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Comments from Key-Systems on the introduction of full vertical seperation in DAG4

  • To: 4gtld-guide@xxxxxxxxx
  • Subject: Comments from Key-Systems on the introduction of full vertical seperation in DAG4
  • From: Volker Greimann <vgreimann@xxxxxxxxxxxxxxx>
  • Date: Wed, 21 Jul 2010 19:06:24 +0200

Key-Systems GmbH welcomes the opportunity to provide our comments on the Draft Applicant Guidebook version 4. We also appreciate the efforts and dedication of everyone involved directed at the introduction of the new gTLDs, in particular, that of geographical TLDs. Key-Systems has always supported and will continue to support the process for the introduction of new TLDs.

Full vertical seperation introduced in DAG4:
The restrictive language of Article 1.2.1 of Module 1 and Articles 2.9a, 2.9b and 2.9c of the proposed new gTLD Agreement, first introduced in DAG4 and based on the Nairobi board decision, however arbitrarily discriminates against ICANN accredited registrars to the detriment of local community TLD applications. It will decrease competition amongst registry service providers and contradicts the intent of the new gTLD programme "to open up the top level of the Internet's namespace to foster diversity, encourage competition, and enhance the utility of the DNS". We strongly urge that ICANN reconsiders the introduction of these new restrictions and provides a fair and open process open to all applicants and service providers instead of singleing out and discriminating against registrars.

At the core of the debate on cross-ownership of registries and registrars is ensuring competition and consumer interest, i.e. making sure that an organization that holds a monopoly or, more correct from a competition law point of view, an "essential facility" (the TLD), ensures access to such resource under fair, reasonable, and non-discriminatory terms. The choice made in order to ensure such access is to disentangle two roles: the registry (managing the infrastructure) and a registrar (reseller network) providing access to the infrastructure. What’s interesting is that although we are talking about “new” gTLDs, the debate itself is nothing new: we have seen similar issues in telecommunications, the railroad network, energy and mining, and other areas.

A balanced and realistic view:
Key-Systems proposes a balanced and realistic view, based on years of experience in the ccTLDs space that abundantly shows that models with cross ownership (“CO”) or vertical integration (“VI”) between registries and registrars do not cause consumer harm by themselves and therefore should not be automatically prohibited in the new gTLD process. To the contrary, we believe that strict limitation of such models will end up crippling or worse discourage many potential new gTLD applications, directly against ICANN goal of stimulating innovation and growth for new gTLDs.

We are sympathetic to comments which point out some danger in total and unmonitored integration. However, such dangers are just as likely to occur with or withour vertical integration or registry-registrar co-ownership. Likewise, we believe that although past experiences must be taken into account when shaping this new framework, they should not be the only thing we – as a community – and ICANN – as a whole – listens to. As the name implies, new gTLDs will open a new era of development and the rules should allow for that.

The ultimate goal must be to foster innovation. While we are not proponents of pure laisser-faire the truth is that the Internet is constantly evolving: there is no foolproof way of determining what TLD will or will be a success and it would be quite presumptuous to judge a business model before it is even created. Twitter as become a key service in less than two years and without any “specific service” attached to the .com Top Level Domain. Similarly – and closer to home – the .Tel Top Level Domain is quite successful with only a handful of registrars promoting it effectively.

Ownership does not equal control:
We therefore propose that full registry/registrar cross-ownership of 100% should be allowed and can be beneficial to the goal of stimulating innovation and growth for new gTLDs. We no not believe that an arbitrary/artificial limitation of ownership will prevent any harms as it provides no benefit in itself regarding the concerns raised regarding control. The same level of control is possible regardless if there is full ownership, 15% or just 2% ownership, depending on the setup of the owned entity. There is however a high risk that such limitations only serve incumbent registry operators by preventing new competitors from entering the market. Full Vertical Integration can also be quite useful for small or specialized TLDs. Fringe or specialized interest TLDs and TLDs in regions with no or few ICANN registrars will benefit greatly from the ability to act as both registry and registrar.

Whats works in ccTLDs can not be bad for the new gTLDs
Cross-ownership should also not prohibit a registrar to sell domains from a registry of which it holds shares, provided equal access to registrations is guaranteed and does not discriminate against other registrars. The fact that some ccTLDs Registries do act as Registrars for their own Internet Communities should be proof enough that VI is indeed a possibility. .SE, .UK, .DE have been acting as their own registrars for years and the German and British TLD markets are among the strongest in the world. ccTLDs have used VI/CO with great success while Registrars carrying those ccTLDs still continue growing their market share in these ccTLDs. It stands to reason then that a Registry offering Domain Name registrations directly is not enough to “capture” the customer who still knows and uses the choice of the market. It should also be remarked that none of the new gTLDs will likely reach a market penetration comparable with the big three gTLDs, com/net/org, and will more closely resemble smaller ccTLDs, especially in the case of new geoTLDs. It therefore makes sense to allow similar business models and models of integration in the sales channel.

