Andrew Mack Comments on Dennis Carlton Report Regarding Impact of New gTLDs on Consumer Welfare

[Andrew Mack <amack@xxxxxxxxxxxx>]

To: ICANN Board
From: Andrew Mack

RE: Dennis Carlton Report Regarding Impact of New gTLDs on Consumer Welfare


I am writing to comment on the economic study recently done looking at
the gTLD process (Preliminary Report of Dennis Carlton Regarding Impact of New
gTLDs on Consumer Welfare).  
 
Like many people at the Mexico City meeting, I was surprised to see what seemed 
like such a cursory evaluation of
the subject in Professor Carlton’s report.  I am an economist by training,
and the report struck me as more argument than study, more an attempt to
justify the new gTLD process than a serious evaluation of the facts of the
matter.  I am surprised because like many people, I see the new gTLD
process as having a real potential for changing the existing dynamics on the
web in ways we can’t easily predict.
 
At least as importantly, as someone who works extensively with Emerging
Markets, I was more than a little bit surprised to see so little focus on the
issues that face Emerging Markets as part of the study.  There was no
analysis of what impact the new gTLDs are likely to have on emerging countries.
There wasn't any discussion of Africa, Latin America or Mexico.
 In fact, they weren't even mentioned in the report. 


At the Mexico City meeting I spent a great deal of my time talking
with delegates from different Emerging Markets countries about the new gTLD
process, and they are clearly concerned about the impact of the new gTLD
process on security.  Many ccTLD operators mentioned issues like e-crime,
noting the huge uptick in e-crime in recent months.  They expressed real 
concern that the resources
they have to protect online consumers and businesses – already stretched before
the global economic downturn – would almost certainly be inadequate to deal
with any increase (such as a wave of new phishing attacks) that could accompany
the introduction of new TLDs.  
 
And, in the case of phishing, they have a
right to be concerned.  Statistics from
the Anti-Phishing Working Group show that smaller ccTLDs like Thailand, Estonia 
and Belize can be particularly vulnerable.  These TLDs
hosted amongst the highest intensity of phishing sites in recent years (see
2007 Global Phishing Survey at 
http://www.apwg.org/reports/APWG_GlobalPhishingSurvey2007.pdf,
pages 11-12).  Such threats are likely to increase if inexperienced operators
are allowed to create dozens of new TLDs.

Moreover, as if to drive home this point, we just saw
a significant attack of the recent conficker worm right after the Mexico 
meeting –
a threat designed specifically to thrive on mass registration of domain names.  
Accounts show that damage was controlled, but
the worm caused real worries across Africa, and not just for larger, more
sophisticated ccTLDs like in South Africa – with many registrations and the
resources to have the highest levels of security – but also for cc’s with much
more limited resources like Malawi and Djibouti (See Conficker raises security
debate in Africa, in Computerworld Kenya 04-07-2009).  


At the same time, since Professor Carlton’s work was aimed at understanding
“consumer welfare”, we thought it worthwhile to reflect a little more on the 
experience
of actual consumers in Emerging Markets.  In our work with Emerging Markets we 
are seeing a troubling pattern
where a wave of new users, finally gaining access to the net after years of
waiting, are coming online in newer markets just as we are seeing a dramatic 
rise
in risk from malware, spyware and phishing (nearly 35,000 cases last October
alone, according to the Anti-Phishing Working Group Trends Summary for the 2nd
Half of 2008).
 
Our fear is that a significant number of these new users won’t have the
resources for the highest level of self-protection – for example the ability to
buy the newest spyware and virus protection – and as consumers they are much
less experienced, and more likely to fall prey to scams like phishing.  The
end result could be a significant – albeit unintended – increase in the digital 
divide, as new users early experiences are
characterized more by risk and confusion than by educational and economic
benefit.  
 
Finally, in addition to all the concerns security, in Mexico I also heard a
wide range of other Emerging Markets concerns – from concerns about IP issues
(how growing regional companies were going to be able to protect their IP), to 
worries
about how the impact of large numbers of new gTLD registrations might affect the
economic viability of some ccTLDs which are just now becoming economically
viable.  I heard complaints that many fundamental issues around the
expansion into the IDN space that directly affect Emerging Markets – especially
the availability of new IDN gTLDs – remain unresolved and in some cases,
largely unaddressed.  
 
And in all these cases, the response was the same – ICANN can and
should do more to understand the brave new world that the gTLD process will
create.

Now I want to be clear.  I did not heard
anybody say that they wanted to slow down the gTLD process and I am not
suggesting that slowing down the process is any kind of solution.  Quite
the contrary.  However, there are risks.
 We don’t fully understand what the impact on Emerging Markets will be.  And we 
should.
 
ICANN talks often about the desire to be sensitive to the impact on the
“next billion” users, and now is our chance to do more than talk about these
users.  We have the time before the round is opened to look at this issue
in depth.  ICANN certainly has more than
ample resources and there is justification – given that the original “study”
doesn’t deal with it at all.  And there
is certainly demand from the community.  
 
In Mexico we heard some
encouraging talk from Africa’s only Board
Member, Katim Touray, about creating a working group specifically focused on
the issues of developing nations.  This is long overdue.  But we need
to get serious and the time is now – not after the fact – to do our homework.
 
 
A study to understand the impact of the process on Emerging Markets is
a logical, necessary first step.

 
Andrew A. Mack 
Principal
AMGlobal Consulting
+1-202-256-1077  
amack@xxxxxxxxxxxx  
www.amglobal.com