Minds + Machines comments on Vertical Integration

[Antony Van Couvering <avc@xxxxxxxxxxxxxxxxxxxx>]

These comments refer to the decision of the Board of Directors of ICANN to 
eliminate cross-ownership restrictions between registries and registrars for 
new gTLDs.   There has arisen in recent days a chorus of howls about how ICANN 
has failed to provide a justification for its decision.  I am not sure this 
stems from a mania for checking off boxes on a to-do list, or due to a genuine 
lack of understanding for the Board's decision.  To me the rationale is obvious 
and for those who seek an explanation it may be useful set out why this 
decision makes sense, and why it is correct and timely. 

Cross-ownership and vertical integration restrictions are artifacts of 1999 
conditions, and have no use short of an actual showing of market dominance by a 
specific players.  Restrictions put in place to break up the monopoly of 
Network Solutions have long since become a burdensome and pointless legacy.   
As we see it, elimination of artificial limitations of ownership and/or control 
is the only principled way forward for a number of reasons.

1. Cross-ownership restrictions would disproportionately discourage 
developing-world gTLDs
In many parts of the developing world, the obvious candidate to start a new 
gTLD are the registrars who serve those areas.  Cross-ownership restrictions 
would prevent them from starting a new gTLD, or else force them to give up 
their current business in order to do so.  This violates the spirit of the new 
gTLD program and runs counter to the sentiments, expressed by various sectors 
of the ICANN community, that they wish to encourage and help developing-world 
gTLDs. 

2. Cross-ownership restrictions are can be circumvented -- except by the poor 
and honest
Small and developing world registries who don't have the time or money for the 
regulatory burden or the lawyers to "fine-tune" their corporate structures to 
get around whatever rules may be cumbersome. There is little doubt that the 
richer and more devious players would find their way around it, leaving the 
poorer and more honest companies to follow the rules, to their detriment.  This 
is not hypothetical: I have had several such schemes explained to me.

3. A history of cross-ownership restrictions is not a good reason to continue 
them
As the ICANN Board resolution noted, "[H]istorical contract prohibitions on 
registries acquiring registrars do not provide a compelling basis for 
principled decision-making."

4. Cross-ownership restrictions could have left some gTLDs without a sales 
outlet
Nothing except the elimination of vertical integration and cross-ownership 
controls deal with the very real problem of small registries who cannot find a 
registrar to carry their TLDs. We were facing the very ugly situation where 
small and specialty registrars could have been forced to pay placing fees and 
provide sub-optimal services to their registrants.  Certain registrars were 
already letting it be known that they would not carry new gTLDs without a 
payment.  A new gTLD with a business model that do not fit the "vanilla" .com 
model will require registrars to restructure their order flows, an expensive 
procedure that registrars are unlikely to undertake for a low-volume gTLD.  
Furthermore, gTLDs with a special requirement (such as providing registration 
services in a little-spoken language) might not have been accommodated.  For 
instance, there is no Basque-language registrar, and the proposed .EUS gTLD 
might not have been able to find a registrar to provide registration services 
in Basque.  

5. ICANN is not competent to determine questions of market power and 
anti-competitive behavior
Competition authorities, especially in Europe and the U.S., have been very 
quick to examine what they consider to be anti-competitive behavior on the 
Internet, and they are the proper mechanism to examine and control this 
problem.  

6. Cross-ownership restrictions have not been shown to reduce consumer harms
Consumer harms and gaming have yet to be been seen in the new gTLD regime and 
in our view cannot be convincingly inferred from the current state of affairs.  
Specific actions to prevent specific harms should be undertaken once these 
problems reveal themselves.  

7. Cross-ownership restrictions would increase the chance of new gTLDs failing
The typical method for gaining customers for an Internet business is to market 
to the target audience, send them to a web site, and convert the visitors to 
paying customers.  While the broad registrar channel is a good sales and 
marketing method for some new gTLDs, especially undifferentiated gTLDs that try 
to copy .com, it is exactly the wrong method for speciality TLDs that need to 
appeal to their customers.  For instance, .ECO customers are unlikely to be 
excited about purchasing a domain name from a NASCAR-themed registrar.  Some 
new gTLDs will depend on providing and reinforcing their message on a registrar 
site, and they are the best choice to create that registrar.  The inability to 
target their market and provide end-to-end reinforcement of that message could 
seriously damage the prospects of that gTLD. 

8. Cross-ownership restrictions would harm ICANN's credibility
ICANN has an obligation to to act in the interests of the Internet. Keeping 
anti-competitive restrictions from another era would inevitably have led to 
accusations that ICANN was trying to fix the economic landscape of new gTLDs. 

I hope that these comments are of some use to those wondering why 
cross-ownership restrictions needed to be abolished, and I appreciate the 
chance to comment on this important matter. 

Antony Van Couvering
CEO, Minds + Machines