RE: [gnso-vi-feb10] Board resolution on Vertical Integration

["Drazek, Keith" <kdrazek@xxxxxxxxxxxx>]

Eric, 

How did you arrive at your conclusions related to incumbent
participation? I may have misunderstood your point, but the VIWG is (and
should be) focused only on policies surrounding vertical integration of
registry and registrar functionality within a single entity, and/or
levels of cross-ownership between registry and registrar entities. Well
before the VIWG was formed, the GNSO new gTLD PDP process discussed
ideas relating to incumbent involvement, but there was never any
measurable support for limiting their involvement or eligibility.
Moreover, the ICANN General Council ruled years ago that policy
development could not focus on one player or one subset of players in
the industry. I think I follow your logic to a point, but I'm not sure
how you arrived at the conclusion that existing registry operators
couldn't compete for new TLDs or potentially gain market share in the
first round...unless you're referring to market share at the
retail/registrar level? Thanks in advance.

Regards, Keith

-----Original Message-----
From: owner-gnso-vi-feb10@xxxxxxxxx
[mailto:owner-gnso-vi-feb10@xxxxxxxxx] On Behalf Of Eric
Brunner-Williams
Sent: Wednesday, September 29, 2010 10:16 AM
To: vertical integration wg
Subject: Re: [gnso-vi-feb10] Board resolution on Vertical Integration


Following up on the "We Failed" "No we didn't" thread ...


We advised Counsel that we understood 0% to mean that no current 
contracted party, registrar _or_ registry, could apply without risk of 
loosing its application fee.

Staff responded by raising the limit from 0% to a de minimus value, 
and I think we made it clear that this allowed all but at least one 
current contracted party, a registry, to apply without risk of loosing 
its application fee.

All of the proposals offered subsequent to Nairobi were of the form 
that would allow all contracted parties currently registries, to apply 
without risk of loosing their application fees.

However, there was no consensus on that proposition in isolation.

Restated, there was consensus that no proposal that allowed some 
contracted parties, but not all contracted parties, to apply without 
risk of loosing their application fees could be adopted.

Similarly, there was consensus that no proposal that allowed only 
brand managers to exercise a registrar function while operating a 
registry to apply without risk of loosing their application fees could 
be adopted.

These appear to be broad areas of consensus that:

a) no existing operator will, through its access to a existing 
registry's cash flow (registry margin), unfairly compete with new 
operators establishing new markets,

b) no existing (or future) registrar will, through its access to a 
existing registry's cash flow (registrar margin), unfairly compete 
with new operators establishing new markets,

and

c) no brand manager, and possibly no other applicants (this is the 
point of the GAC's recommendation), will, through its access to 
private revenues, unfairly compete with registrars establishing new 
markets.

As an applicant, this looks pretty good. VGRS won't define the new 
market. Neither will any accidental or intentional common business 
model of Afilias and NeuStar and GoDaddy and eNom and TuCows and 
NetSol. Registrars with the overwhelming bulk of their revenue in the 
CNOBI market won't be re-marketing the same business model as new 
markets. What happens in Vegas, stays in Vegas, where "Vegas" means 
the market as it is, at present, less the .coop, .cat, .museum, bits, 
that are distinct gTLD markets.

Since I've worn a registry's hat, and a registrar's hat, and a 
registry back-end operator's hat, the first two contracted parties, 
the third only incidentally a contracted party, I'm going to offer my 
opinion as if I were representing a contracted party on this as an 
outcome.

This isn't an especially adverse outcome. No existing competing 
contracted party will gain market share through the first round. The 
risk of new market creation will be born by new entrants. All new 
market entrants are prospective investment opportunities at some point 
in the future, after the winners and losers have been shaken out. 
There is adequate time to reach a consensus position that will inform 
the Board prior to the second round.

This also allows brand and walled garden managers time to reconcile or 
revise their various value claims -- that .brand will end the risk of 
dilution, or that consumers prefer subscriber relationships with 
vendors for whom name spaces are an after-market activity.

I think 0% works out pretty good for new entrants.

Eric