Tuesday.  I would like to suggest 5:00 pm EST to try to get Asia and the West coast of the U.S. 

Kurt - would you be available?

Thanks

Elana Broitman
Register.com
575 Eighth Avenue
New York, NY 10018
Phone (212) 798-9215
> EFax  (800) 886-2716
Fax   (212) 629-9309
ebroitman@xxxxxxxxxxxx 


-----Original Message-----
From: owner-registrars@xxxxxxxxxxxxxx
[mailto:owner-registrars@xxxxxxxxxxxxxx]On Behalf Of Michael D. Palage
Sent: Tuesday, May 18, 2004 11:38 PM
To: 'Registrars Constituency'
Cc: Kurt Pritz
Subject: RE: [registrars] Appeal to ICANN Finance committee to modify
ICANN Budget proposal


Bhavin:

I would like to thank you and the other registrars for their feedback on
this important issue. The input of all registrars and Internet stakeholders
are important in this budget process. Please be advised that ICANN this
evening has created a public forum. Any comments on the budget can be
submitted to  budget-comments@xxxxxxxxx and viewed at
http://forum.icann.org/lists/budget-comments/.

Best regards,

Michael D. Palage



-----Original Message-----
From: owner-registrars@xxxxxxxxxxxxxx
[mailto:owner-registrars@xxxxxxxxxxxxxx]On Behalf Of Bhavin Turakhia
Sent: Tuesday, May 18, 2004 6:05 PM
To: vinton.g.cerf@xxxxxxx
Cc: ivanmc@xxxxxxxxxxxx; tricia.drakes@xxxxxxxxxxxxxxxxxx; tniles@xxxxxxxxx;
'Kurt Pritz'; twomey@xxxxxxxxx; 'Dan Halloran'; 'Registrars Constituency';
'Divyank Turakhia'; 'Namit Merchant'; 'Rob Hall'; 'Elana Broitman'; 'Tim
Ruiz'; webmaster@xxxxxxxxxxxxxx; fausett@xxxxxxxxxxx; ali@xxxxxxxxxxxx;
froomkin@xxxxxxxxxxxxx
Subject: [registrars] Appeal to ICANN Finance committee to modify ICANN
Budget proposal


Dear Members of the ICANN Finance committee and Board
I represent a medium sized Registrar based out of India operating under the
name of Directi. I would like to offer my comments on the ICANN 2004-05
budget posted on the ICANN website, as I do believe it negatively impacts
the business of a large number of Registrars and breaks down this entire
structure that ICANN has created over the last several years.
Due to the lack of a public forum on ICANN's website I am having to send
this email directly to you. I would appreciate it if ICANN could put up an
online forum to allow public comment on this budget proposal. I detail out
below in a structured format the reasons why I believe the budget in its
current proposed form would negatively impact the entire domain name
industry and ICANN itself
Impact of the new ICANN Budget on Registrars
In very simple terms the new ICANN budget will have one primary impact on
Registrars - "the SMALLER ones will DIE and newer ones will stop entering
the field"
Lets investigate each of the effects on Registrars -
Effect 1: Larger Registrars will not have to change their Selling price
while smaller Registrars will have to increase their selling price
The $19000 per annum additional fee increases the per domain name cost of
large Registrars such as Netsol, Tucows, Godaddy etc by a meagre 0.5 cents
or lesser. Infact the $19000 per annum additional fee increases the cost
price of the top 20 Registrars by a meagre 10 cents per domain name
The $19000 per annum fee however increases the cost per domain of smaller
and mid-sized Registrars by a large component. Check the below table which
shows how much the Registrar per domain cost would increase if a Registrar
is in any of the brackets below
Registrar SizeIncrease in per Domain Cost
1000 domains19 dollars
2000 domains9.5 dollars
5000 domains3.8 dollars
10000 domains1.9 dollars
20000 domains95 cents
50000 domains38 cents

There are over 120 Registrars who fit in the above set. This means that over
120 Registrars will find themselves in a situation where they have to
significantly change their selling price. This is no easy task. Customers
and Resellers will never accept a pricing modification of this magnitude.
I have also attached an excel sheet showing the ENTIRE LIST of Registrars
(the list is 3 months old) and the direct increase they will perceive in
their DOMAIN PURCHASE cost as well as the percentage increase they will see
in their budget contribution. It is clearly visible from this list that the
smaller and mid-sized Registrars (well over 120 in number) will be
significantly impacted by the current budget as proposed.

Effect 2: Larger Registrars will Save a HUGE amount of money while smaller
Registrars will be footing that bill
Until now the variable component of ICANN's budget was divided amongst all
Registrars in the ratio of the number of Domains that they managed. This
resulted in a per domain fee of 12 cents. In the new budget if the same
model had been adopted then the per domain fee would be around 37.5 cents.
Instead by passing on a $19000 per Registrar fee, this has been reduced from
37.5 cents to 25 cents. This results in significant savings of money for the
larger Registrars at the cost of the smaller Registrars. For instance lets
compute the savings of the top five Registrars (Note the market share
figures are over 3 months old and therefore give only an approximate idea.
The actual savings are higher than the below figures)
RegistrarSavings [(Domains x 12.5 cents) - $19000]
Enom$302,215
Register.com$332,531
GoDaddy$339,507
Tucows$435,358
Netsol$904,208

As you can see from the above table in the earlier variable model fee Netsol
would have to pay $900,000 (or 1 million dollars) extra, which it is saving
now by that cost being passed on in the form of a fixed $19000 fee to the
other smaller Registrars. While netsol makes money on every one of those
domains it sells, the variable component of that is being borne by the
tinier Registrars.

