New gTLD Comments by Leap of Faith Financial Services Inc. (April 7, 2009)

[George Kirikos <gkirikos@xxxxxxxxx>]

Comments on New gTLD Applicant Guidebook Version 2

Submitted By: George Kirikos
Company: Leap of Faith Financial Services Inc.
Company URL: http://www.leap.com/
Date: April 7, 2009

We reiterate our comments of February 19, 2009 and November 23, 2008:

http://forum.icann.org/lists/2gtld-guide/msg00000.html
http://forum.icann.org/lists/gtld-guide/msg00026.html

Given that there will apparently be four guidebooks, we defer major new 
comments until the next iteration, and instead address our comments to the US 
government and other stakeholders who read these comments archives. 

We note that not only did ICANN ignore the vast majority of first-round 
comments which were against the introduction of new gTLDs, but also introduced 
changes to the guidebook that were the exact opposite of the recommendations, 
including those of the US Department of Commerce and US Department of Justice. 
In light of this, we urge the US government to intervene to protect internet 
stakeholders (including business and consumers) from the detrimental effects of 
introducing any new gTLDs, let alone the wild free-for-all that ICANN intends 
to impose upon stakeholders.

The US government made 2 specific recommendations (page 5 of the PDF) which we 
endorse:

http://www.ntia.doc.gov/comments/2008/ICANN_081218.pdf

"First, ICANN's general approach to new gTLDs should be revised to
give greater consideration to consumer interests. ICANN should more
carefully weigh potential consumer harms against potential consumer
benefits before adding new gTLDs and renewing new gTLD registry
agreements. Second, the RFP process and proposed registry agreements
should include provisions that would enable ICANN to constrain new
registry operators from exercising market power. In particular, ICANN
should establish competitive mechanisms for authorizing new gTLDs and
renewals of gTLD registry agreements whereby prospective gTLD
operators would compete for gTLDs by proposing registry terms --
including maximum fee schedules -- that would provide consumer
benefits."

(and the rest of the PDF provides more detail, including discussion of
price caps, which we agree with)

ICANN of course not only ignored both recommendations, but did the exact 
OPPOSITE, i.e. discussing auction mechanisms whereby ICANN would generate cash 
for itself. That's the opposite of registries competing by offering up maximum 
fee schedules (where the lowest bidder would ultimately win). I believe ICANN 
is incapable of recognizing past mistakes (e.g. giving presumptive renewal to 
VeriSign in the past, providing price increases to registries instead of having 
competitive tenders, etc.), and instead of correcting those mistakes it 
institutionalizes them by making them "policy." This is evident, for example, 
when ICANN speculated with its emergency reserve fund in the stock market:

http://www.circleid.com/posts/20090203_icann_blows_46_million_stock_market/

losing $4.6 million, and later attempted to justify that as part of a sound 
strategy. It was fundamentally flawed, even had they made money, since any 
professional would tell you that emergency reserves are never invested in risky 
assets (because they have to be there in full when you need them). There was no 
accountability to the community for this and other flawed decisions by ICANN. 
To this date, ICANN continues to speculate in the financial markets with its 
reserve, and intends to launch an unnecessary "currency hedging program" which 
will likely prove to be a similar debacle (ICANN has the ability to conduct 
nearly all its activities in US dollars, and shift the currency risk to 
suppliers; that would be too simple and obvious for those incompetent 
individuals in charge, though; suppliers can do the hedging, ICANN doesn't have 
to).

One can't help but feel disturbed that ICANN can not only overlook high quality 
input like that provided by the DOJ, but do the exact opposite.

The "economic study" provided by ICANN was a half-baked PR effort that failed 
to answer even very basic questions such as what value registrants place upon 
their domain names, the level of switching costs, and what the true cost of 
providing domain registry services is --- ICANN fails to explain why domain 
registration costs at the wholesale level (i.e. from VeriSign, Neustar, PIR, 
Afilias, etc.) are going up towards $7/yr and beyond (and not facing 
competitive tenders), whereas comparable services for toll-free 800 numbers 
cost only 10.49 CENTS/month (80% less than domain names), and have been going 
down. These are very similar technologically, central databases of comparable 
size with first-come first serve allocation methods, deletions, registration 
records, etc. Internet domain name databases arguably have even lower costs 
operationally, relative to the telephone system. We reiterate our comments made 
in relation to the so-called "economic study":

http://forum.icann.org/lists/competition-pricing-prelim/msg00000.html
http://forum.icann.org/lists/competition-pricing-prelim/msg00001.html
http://forum.icann.org/lists/competition-pricing-prelim/msg00002.html

At a very basic level, it is clear that the entire new gTLD process has been 
captured by a small cabal of registry and registrar interests (the so-called 
"contracted parties") due to double-weighted voting. Companies and consumers 
representing tens of trillions of dollars of economic activity are being 
outvoted and bullied by companies representing only hundreds of millions of 
dollars of economic activity (much of that monopoly-based due to no-bid 
contracts). If one reads the new gTLD proposals carefully, they:

1) ensure perpetual and presumptive renewal for REGISTRIES
2) ensure cost certainty for REGISTRIES

This is the exact opposite of what the priority should be, namely:

1) ensure perpetual and presumptive renewal for REGISTRANTS
2) ensure cost certainty for REGISTRANTS

