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

["Bhavin Turakhia" <bhavin.t@xxxxxxxxxxx>]

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  90292
> > 
> > +1.310.301.5809 (office)
> > 
> >  
> >  
> > 
> > 
> > 
> 
> 
> 
> 
>