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  • To: competition-pricing-prelim@xxxxxxxxx
  • Subject:
  • From: Andrew Allemann <editor@xxxxxxxxxxxxxxxxxx>
  • Date: Thu, 5 Mar 2009 13:39:55 -0600

When ICANN announced it was commissioning a report on the effect of price
caps on new TLDs, I assumed it would seek an unbiased report. Instead, ICANN
used domain owner’s money to hire an economist to defend its views.

The *first report* about consumer welfare (i.e. competition) argues that new
gTLDs will create competition amongst registries in TLDs, but that trademark
holders and existing domain owners needn’t worry because new gTLDs won’t be
very successful.

Sound conflicting? It is. Here’s an excerpt:

"I conclude that ICANN’s proposed framework for introducing new TLDs is
likely to improve consumer welfare by facilitating entry and creating new
competition to the major gTLDs such as .com, .net, and .org"

Followed shortly thereafter by:

"It would not be sensible, from an economic perspective, to block entry of
gTLDs to prevent potential trademark concerns. Indeed, the relatively small
number of registrations achieved by new gTLDs such as .info and .biz
introduced in recent years suggests that the need for defensive
registrations in new gTLDs is limited."

And then:

"While several new gTLDs have been introduced in recent years, these have
achieved only limited success in attracting registrants and Internet

So there’s a need for new TLDs. But don’t worry, trademark owners, these new
TLDs won’t matter so you won’t have to pay for defensive registrations?

But wait, now let’s switch back and say they will promote competition, since
that’s ICANN’s view:

"An increase in the number of gTLDs increases the number of alternatives
available to consumers, and thus offers the potential for increased
competition, reduced prices, and increased output."

The report also argues that the introduction of new TLDs will foster
innovation as .com faces competitive pressure (please ignore the
aforementioned arguments to consider this):

"Removing entry barriers is also likely to foster innovation. In the absence
of competition from new gTLDs, registries and registrars that serve .com and
other major TLDs face limited incentives to develop new technologies and/or
improved services that may help attract new customers."

Here’s the problem. That’s assuming a free market, which the registry system
is not. If ICANN *removed the presumptive right of renewal*, it’s true that
competition may push some registries to innovate. I doubt it with .com, but
it may do it for other TLDs.

The report then discusses some examples of how new TLDs could be beneficial.
These examples, such as the use of .generalmotors. or .cars suggest that
finding information will be easier with new TLDs. I don’t understand how
this will be easier than with existing TLDs.

The *second report* about pricing makes rational arguments that letting new
TLD registries set their own prices will be kept in check by competition.
This is mostly true. But the report manages to gloss over this little issue
of existing TLDs being able to change their prices. Existing registry
contracts give registries the right to argue for clauses in other registry’s
contracts. So VeriSign (NASDAQ: VRSN) can argue that it shouldn’t be subject
to pricing caps.

The argument in the report that “a supplier that imposes unexpected or
unreasonable price increases will quickly harm its reputation making it more
difficult for it to continue to attract new customers” would not apply to
VeriSign. It could raise it’s prices by $25 in a year and businesses would
just be forced to pay it.

I don’t believe Carlton was aware of this contract clause. He uses price
caps on existing TLDs as rational for letting new TLDs set their own prices:

"The fact that major TLDs are currently subject to price caps further
constrains the ability of new gTLD registry operators to charge
non-competitive prices."

The reports discuss the high switching costs between TLDs (e.g. changing
your web site from dnw.com to dnw.org) but completely underestimates them.
The switching costs are massive. It’s virtually impossible to switch to a
new TLD without irreparable harm to your company. That’s why renewal cost
increases must be capped. Letting new TLDs set initial registration prices
is OK, but giving them free reign to jack up prices on existing web site
owners each year is not.

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