Wall Street view of the VeriSign Settlement Deal
- To: settlement-comments@xxxxxxxxx
- Subject: Wall Street view of the VeriSign Settlement Deal
- From: Trusted Analyst <trustedanalyst@xxxxxxxxx>
- Date: Sun, 4 Dec 2005 22:52:04 -0800 (PST)
Dear Mr. Twomey and Mr. Cerf,
As a lowly securities analyst it is remarkable to me that there is so little
consciousness of the true economics of VRSN's monopoly on the .com registry.
If people only understood how important it is to VRSN to retain and reinforce
their stronghold on the registry business - one of the must lucrative
franchises in the history of the computer industry - they'd quickly realize why
CEO Stratton Sclavos has authorized every possible measure in the corporate
arsenal to achieve victory.
VRSN is a NASDAQ 100 company with a market cap of $5.7B, annual revenues of
$1.6B, operating margin of 15%, and a 27% year-over-year growth rate. Yet
despite all this it has problems. SiteFinder and WLS/CLS are not its only
sins. In the ring tones division they are being hit with a huge class action
suit (over really bad behavior in their Jamba division) which has caused
serious collapse in their stock price - and revenues/earnings - over the past
Maintaining a high growth rate and 15%-20% operating margins is tough enough,
but take away the FORTY PERCENT operating margins of its golden goose - the
Registry division - and this company's stock would go in the toilet, erasing
billions of dollars of market value. The 15% average corporate profit is only
possible because of their monopoly deal with ICANN on the .com and .net
registries. Without this deal the company would be unable to fund its
crack-addicted acquisition strategy which keeps its growth rate - and stock
price - afloat. They have to continue to buy up companies to make up for lack
of growth in some of their other business units. The Registry, in particular,
needs more high-profit growth.
VRSN is going to be willing to do anything to keep the .com registry contract
renewal from going to competitive bid. When .NET went to bid they lost 25% of
their income, and more of their profit, as they had to drop the price of a .NET
name from $6 to $4.50 just to stay competitive enough. If .com went to bid it
would likely get even worse because competing bidders know there's even more
volume economics with administering .com than there is with .net or any other
Asking for a 7% annual increase in the .com registration fee is audacious.
How audacious? One respected Wall St analyst pegged it at $40M added to VRSN's
bottom line every year. That would increase earnings-per-share by 10%. That's
serious money (remember the $5.7B market cap). But since it adds 7% PER YEAR
this bump-up keeps adding up each year, tacking about $500M-$600M of market cap
to the company each year. Folks, we're talking about very serious money here.
Do you really think VRSN has *ever* done anything to either deserve or justify
such an enormous gift? Do you really think it will cost them an additional
$40M each consecutive year to operate the .com registry (a bunch of underground
computers, after all)??? Of course not. They'd simply be fluffing up their
I can't image the settlement deal going through with such a gargantuan gift.
The DOJ would have to investigate, and it would have to find serious bribery
going on to make this story even begin to pass the believeability filter. Some
very smart observers think that all VRSN is actually trying to do is prevent
ICANN from *reducing* it's $6 fee like it did with the .NET rebidding. VRSN
doesn't expect to get this built-in 7% annual increase... they just don't want
to get cut down on their precious $6 fee. Watch... the price increase and
other features of the settlement deal like CLS and zone data resale rights will
all go away in a final deal that leaves VRSN with its golden goose intact.
Maybe no fatter but just as warm and healthy as it has been for many years now.
As for CLS... VRSN has badly wanted to earn a tax on cyberproperty churn
since the day it met SnapNames, but one monopoly should be enough for them. As
Froomkin so eloquently spell out in his 2003 paper on "ICANN and Anti-Trust"
http://osaka.law.miami.edu/~froomkin/articles/icann-antitrust.pdf page 65 and
73, for ICANN to allow VRSN to take a healthy pro-competitive environment in
the secondary domain name industry and, in the stroke of a pen, wipe out
several companies while handing VRSN an anti-competitive monopoly would result
in the entire house of bricks coming down on VRSN, if not also ICANN.
ICANN: I hope that this proposed settlement deal is re-examined from the
ground up. Your hard-working staff has been bamboozled by the best - they
shouldn't feel bad - VRSN is one of the best companies out there in terms of
intimidation and greed... and I wouldn't sell them short on bribing politicians
and supposed non-profit corporations, either. Everything I've written above
here is in the public domain. There are quite a few analysts who you could
speak with yourself to find out "just how justified is VRSN's claim that their
costs are going up each year and therefore they need this 7% annual price
increase" and "just how much benefit will come to users from giving VRSN a CLS
deal with no regulatory strings, versus decimation of some good healthy
competing companies today?" In fact, the person you should really ask is Mr.
Worst-CEO-of-the-Year Stratton Sclavos... the very man you would be annointing
King of Corporate Malfeasance if you granted this proposed settleme!
ICANN Officers and Board Members: It is your FIDUCIARY DUTY to ask these
questions, and if you don't I think the DOJ and the IRS will both become quite
interested in seeing if any of you have an "open garage door policy" or other
justification for handing out such loot to one of the most unjustly enriched
corporations that the tech industry has ever seen. In all the open sessions
at Vancouver I never heard a board member give any indication that these
questions were asked of VRSN much less answered. What I did hear were some
lame excuses about how such a small incremental price doesn't really have an
economic effect on any one individual. Rubbish scripted by VRSN lawyers.
ICANN should act as a responsible TRUSTEE and do the following:
1. Not fall under VRSN's intimidation to settle a lawsuit that ICANN should
win on merit.
2. Gather up all of VRSN's little contract breaches and point to them as the
reason why the .com registry deal should be re-bid. Re-bid it and let the
consumer win for a change.
3. Kill this deal with VRSN making a profit off of private data on DNS
traffic... or get to know your local ACLU office and prepare for even more
litigation you would be inviting upon yourself.
4. Kill this anti-competitive CLS deal once and for all.
Thanks for listening... I hope you're listening!
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