Effect 3: Smaller Registrars and startup Registrars will be unable to
sustain operations
Smaller Registrars and Startup Registrars will not be able to sustain
operations. As such they already have to compete in a market where the
larger Registrars have had a head start. Now think about the fact that they
have to additionally start at a disadvantage as compared to the larger
Registrars - namely a higher per domain Cost. This means a new Registrar who
does not currently have the capability to offer the features that an
existing old large Registrar does, now also buys the commodity at a higher
cost. This will completely stifle competition and put many a startup
Registrars out of business.

Effect 4: Several international Registrars in other countries will DIE, and
new potential applicants will be discouraged
A large chunk of the internet as everyone knows is still concentrated in the
United States. A large number of the world's domain names are concentrated
in the United States. Other countries have a relatively small share in the
Domain Name market. There were still however many Registrars in various
countries who had started operations and managed to sustain them since the
ICANN fee so far was primarily variable and based on the size of the
Registrar. This allowed a startup Registrar to begin operations without a
significant working capital overhead, and bring it to a sustainance level.
Now with the new budget process, Registrars in other countries and emerging
markets will not have the ability to gain as many domain names as to be able
to make operational profits. This will reduce international participation in
the ICANN process.

Impact of the new ICANN Budget on ICANN
In short and simple words the new budget proposal "violates ICANN's core
principles and does not foster healthy competition and international
participation"
Lets investigate this impact in more detail
Effect 1: The new Budget destroys smaller Registrars and reduces Registrar
competition, creating monopolies

As detailed already above in the previous section, the current budget
favours larger Registrars and will actually put the smaller and the
mid-sized ones out of business.

Effect 2: The new budget goes against a few principles stated in the ICANN
Registrar Accreditation Agreement
The new budget in its spirit is against certain statements in the Registrar
Accreditation Agreement as follows -
"Clause 2.3 General Obligations of ICANN. With respect to all matters that
impact the rights, obligations, or role of Registrar, ICANN shall during the
Term of this Agreement:
2.3.2 not unreasonably restrain competition and, to the extent feasible,
promote and encourage robust competition;"
The new budget DOES NOT promote and encourage robust competition thus not
maintaining the spirit of the above clause

"Clause 3.9.2 Variable Accreditation Fee. Registrar shall pay the variable
accreditation fees established by the ICANN Board of Directors, in
conformity with ICANN's bylaws and articles of incorporation, provided that
in each case such fees are reasonably allocated among all registrars that
contract with ICANN and that any such fees must be expressly approved by
registrars accounting, in the aggregate, for payment of two-thirds of all
registrar-level fees."
The above paragraph explicitly states - "provided that in each case such
fees are reasonably allocated among all registrars". The new budget does NOT
reasonably allocate the variable fees amongst all Registrars.

Effect 3: The new budget will not meet the ICANN budget objectives
At a few places in the budget document ICANN states how the new budget is
supposed to be heavily reliant on Registrant fees paid to Registrars. One of
the objectives of ICANN's new budget was to try and work a way whereby the
final stakeholders, ie the Registrants, participate in the process of paying
for the ICANN budget. However this current budget allocation mechanism does
not do that. This is because the top ten Registrars will not even bother to
change their selling price to the Registrants since their cost does not
change dramatically in the new budget allocation process. These top ten set
represent over 25 million Domain Names.
This means over 25 million Registrants will not even contribute towards the
increased budget. Rather their contribution will actually come from the
smaller and mid-sized Registrars who will suffer in the bargain.

Effect 4: The new budget proposal will not meet the ICANN budget targets and
is essentially flawed
The new budget will directly result in a large number of Registrars going
out of business and additionally discourage a large number of new potential
applicants who were looking at applying for accreditation. This will result
in reduced revenues to ICANN if ICANN chooses to charge a $19000 + $4000 per
Registrar fee, since every Registrar who ceases to exist, or any potential
applicant who gets discouraged will result in one less participant paying
this $23000 fee.
If however ICANN instead does not charge a fixed fee per Registrar but
charges a variable fee per domain name only, ICANN will NEVER be impacted
even if certain Registrars cease to exist. Since ICANN will continue to be
funded on a per domain name basis, it will not matter as to the number of
Registrars who exist. I do believe this was the intent of ICANN - ie to have
its budget dependant largely on the end Customers (ie Registrants) as
directly as possible. The best way to achieve this would be to charge ONLY A
PER domain year fee (37.5 cents instead of 25 cents). This way smaller and
mid sized Registrars continue to survive and continue to pay their $4000 per
annum fee, and additionally ICANN does not bear the risk of not meeting its
targets since the revenue is not dependant on the number of Registrars, but
on the number of domains.

Effect 4: The new budget does not comply with the MoU signed between DoC and
ICANN
The Memorandum of Understanding between ICANN and DoC starts of with

"On July 1, 1997, as part of the Administration's Framework for Global
Electronic Commerce, the President directed the Secretary of Commerce to
privatize the management of the domain name system (DNS) in a manner that
increases competition and facilitates international participation in its
management."

This budget move will unfortunately REDUCE competition and REDUCE
international participation, violating the principles laid out in this MoU

Effect 5: The new budget is partial to a set of Registrars
The New budget is partial to a certain set of Registrars in two ways.
Firstly it is partial to the larger Registrars since it does not increase
their per domain cost.
Secondly it is partial to a set of Registrars who will fall under the
criteria of reducing their annual fees. The budget mentions the ability for
Registrars to apply for waiving of 2/3rds of their $19000 fee component.
Since the criteria for evaluating this are not objective it may result in
differences and partiality


In light of all of the above points I request the finance committee and all
other participants to modify the current budget proposal by making one
simple change - eradicating the fixed per Registrar fee and replacing the
same with a reasonable per domain (per transaction) fee only.
Thanking you
Yours sincerely
Bhavin Turakhia
Founder, CEO and Chairman
DirectI
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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
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