Comments from Key-Systems on the introduction of full vertical seperation in DAG4

[Volker Greimann <vgreimann@xxxxxxxxxxxxxxx>]

 Key-Systems GmbH welcomes the opportunity to provide our comments on 
the Draft Applicant Guidebook version 4. We also appreciate the efforts 
and dedication of everyone involved directed at the introduction of the 
new gTLDs, in particular, that of geographical TLDs. Key-Systems has 
always supported and will continue to support the process for the 
introduction of new TLDs.
Full vertical seperation introduced in DAG4:
The restrictive language of Article 1.2.1 of Module 1 and Articles 2.9a, 
2.9b and 2.9c of the proposed new gTLD Agreement, first introduced in 
DAG4 and based on the Nairobi board decision, however arbitrarily 
discriminates against ICANN accredited registrars to the detriment of 
local community TLD applications. It will decrease competition amongst 
registry service providers and contradicts the intent of the new gTLD 
programme "to open up the top level of the Internet's namespace to 
foster diversity, encourage competition, and enhance the utility of the 
DNS". We strongly urge that ICANN reconsiders the introduction of these 
new restrictions and provides a fair and open process open to all 
applicants and service providers instead of singleing out and 
discriminating against registrars.
At the core of the debate on cross-ownership of registries and 
registrars is ensuring competition and consumer interest, i.e. making 
sure that an organization that holds a monopoly or, more correct from a 
competition law point of view, an "essential facility" (the TLD), 
ensures access to such resource under fair, reasonable, and 
non-discriminatory terms. The choice made in order to ensure such access 
is to disentangle two roles: the registry (managing the infrastructure) 
and a registrar (reseller network) providing access to the 
infrastructure. What’s interesting is that although we are talking about 
“new” gTLDs, the debate itself is nothing new: we have seen similar 
issues in telecommunications, the railroad network, energy and mining, 
and other areas.
A balanced and realistic view:
Key-Systems proposes a balanced and realistic view, based on years of 
experience in the ccTLDs space that abundantly shows that models with 
cross ownership (“CO”) or vertical integration (“VI”) between registries 
and registrars do not cause consumer harm by themselves and therefore 
should not be automatically prohibited in the new gTLD process. To the 
contrary, we believe that strict limitation of such models will end up 
crippling or worse discourage many potential new gTLD applications, 
directly against ICANN goal of stimulating innovation and growth for new 
gTLDs.
We are sympathetic to comments which point out some danger in total and 
unmonitored integration. However, such dangers are just as likely to 
occur with or withour vertical integration or registry-registrar 
co-ownership. Likewise, we believe that although past experiences must 
be taken into account when shaping this new framework, they should not 
be the only thing we – as a community – and ICANN – as a whole – listens 
to. As the name implies, new gTLDs will open a new era of development 
and the rules should allow for that.
The ultimate goal must be to foster innovation. While we are not 
proponents of pure laisser-faire the truth is that the Internet is 
constantly evolving: there is no foolproof way of determining what TLD 
will or will be a success and it would be quite presumptuous to judge a 
business model before it is even created. Twitter as become a key 
service in less than two years and without any “specific service” 
attached to the .com Top Level Domain. Similarly – and closer to home – 
the .Tel Top Level Domain is quite successful with only a handful of 
registrars promoting it effectively.
Ownership does not equal control:
We therefore propose that full registry/registrar cross-ownership of 
100% should be allowed and can be beneficial to the goal of stimulating 
innovation and growth for new gTLDs. We no not believe that an 
arbitrary/artificial limitation of ownership will prevent any harms as 
it provides no benefit in itself regarding the concerns raised regarding 
control. The same level of control is possible regardless if there is 
full ownership, 15% or just 2% ownership, depending on the setup of the 
owned entity. There is however a high risk that such limitations only 
serve incumbent registry operators by preventing new competitors from 
entering the market. Full Vertical Integration can also be quite useful 
for small or specialized TLDs. Fringe or specialized interest TLDs and 
TLDs in regions with no or few ICANN registrars will benefit greatly 
from the ability to act as both registry and registrar.
Whats works in ccTLDs can not be bad for the new gTLDs
Cross-ownership should also not prohibit a registrar to sell domains 
from a registry of which it holds shares, provided equal access to 
registrations is guaranteed and does not discriminate against other 
registrars. The fact that some ccTLDs Registries do act as Registrars 
for their own Internet Communities should be proof enough that VI is 
indeed a possibility. .SE, .UK, .DE have been acting as their own 
registrars for years and the German and British TLD markets are among 
the strongest in the world. ccTLDs have used VI/CO with great success 
while Registrars carrying those ccTLDs still continue growing their 
market share in these ccTLDs. It stands to reason then that a Registry 
offering Domain Name registrations directly is not enough to “capture” 
the customer who still knows and uses the choice of the market. It 
should also be remarked that none of the new gTLDs will likely reach a 
market penetration comparable with the big three gTLDs, com/net/org, and 
will more closely resemble smaller ccTLDs, especially in the case of new 
geoTLDs. It therefore makes sense to allow similar business models and 
models of integration in the sales channel.
Compliance enforcement as a better solution against risks and harms:
Any innovation carries an inherent level of risk: domain names brought 
cybersquatting and tasting, to which the community found solutions – 
similarly the community will find solutions if and when issues arise. 
While we agree that there may be possibilities for abuse from a 
registrar affiliated with a registry selling domains of said affiliated 
