Comments on ICANN's updated "Q&A"

[George Kirikos <gkirikos@xxxxxxxxx>]

ICANN (or perhaps VeriSign, given how much marketing spin is in the
answers) has posted updated Q&As at:

http://www.icann.org/announcements/announcement-21nov05.htm

They leave much to be desired. Just a few examples (almost every answer
is spin, but I'll highlight the most ridiculous ones):

"A1.2: In order to provide for a transition to allowing market forces
to determine prices, ICANN and VeriSign agreed to relax the current
price cap, which has remained unchanged since ICANN came into
existence, on a graduated basis." 

is complete hogwash. In order to have a "transition to market forces"
for a natural monopoly operation of a registry, this would have to
imply that on some future date, TENDERING will exist for operation of
the .com registry -- i.e. market forces would mean that competitive
registries would have to bid for operation of it, just like companies
bid on Federal contracts to operate airports or supply
telecommunications equipment or computer consulting. Market forces
would imply linkage between prices and costs, due to competition, with
a "normal" profit margin.

ICANN has not published ANY transition plan for such a tender process,
but instead has strengthened VeriSign's perpetual monopoly on operation
of the .com registry. How many other Federal suppliers have a perpetual
monopoly for provision of services, with presumptive renewal and no
tendering process? The US DOC would likely be hard pressed to come up
with any examples, as those would likely be seen as abuses of the
federal procurement system, and antithetical to seeking out the lowest
cost supplier of goods and services to benefit the taxpayer (or in this
case, domain name registrants/consumers).

Without any such future tender process, prices should remain capped at
$6/domain per year.

"A4.2 Extending VeriSign's .COM registry contract to 2012, as proposed
in this agreement, maintains Internet security and stability. [...] 
Absent unexpected circumstances, the VeriSign agreement for .COM will
be renewed in 2012, pursuant to the terms of the new agreement."

This means that the 7% annual fee increase clause is also renewed
automatically, in perpetuity. Do the math, to see where this leaves
.com prices. With no "transition plan" in the contract as discussed
above to allow for tendering, this means that VeriSign will eventually
set the price of .com registry services as a monopolist would, to
maximize net profits. There'd be no linkage anymore between what other
registries would charge to operate .com (Tucows offered to operate it
for $2/domain per year, for example). Furthermore, there is no cap on
the end date for 7% price increases...they can happen until 2020, 2050,
2100, 3000, until the sun explodes, etc. This is anti-competitive, and
an abuse of ICANN's role (and the US Department of Commerce's role) to
look out for consumers/registrants. 

Creating new TLDs is NOT competition for .com, as they are highly
imperfect substitutes, and have a huge "lock-in" effect. It would be
like allowing Neustar the ability to set 1-800 wholesale costs as they
want, in administering the Toll Free numbers database, and then saying
"well, customers can always switch to 1-866".

"A4.3 VeriSign has demonstrated the commitment to make substantial
investment in its infrastructure to ensure continued stability and
security." 

This is in reply to the removal of Appendix W

http://www.icann.org/tlds/agreements/verisign/registry-agmt-appw-net-org-16apr01.htm

which required $200 million in R&D, including development of Universal
WHOIS.

I don't see a link to the operational Universal WHOIS website as a
"demonstration" -- perhaps ICANN can comment in the next iteration of
the Q&As where I can find it (it seems to have been a debacle,  that it
doesn't even exist!).  VeriSign was supposed to make annual reports on
those expenditures to ICANN, yet ICANN continually refuses to make
those reports public. Once again, how is one supposed to take ICANN's
role of overseeing VeriSign seriously, when we see:

a) VeriSign hasn't produced Universal WHOIS
b) Failure to spend the $200 million or complying with Appendix W would
put VeriSign in material breach of the .com contract, thus eliminating
the "presumptive  renewal".
c) Yet, we are to take it on "faith", instead of on contract, that
VeriSign will be "incented to, but required to, invest to keep the
infrastructure secure and stable." 

VeriSign, like any business, would be incented to maximize profits.
Anything less would mean a dereliction of their duties to shareholders.
A contract must be a check against profit maximization, to provide
constraints that force it to operate in such a way as to maximize the
benefits and minimize the costs to consumers.

It's clear that there has been no transparency whatsoever in relation
to Appendix W, and ICANN has another opportunity to show its good faith
by releasing all those annual reports. Section 2 of ICANN's Bylaws
says:

http://www.icann.org/general/bylaws.htm

"7. Employing open and transparent policy development mechanisms that
(i) promote well-informed decisions based on expert advice, and (ii)
ensure that those entities most affected can assist in the policy
development process."

We can't have transparency when ICANN is holding back essential
documents.

Question 5 talks about sanctions in the event of a breach. It's clear
that the BEST way to keep the registry operator "honest" is to have
relatively short-term contracts, that force them to re-bid (through a
tender process) for operation of the registry. This ensures that one
can switch away to other suppliers in the event that they go bad.

Approval of this bad contract by ICANN's unaccountable (what sanctions
does a Board member face when they make poor decisions? seems they get
their term renewed, instead of being shown the door), unelected, and
unrepresentative Board (how many of the Board members even OWN a single
domain name registration??) would provide yet another reason to
dismantle ICANN, and replace it with something better (perhaps fold it
into the Department of Commerce). If ICANN was dismantled, perhaps
these bad contracts would die with it. I'm sure federal procurement
rules would frown upon perpetual contracts that ICANN seems to want to
enter into, which tie the hands of future boards, are anti-competitive
and against the interests of consumers.

Ultimately, VeriSign (and other prospective operators) should be forced
to compete in regular tender processes for fixed-period operation of
the .com registry, so that consumers can have the benefits of the best
possible service at the best possible price. I'm sure GE, IBM,
Accenture, Price Waterhouse, Dell, and others compete for federal
procurement contracts on a regular basis -- why should VeriSign be ANY
DIFFERENT?? If ICANN can't do this, find someone else who will, and
dismantle ICANN.

Sincerely,

George Kirikos
http://www.kirikos.com/