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

["Patricio Valdes" <valdes@xxxxxxxxxx>]

Kurtz,

On your email to Bhavin you mention:

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

What will happen when WLS goes into effect? How will we 'easily afford' this
fee?

ICANN against  general consensus approved WLS, which we can say that now it
will clearly affect smaller Registrars if you did not see it that way
before.

This budget as with WLS is one-sided.

Patricio Valdes
Parava Networks, Inc.
 


-----Original Message-----
From: owner-registrars@xxxxxxxxxxxxxx
[mailto:owner-registrars@xxxxxxxxxxxxxx] On Behalf Of Bhavin Turakhia
Sent: Wednesday, May 19, 2004 12:04 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  90292
> 
> +1.310.301.5809 (office)
> 
>  
>  
> 
> 
>