comments on closed generic TLDs

[Thomas Lenard <tlenard@xxxxxxxxxxxxxxxxxxxxxxx>]

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March 6, 2013

Dr. Steve Crocker, Chairman of the Board
Mr. Fadi Chehadé, President and CEO
Mr. Cherine Chalaby, Chair of the New gTLD Committee
Ms. Karen Lentz, Manager, Business, Research & Content
Internet Corporation for Assigned Names and Numbers (ICANN)
12025 Waterfront Drive, Suite 300
Los Angeles, CA 90094

Re:  Closed Generic Top-Level Domains (gTLDs)

Dear Dr. Crocker, Mr. Chehadé, Mr. Chalaby and Ms. Lentz:

This letter is in response to ICANN's February 5th request for comments on the 
subject of "closed" generic TLDs and whether ICANN should determine the 
circumstances under which a gTLD operator is permitted to adopt "open" or 
"closed" registration policies.  As I explain below, allowing gTLD operators to 
make these determinations will promote innovation on the Internet to the 
benefit of consumers.

In order to bring the benefits of a competitive TLD market to consumers, ICANN 
should generally take as light-handed a regulatory stance as possible, as long 
as it meets its technical responsibilities.  A light-handed regulatory approach 
is consistent with the policy of relatively open entry into the TLD space that 
ICANN has adopted.

A benefit of the new gTLD program, in addition to providing competition to 
incumbents, is the ability of the entrants to develop new business models, 
products and services.[1]  Historically, gTLDs have been open, and arguably 
that openness benefited the growth of the Internet.  But at this stage of the 
Internet's development, adding new options to the status quo is more likely to 
unleash new forms of innovation.  Closed gTLDs may be a promising source of 
innovations that have not thus far been possible to implement or even envision. 
 Closed gTLDs may, for example, be a way to provide services with enhanced 
security.  No one can know what innovations might be blocked if ICANN generally 
required gTLDs to be open.  In short, adding new open gTLDs is likely to create 
benefits, but the returns to adding completely new types of gTLDs are 
potentially much larger.

New gTLDs are valuable economic assets.  ICANN should adopt policies that 
assure that these assets are allocated to their most highly valued uses.  
ICANN's decision to use an auction when there are multiple applicants for the 
same gTLD will further that goal.  The bidder who believes its business model 
will be the most profitable will win the auction and the right to operate the 
gTLD.  When there is only a single applicant, that applicant presumably 
represents the highest-valued use of the gTLD.

The best use of a gTLD can change (e.g., from closed to open) if the initial 
business model isn't successful or if economic conditions change.  This change 
can be effected either by the current operator or by a transfer of the gTLD to 
a new operator, subject to ICANN's review.  In this way, gTLDs can continue to 
move to their highest-valued uses over time.

The dangers of ICANN dictating how gTLDs should be used are illustrated by the 
experience with radio spectrum.  Historically, the U.S. Federal Communications 
Commission allocated blocks of spectrum to specific uses-e.g., broadcast radio 
and television.  Over time, the costs associated with misallocation of spectrum 
under this "command-and-control" regime became very large.[2]  The process of 
reallocating spectrum to higher-valued uses has proven lengthy and difficult.  
Although the U.S. and other countries have moved toward a more market-based 
system, the costs of the legacy system are still reflected in the scarcity of 
spectrum for wireless broadband uses.

Several commentators have expressed concern that closed gTLDs are 
anticompetitive.[3]  No evidence supports this claim.  First, we already have 
experience with generic second-level domain names-e.g., cars.com-which have 
provided useful services with no apparent anticompetitive effect.  There is no 
reason to expect anything different from a .cars gTLD.  If, for example, 
General Motors (or any other automobile company) were to operate .cars, it is 
not plausible to suggest it could thereby gain market power in the market for 
cars.  Note also that both operators and ICANN are subject to the U.S. 
antitrust laws if they use the TLD system in an anticompetitive way.  To the 
extent that ICANN allows synonyms as gTLDS-e.g., "autos" "automobiles", 
"motorvehicles", perhaps even "goodcars", etc.-the potential competitive 
problems become even more remote.

In sum, ICANN should provide maximum flexibility for operators to experiment 
with new business models.  This is the best way to promote innovation on the 
Internet.

Respectfully,
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Thomas M. Lenard
President and Senior Fellow




Thomas M. Lenard, Ph.D. | President & Senior Fellow | Technology Policy 
Institute | 1099 New York Ave, NW, Suite 520 | Washington, DC 20001
(o) 202.828.4405 | (m) 202.657.1136 | 
tlenard@xxxxxxxxxxxxxxxxxxxxxxx<mailto:tlenard@xxxxxxxxxxxxxxxxx> | 
www.techpolicyinstitute.org<http://www.techpolicyinstitute.org>


________________________________

[1] One of the benefits of new gTLDs discussed in Michael L. Katz, Gregory L. 
Rosston, and Theresa Sullivan, An Economic Framework for the Analysis of the 
Expansion of Generic Top-Level Domains, prepared for ICANN, June 2010, 
available at 
http://archive.icann.org/en/topics/new-gtlds/economic-analysis-of-new-gtlds-16jun10-en.pdf
[2] See, for example, Jerry A. Hausman, Valuing the Effect of Regulation on New 
Services in Telecommunications, Brookings Papers on Economic Activity:  
Microeconomics (1997), pp. 1-38.

[3] See, for example, letter from Kathryn Kleiman and letter from Microsoft.

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