registry, we believe such abuse is just as possible without 
cross-ownership of registrars and registry and without registrars 
providing RSP services. The strict language of DAG4 serves only as a 
band-aid - it may look safer, but it will not prevent any harms. 
Potential harms can be more effectively curtailed by implementing 
contractual barriers, checks and balances as well as penalties for 
offending entities. Some market players may try to violate their 
obligations with regard to limits of control and/or equal access, etc. 
For such violators, ICANN should put in place a firm and strict penalty 
system for the offending party, with penalties ranging from financial 
penalties, imposition of stronger restrictions up to the loss of the 
registry contract in case of severe and repeated offenses. Compliance 
should (and will be) monitored by competitors, registrars and registries 
alike on top of ICANNs own compliance enforcement teams, and complaints 
need to be investigated by ICANN and/or contractors of ICANN. As a 
result, we strongly believe the only suitable answer is to implement and 
enforce a strong yet flexible framework of rules. This system needs to 
be capable of effectively control CO and VI – and indeed avoid dangers 
that are clearly identified – yet provide flexibility for innovation 
while guaranteeing equal access to any TLD to all ICANN accredited 
Registrars. The team enforcing these rules needs to be adequately 
equipped to investigate and deal with suggestions of violating behaviour.
The level of control to prevent harm can also be limited by inserting 
layers of barriers of information (information firewalls) between the 
registry and registrar entities, as well as implementing contractual 
guarantees for other registrars to prevent discrimination. Once again, 
we believe preventing any and all wrongdoing before it happens is, at 
best, wishful thinking. Creating enforceable sanctions towards 
Registries and/or Registrars guilty of clearly defined wrongdoing will 
be much easier and practical. A quota on ownership limitation is 
arbitrary and will not in itself prevent any harm. ICANN should 
concentrate on fighting the issues, not the potential risks. There may 
be risks of abuse in new gTLDs but it seems unrealistic to want to avoid 
them all before they happen. All remedies that are currently used in our 
industry have one common aspect: they are always used after the fact 
(UDRP, de-accreditation of a Registrar, whois compliance checks, to name 
just a few).
Equal Access as a limiting factor:
Further limitation of control can be achieved by strict adherence to 
so-called “Recommendation 19”, by implementing guarantees to ensure 
equal access for all ICANN accredited registrars, mandating the use of 
registrars (sale only through registrars), except in the case of 
"Single-Registrant, Single-User" TLDs. In principle, all ICANN 
accredited registrars should be granted equal access, all registrars 
interested in carrying the TLD must have the same basic opportunities 
for registrations and management of a domain name. This includes an 
equal number of connections to the registry system for all registrars, 
first come, first serve amongst registrars for general 
availability/non-auction phases, adequate support levels for all 
registrars as well as firewalling information of registry data from 
registrar entity. Requiring even vertically integrated registries to 
serve all ICANN-accredited registrars will be a workable tool to enforce 
and control the best interest of the public.
Service providers:
A good registry service provider ("RSP") is instrumental in the success 
of a TLD. The experience gathered for one TLD automatically benefit the 
others and allow for better investment planning and outreach. Preventing 
RSP from having an interest in one or more TLD could therefore be 
counterproductive to the Community. Preventing any ICANN-accredited 
registrar from providing assistance of any kind to prospective new gTLD 
applicants would unfairly exclude applicants intending to use registrar 
expertise to help them build their application. Furthermore, many local 
communities interested in establishing their own community TLD will want 
to work with a local RSP provider. In many cases, such service can only 
be provided by a local ICANN-accredited registrar. A prime example of 
this “new era” is the strong interest that key consumer brands have 
shown in participating in the process. Since nothing in the ICANN rules 
prevent them from applying, we believe it is essential to allow them to 
pursue their goals. Many registrars currently serve these parties in 
managing their brands online, and are best equipped to serve them in 
exploring the possibilities of an own TLD as well as in the setup and 
management of these new TLDs as service providers. We therefore propose 
that no cap should be implemented on cross ownership between a registry 
service provider (registry tech provider) and a registrar, but that 
similar levels of limitation of control be required. The prohibition 
contained within Article 1.2.1 of Module 1 regarding "applications where 
the applicant has engaged an ICANN-accredited registrar, reseller, or 
any other form of distributor or any of their Affiliates (or any person 
or entity acting on their behalf) to provide any registry services for 
the TLD" as well as the corresponding sections of the agreements should 
therefore be deleted.
With a strong and flexible set of rules and a strong and empowered 
enforcement scheme, the provision of registry services by registrars as 
well as cross-ownership of registries and registrars would pose no 
greater risk of harmful action or abuse than any other setup.
With the GNSO PDP WG on vertical integration and cross-ownership 
currently at an impasse due to partisan interests blocking any 
compromise on either side of the debate, we believe the ICANN board and 
staff will need to make a decision to allow greater innovation and 
freedom of choice as well as to building and enabling a strong 
compliance framework. While the restrictive policies of DAG4 may have 
been intended to compel the GNSO WG towards more cooperation and finding 
a compromise solution, it has instead served hardliners and incumbents 
to refuse any compromise as they could very well live with the DAG4 
limitations.
Thank you for your consideration.

Volker Greimann
General Counsel

Key-Systems GmbH