RE: [pdp-pcceg-feb06] Renewal expectancy

[Alistair DIXON <Alistair.Dixon@xxxxxxxxxxxxxxxxxxxxxxx>]

There have been suggestions in PDP05 and PDP06 that there might be a need for 
different policies for renewal for new and existing TLDs, especially over the 
question of whether there should be a rebid at the end of a contract.  My view 
is that the competition questions are the same for both and that there should 
either be a rebid at the end of the contract period or at least a review that 
considers whether there are competition issues that would require a rebid.  I 
explain why below.

As with most policy questions in area, there is not really a black and white 
answer as to whether there should be a rebid for new or existing TLDs.  In 
general, neither a small existing registry nor a new entrant is likely to cause 
a competition concern in the short term. However, that may not be the case in 
the medium to long term. The key questions are (as for existing):
- what share of the total market does the registry account for?
- are there any substitutes that exist for users of that registry that they 
could switch to?
- are the switching costs significant?
- Does the registry have the ability to unilaterally increase prices or degrade 
service without losing customers?
- Do users of the registry have countervailing market power?

What these questions highlight is that even if there are no competition 
concerns in the short term, there might be in the longer term.  Consider for 
example a TLD that is specific to a particular industry.  Initially, when the 
TLD is first offered to users the TLD will have of course have limited users. 
However, over time it may prove to be the case that a credible operator in that 
industry must use that TLD.  In that case, conferring a perpetual monopoly 
might cause a competition concern.  That is why the rule rather than the 
exception in service markets (eg government and corporate contracts) is 
periodic rebids.

One of the concerns in the Council about a policy of rebids seems to be about 
whether this provides sufficient incentives for bidding in the first place and 
investment in the long term.  The way to manage such concerns is making sure 
that the length of the contract is sufficient for the provider to cover costs 
and make a profit.  For a service like a registry, which I don't think is 
particularly capital intensive (as compared to say a telecommunications or 
electricity network) - though I might be wrong - 10 years should be plenty of 
time to recover costs.

A second concern seems to be about whether it is worth the bother to have a 
rebid, based on an argument that, despite what I have said about competition 
risks, any such risks are minimal.  The problem is that there is no guarantee.  
The solution might be to have a review of the contract prior to a decision to 
renew that includes specific consideration of whether there are any competition 
concerns.  This is precisely what is being done in NZ in relation to cellular 
spectrum: there is a policy of renewal but this is subject to a "case-by-case 
review", ie if it's found that there is a competition problem renewal is off 
and the spectrum rights will be put up for auction.



Alistair Dixon
Industry and Regulatory Affairs

Ph +64 4 920 3098 (Wellington)         Telstra Clear Ltd
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Ph +64 9 912 4301 (Auckland)             Centreport
Fax +64 4 920 3588                                        Wellington

alistair.dixon@xxxxxxxxxxxxxxxxxxxxxxx


-----Original Message-----
From: owner-pdp-pcceg-feb06@xxxxxxxxx
[mailto:owner-pdp-pcceg-feb06@xxxxxxxxx]On Behalf Of Philip Sheppard
Sent: Tuesday, 31 October 2006 03:12
To: 'PDPfeb06'
Subject: [pdp-pcceg-feb06] Renewal expectancy



I suspect it makes sense to consider different options for renewal for existing 
TLDs and new
TLDs.
It is reasonable to recognise the competitive issues with existing TLDs and new 
TLDs are
different.

Its is those competitive issues that drive the notion of re-bids versus 
presumptive renewal.

Philip