More Transparency Needed for Cost Estimations

["Adam Martin" <adam.ajm@xxxxxxxxx>]

These comments represent my personal view only as an active follower of the
ICANN New TLD expansion process. I appreciate the opportunity to provide
these comments on the "Cost Considerations" Memorandum for Module 1 -

December 15, 200



Thank you for explaining the principles and high level estimation approaches
that you have used to arrive at the proposed fees. It provided a good high
level overview.



However, in the name of transparency, I believe the internet community *needs
more explanation and greater visibility into the actual cost estimations and
assumptions* behind the *application and recurring fees*.  This is
especially important since cost recovery is the principle governing the fees
and fairness and transparency seem to be higher priorities than
cost-minimization.



This comments concern the larger fee estimations, including the $100,000
portion of the application fee (Section 3.2) and the $75,000 minimum annual
registry fee (Section 3.5). For the latter, there is a noticeable lack of
explanation of the cost estimation approach.



*Application Fee Questions and Comments*

   - Expected quantity of applications: Because your cost model depends
   significantly on this number, can you describe in detail your data points
   and sources for your 500 applications estimation, especially the "report
   from a consulting economist" (pg. 5)?
   - There is some inconsistency and I am slightly confused with your use of
   the terminology of "phases," "steps," and "tasks." (See Pg 8, "Expected
   value is determined by estimating the likelihood that each of the 75 steps
   will actually be executed for the pool of applications, then multiplying
   that likelihood times the cost.").
      - This leads me to the question: at which of these levels (either
      phases, steps, or tasks) do you assume and assign probabilities that the
      application would pass through. For example, did you assume 80% of
      applications would pass through the Initial Evaluation *step*, or did
      you get more granular and assign probabilities at the *task* level
      where appropriate?


   - Can you provide the internet community with the *full list of tasks*,
   as well as *your assumptions with regard to what probabilities* you
   assigned to each task, which you consider predictable?
   - How are efficiencies factored into the accounting of individual tasks
   or steps? Presumably certain steps would not take the fully estimated time
   if repeated for all 500 applicants or done in batches? Please explain.
   - At what points in the application process (and which individual tasks)
   are you using consultants whose hourly rates are presumably more expensive
   than those of internal staff?



*Recurring Fee Questions and Comments*

   - What is the basis for the fee of the greater of 5% of transaction
   revenue or $75,000? Please provide more explanation and detail regarding the
   principle of having this fee be the same across all new TLDs.
      - Is this to cover only variable costs?
      - How many TLD are assumed to be designated (how many applications
      make it through the entire process?)
      - What type of services are you assuming you will provide?
      - Do you assume you will provide the same level of service that will
      require same amount of staff labor or technical investment for
each type of
      TLD?
      - Won't some, for example corporate trademark TLDs used for internal
      purposes, require significantly less work on the part of ICANN?

* *

*Application Fee Background*

In section 3, you identified three major areas of cost estimation for the
application fee, each of which is responsible for a portion of the $185,000
fee:



   - $26,000: Historical costs of developing the new gTLD process
   - $100,000: Readily identifiable costs of evaluating and processing an
   application
   - $60,000: more uncertain/difficult to estimate elements of the
   application and delegation process."



The largest portion of the fee, $100,000, comes from the "predictable" and
"readily identifiable costs of evaluating and processing an application,"
detailed in Section 3.2. As I understand it, your methodology followed these
steps: 1) separated the application process into 75 individual tasks 2)
identified total hours of labor associated with each task (and assigned
prorated hourly cost of labor rates, according to the relevant staff or
consultant hours involved), 3) estimated what % of applications go through
each set of tasks (i.e. "expected value"), 4) added fixed costs such as IT
systems development, hardware and other costs not easily attributable to a
particular task,  5) totaled the costs, and 6) divided them by your
forecasted 500 applicants to get an average fee of approximately $185,000
per TLD.


-- 
Adam J. Martin
Consultant, Business Strategy Group
inCode - www.incodetel.com

Washington, D.C.
202.422.4631 (m)
amartin@xxxxxxxxxxxxx