Compliance enforcement as a better solution against risks and harms:
Any innovation carries an inherent level of risk: domain names brought cybersquatting and tasting, to which the community found solutions – similarly the community will find solutions if and when issues arise. While we agree that there may be possibilities for abuse from a registrar affiliated with a registry selling domains of said affiliated registry, we believe such abuse is just as possible without cross-ownership of registrars and registry and without registrars providing RSP services. The strict language of DAG4 serves only as a band-aid - it may look safer, but it will not prevent any harms. Potential harms can be more effectively curtailed by implementing contractual barriers, checks and balances as well as penalties for offending entities. Some market players may try to violate their obligations with regard to limits of control and/or equal access, etc. For such violators, ICANN should put in place a firm and strict penalty system for the offending party, with penalties ranging from financial penalties, imposition of stronger restrictions up to the loss of the registry contract in case of severe and repeated offenses. Compliance should (and will be) monitored by competitors, registrars and registries alike on top of ICANNs own compliance enforcement teams, and complaints need to be investigated by ICANN and/or contractors of ICANN. As a result, we strongly believe the only suitable answer is to implement and enforce a strong yet flexible framework of rules. This system needs to be capable of effectively control CO and VI – and indeed avoid dangers that are clearly identified – yet provide flexibility for innovation while guaranteeing equal access to any TLD to all ICANN accredited Registrars. The team enforcing these rules needs to be adequately equipped to investigate and deal with suggestions of violating behaviour.

The level of control to prevent harm can also be limited by inserting layers of barriers of information (information firewalls) between the registry and registrar entities, as well as implementing contractual guarantees for other registrars to prevent discrimination. Once again, we believe preventing any and all wrongdoing before it happens is, at best, wishful thinking. Creating enforceable sanctions towards Registries and/or Registrars guilty of clearly defined wrongdoing will be much easier and practical. A quota on ownership limitation is arbitrary and will not in itself prevent any harm. ICANN should concentrate on fighting the issues, not the potential risks. There may be risks of abuse in new gTLDs but it seems unrealistic to want to avoid them all before they happen. All remedies that are currently used in our industry have one common aspect: they are always used after the fact (UDRP, de-accreditation of a Registrar, whois compliance checks, to name just a few).

Equal Access as a limiting factor:
Further limitation of control can be achieved by strict adherence to so-called “Recommendation 19”, by implementing guarantees to ensure equal access for all ICANN accredited registrars, mandating the use of registrars (sale only through registrars), except in the case of "Single-Registrant, Single-User" TLDs. In principle, all ICANN accredited registrars should be granted equal access, all registrars interested in carrying the TLD must have the same basic opportunities for registrations and management of a domain name. This includes an equal number of connections to the registry system for all registrars, first come, first serve amongst registrars for general availability/non-auction phases, adequate support levels for all registrars as well as firewalling information of registry data from registrar entity. Requiring even vertically integrated registries to serve all ICANN-accredited registrars will be a workable tool to enforce and control the best interest of the public.

Service providers:
A good registry service provider ("RSP") is instrumental in the success of a TLD. The experience gathered for one TLD automatically benefit the others and allow for better investment planning and outreach. Preventing RSP from having an interest in one or more TLD could therefore be counterproductive to the Community. Preventing any ICANN-accredited registrar from providing assistance of any kind to prospective new gTLD applicants would unfairly exclude applicants intending to use registrar expertise to help them build their application. Furthermore, many local communities interested in establishing their own community TLD will want to work with a local RSP provider. In many cases, such service can only be provided by a local ICANN-accredited registrar. A prime example of this “new era” is the strong interest that key consumer brands have shown in participating in the process. Since nothing in the ICANN rules prevent them from applying, we believe it is essential to allow them to pursue their goals. Many registrars currently serve these parties in managing their brands online, and are best equipped to serve them in exploring the possibilities of an own TLD as well as in the setup and management of these new TLDs as service providers. We therefore propose that no cap should be implemented on cross ownership between a registry service provider (registry tech provider) and a registrar, but that similar levels of limitation of control be required. The prohibition contained within Article 1.2.1 of Module 1 regarding "applications where the applicant has engaged an ICANN-accredited registrar, reseller, or any other form of distributor or any of their Affiliates (or any person or entity acting on their behalf) to provide any registry services for the TLD" as well as the corresponding sections of the agreements should therefore be deleted.

With a strong and flexible set of rules and a strong and empowered enforcement scheme, the provision of registry services by registrars as well as cross-ownership of registries and registrars would pose no greater risk of harmful action or abuse than any other setup.

With the GNSO PDP WG on vertical integration and cross-ownership currently at an impasse due to partisan interests blocking any compromise on either side of the debate, we believe the ICANN board and staff will need to make a decision to allow greater innovation and freedom of choice as well as to building and enabling a strong compliance framework. While the restrictive policies of DAG4 may have been intended to compel the GNSO WG towards more cooperation and finding a compromise solution, it has instead served hardliners and incumbents to refuse any compromise as they could very well live with the DAG4 limitations.

Thank you for your consideration.

Volker Greimann
General Counsel

Key-Systems GmbH

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