Minds + Machines comments on Vertical Integration

[Antony Van Couvering <avc@xxxxxxxxxxxxxxxxxxxx>]

MINDS + MACHINES COMMENTS ON VERTICAL INTEGRATION

I am a member of the Vertical Integration Working Group, which has been 
laboring for months to find a common position.  None is to be found: the only 
agreement of substance is that everyone disagrees.  It is therefore likely that 
the ICANN Board will have to cut the Gordian knot, and these comments are there 
for them to consider.   These comments are adapted from a similar note sent to 
the Vertical Integration Working Group list on June 20.  Nothing has changed 
since then.

In our view, cross-ownership and vertical integration restrictions are 
artifacts of 1999 conditions, and should be abolished in their entirety short 
of an actual showing of market dominance by a specific players.   Any 
restriction is very difficult for small and developing-world registries which 
don't have the time or money for the regulatory burden or indeed for the 
lawyers to "fine-tune" their corporate structure to get around whatever rules 
may be cumbersome.  This last point is true in any case except when 
restrictions are completely abolished. None of the proposals, with the 
exception of those that call for the elimination of vertical integration and 
cross-ownership controls, deal with the very real problem of small registries 
who cannot find a registrar to carry their TLDs.

We strongly oppose the Afilias/PIR proposal (a.k.a RACK), which we feel is very 
economical in promoting principles that either advance the Internet, help 
nascent registries, or reduce harms to consumers, yet quite thorough in 
advancing the interests of the proposers.  We further believe that the CAM 
model, which envisions an expensive and time-consuming anti-competition review 
without obtaining any indications that the review authorities are even 
interested, is fraught with hopefulness and liable to serious unintended 
consequences, up to and including wholesale governmental intervention in ICANN 
accreditation processes .  Furthermore, we will not support any proposal that 
includes an arbitrary percentage threshold of either ownership or control (such 
as the JN2 proposal) just because it is less bad in other ways, or because the 
proposers seem less motivated by self-interest.

As we see it, elimination of artificial limitations of ownership and/or control 
is the only principled way forward.  We are furthermore very concerned about 
the restriction of competition by a working group where most of the parties 
have a very real economic interest.  While this may or may not be illegal, the 
spectacle of registries and registrars deciding together to shape the 
competitive landscape is nonetheless, in our view, harmful to the Internet, to 
ICANN, and to the participants in the group.  

Competition authorities in Europe and U.S. have been very quick to examine what 
they consider to be anti-competitive behavior on the Internet, and they are the 
proper mechanism to examine and control this problem.  We note that these 
authorities tend to set the bar rather high, and this group should take note of 
their standards.  We reject the argument that various anti-competitive actions 
must be taken in order to reduce consumer harms and gaming, because these harms 
have yet to be been seen in the new gTLD regime and in our view cannot be 
convincingly inferred from the current state of affairs.  Specific actions to 
prevent specific harms should be undertaken once these problems reveal 
themselves. We note that ICANN has been much quicker to address such issues in 
the recent past.

Therefore we support what is known as the Free Trade model. If instead we are 
asked to choose between the various other proposals, we prefer that outlined in 
DAG4.  This position at least has the value of not being self-serving, and, 
because proposed by ICANN, avoids the accusation of this group being 
anti-competitive, which is awkward not least because there is ample evidence of 
it being true.  We readily acknowledge that the DAG4 proposal is helpful to 
Minds + Machines, but no proposal on the table is particularly harmful to us.  
We believe that this group has an obligation to help new gTLDs succeed and to 
act in the longer-term interests of the Internet.  Getting rid of competitive 
restrictions that hail from another era will do both, while at the same time 
relieving us of the imputation of trying to manipulate the economic landscape 
of new gTLDs.

Antony Van Couvering

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