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Additional Comments from Network Solutions

  • To: <settlement-comments@xxxxxxxxx>
  • Subject: Additional Comments from Network Solutions
  • From: "Nevett, Jonathon" <jnevett@xxxxxxxxxxxxxxxxxxxx>
  • Date: Wed, 7 Dec 2005 14:12:35 -0500

In addition to the points raised in my prior posting 
(http://forum.icann.org/lists/settlement-comments/msg00197.html), I want to 
focus this posting solely on the anti-competitive nature of the proposed .com 
agreement.  Under the Memorandum of Understanding between ICANN and United 
States Department of Commerce and pursuant to its Bylaws, one of ICANN's core 
values is to promote competition.  Unfortunately, the renewed .com contract, as 
proposed, would hinder - not promote - competition.  Network Solutions is 
extremely concerned about the negative impacts to competition in the proposed 
contract.  

 

The proposed .com contract should follow the requirements in the current .com 
contract that any renewal should be "in substantial conformity with the terms 
of registry agreements between ICANN and operators of other open TLDs."  The 
proposed .com contract is not in conformity with the current .com contract and 
the other non-VeriSign gTLD contracts in two important areas that would 
adversely impact competition.

 

First, the current .com contract contains a "presumptive renewal" provision, 
which by its nature stifles competition.  The other non-VeriSign gTLD contracts 
do not contain such a provision.  Not only does the proposed .com contract 
maintain the presumptive renewal provision, it also strengthens that provision 
on behalf of VeriSign.  This proposed provision would make it virtually 
impossible for VeriSign to lose the .com registry, and impossible for the 
Internet community to reap the benefits of competition. Having a rebid process 
does not harm stability of the Internet, but most certainly would promote 
competition.  Neither VeriSign nor ICANN have provided any justification for 
this enhanced "presumptive renewal" provision. 

 

Second, the proposed .com contract would permit VeriSign to unilaterally raise 
registration fees by 7% per year.  The existing .com contract and all 
non-VeriSign gTLD registry agreements require the registries to cost-justify 
any price increases.  It is important to clear up any confusion that may have 
been caused by ICANN's November 21 posting of additional Questions and Answers 
on the settlement entitled Information on Proposed VeriSign Settlement and New 
.COM Agreement (http://www.icann.org/announcements/announcement-21nov05.htm) 
Lest there be any doubt, VeriSign must cost justify any price increases in the 
current .com contract.

 

"Question:  Can VeriSign raise its prices under the current .COM agreement?  

ICANN Staff Answer A1.1:  "Under the current .COM agreement, VeriSign may 
increase prices with thirty days notice and with ICANN approval (which may not 
be unreasonably withheld). VeriSign has not raised its prices since the 
contract has been in effect, and has indicated that is has no current plans to 
increase prices."

Reality:  Under Section 22 of the current .com agreement, VeriSign may increase 
prices with thirty days notice and with ICANN approval (which may not be 
unreasonably withheld), but only to "reflect reasonably demonstrated increases 
in the net costs of providing Registry Services arising from (i) new or revised 
ICANN specifications or policies adopted after the Effective Date, or (ii) 
legislation specifically applicable to the provision of Registry Services 
adopted after the Effective Date, to ensure that Registry Operator recovers 
such costs and a reasonable profit thereon." (emphasis added).  As you can see, 
ICANN staff failed to mention that the existing .com contract (and all 
non-VeriSign gTLD registry agreements) requires the registries to cost-justify 
any proposed price increases.  This important protection is removed in the 
proposed .com agreement.  

In an industry where the economics suggest that fees should be decreasing 
because there is robust competition, it is particularly troublesome and 
anti-competitive to grant a monopolist or a single source provider the 
unilateral right to increase prices without justification.  It would be naïve 
to suggest that VeriSign, a for profit company with a fiduciary duty to its 
shareholders, won't increase it fees.  Indeed, in a financial analyst report 
issued the day after the settlement was announced, it was stated that "we 
believe it is highly likely that VRSN will raise pricing for .com (which had 
40.5 mln names as of Sept. 30, versus 6.2 mln for .net). Preliminarily, we 
estimate VRSN could receive roughly $40 mln in revenue in 2007 from a 7% .com 
price increase coupled with the recently agreed upon allowance of a maximum 10% 
.net price increase. Altogether, this could add $0.07-$0.08 to our 2007 EPS 
estimate of $1.30."  Susquehanna Financial Group, October 25, 2005 (see 
attachment).  

 

The bottom line is that presumptive renewal taken together with the unilateral 
right to increase fees without justification would enable VeriSign perpetually 
to exercise its market power to raise prices without regard to its costs and 
free of any competitive constraints.  This diminution in competition would, 
most certainly, result in price increases in the marketplace.  The ICANN Board 
should reject any settlement that includes both presumptive renewal and a 
unilateral right to increase fees without justification.  The Board should 
instruct ICANN staff to renegotiate these points with VeriSign.  

Attachment: SIG VRSN Oct 2005.pdf
Description: SIG VRSN Oct 2005.pdf



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