Registry operators should be able to be replaced. Assigned names and numbers 
are intended to be permanent, so that a consumer reading www.ibm.com or 
www.amazon.com can rely upon that address and expected content months, years, 
or even decades later (e.g. if those URLs appeared in a book or magazine or 
other long-lived publication). The registry supplying those domain names, can 
be changed easily, though, just like the printing house who publishes a Yellow 
Pages directory can be changed year to year --- what matters to the end-users 
is that their telephone numbers and addresses don't change. Registries should 
be treated no differently than contracted suppliers of office supplies -- the 
government wouldn't give Staples or Office Depot a permanent monopoly to supply 
paper, but would tender that procurement contract on a regular basis. We'd 
still get paper every year, but it's easy to shift to a different supplier of 
it. Similarly, it's trivial to shift to a
 new supplier of registry services, as was seen when .org transitioned from 
VeriSign to PIR/Afilias. (that itself was a debacle, as PIR has simply 
increased fees annually and acts like a monopolist just like VeriSign; the only 
way to ensure registrants are protected is to ensure that registry operators 
can be replaced if a lower cost supplier makes a competing bid)

I urge those making comments to speak above ICANN, namely to the NTIA, 
Department of Commerce and Department of Justice, who do read all these public 
comment archives and who can ensure that ICANN's renewal of the JPA be 
conditional upon not threatening the security and STABILITY of the internet. 
ICANN, through its actions and public statements is directly causing 
instability and uncertainty in a reckless fashion.

Due to the "equal treatment" clauses in all existing gTLDs, e.g. for dot-com, 
the relevant clause is:

http://www.icann.org/en/tlds/agreements/verisign/registry-agmt-com-01mar06.htm

"3.2.(b)   Equitable Treatment.  ICANN shall not apply standards,
policies, procedures or practices arbitrarily, unjustifiably, or
inequitably and shall not single out Registry Operator for disparate
treatment unless justified by substantial and reasonable cause."

bad policy choices in new gTLDs (including but not limited to the elimination 
of pricing caps) will propagate back into current gTLDs, threatening trillions 
of dollars in the new economy, and undermining the confidence that consumers 
and business have when using the internet.

This is not some theoretical example, either. Neustar is on public record 
stating:

http://www.icann.org/en/topics/new-gtlds/agv1-analysis-public-comments-18feb09-en.pdf

"Any material changes for the newer, no-price capped TLDs regarding vertical 
separation and equal access in general must be applied to
NeuStar â this is required under the .biz Registry Agreement and
ICANN's Bylaws. Price caps are appropriate for larger TLDs that have a
much higher percentage of the market and are not appropriate for gTLDs
that do not have any real market power." (page 123)

In other words, monopoly registry operators would not hesitate to introduce 
dot-tv style tiered pricing if they had the ability to do so through the 
elimination of pricing caps, as this would maximize their monopoly profits.

When a small or large business is facing the prospect that they could lose 
their business through a huge predatory repricing of their domain names by the 
registry operator, they will scale back their investments to avoid that 
uncertainty. This is the exact reason many companies avoid investing in Russia, 
because they worry that the authorities will rewrite their contracts at any 
time, stealing their investments. Without basic protections and property rights 
for consumers (i.e. domain registrants), registry operators will not hesitate 
to usurp valuable domains for themselves given the opportunity, taxing the 
investment made by their owners. 

By shifting the balance of power even further in favour of the registry 
operators (who already have enormous market power), ICANN is going in the exact 
opposite direction to that recommended by the USDOJ, NTIA and DOC. In light of 
this, intervention by the US government is warranted to prevent continued 
mismanagement by ICANN. ICANN's mismanagement is causing instability that can 
only be cured through government intervention. The only "stability" that 
appears to matter to ICANN insiders is that of their above-market salaries:

http://www.circleid.com/posts/20090105_icann_for_profit_companies_comparables/

and the stability of supplier contracts with registry operators, as opposed to 
stability for consumers and domain registrants. This is classic capture at 
work, and new gTLDs just provide another avenue for insiders at ICANN to create 
new bureaucracies with more lavish spending all funded ultimately by consumers 
and businesses.

We don't wish to see a 3rd guidebook, and urge the US government to put an end 
to this soap opera which simply wastes the time and money of nearly everyone 
engaged in the process. The only "winners" in this soap opera are the parasitic 
collection of bureaucrats, "consultants" and prospective registry operators who 
wish to abuse the public.

We also urge the US government and in particular the Department of Justice to 
investigate the no-bid monopoly nature of all existing gTLD registry operator 
contracts. When domain registry costs should be close to $2/yr instead of 
$7/yr, and when one multiplies this by over 100 million domain names, this 
represents a $500 million/yr and growing abuse of consumers through 
anti-competitive behaviour. This represents a fundamental failure of ICANN, one 
that ICANN wishes to exacerbate through continuing bad policies over the 
objections of the public.
 
ICANN needs to cure its current failures and bad policy decisions, before even 
considering adding any new gTLDs. If any new gTLDs are to be added, they should 
be consistent with the sound graduated framework supplied by the US government 
in its past comments, and only obeying the will of the public (which currently 
is vastly opposed to their introduction). Any other path is inconsistent with 
security and stability.

Lastly, the public may be better served by direct NTIA management of assigned 
names and numbers, rather than outsourcing the function to the failed 
experiment named "ICANN." We urge the NTIA, Department of Commerce, and 
Department of Justice to carefully evaluate ICANN and the JPA in light of 
ICANN's past and ongoing mismanagement of its affairs.

Sincerely,

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