ICANN continues to put the interest of itself and insiders ahead of the public (Comments of Leap of Faith Financial Services Inc.)

[George Kirikos <gkirikos@xxxxxxxxx>]

By: George Kirikos
Title: President
Organization: Leap of Faith Financial Services Inc.
Website: http://www.leap.com/
Date: November 13, 2010

ICANN has presented what it asserts will be the "final" guidebook for the 
introduction of unlimited new top-level domain names. We continue to believe 
that ICANN is acting against the public interest, and instead is acting only in 
the interests of itself and a small number of "insiders" who would directly 
profit from short-term schemes that threaten the long-term stability of the 
internet naming system and impose externalities upon third parties (via 
increased confusion and defensive registration costs).

We, along with other thoughtful organizations, have submitted detailed comments 
in all prior comment periods expressing our concerns. Instead of listening to 
those concerns in a neutral and independent manner, ICANN has instead actively 
*debated* and *opposed* those concerns. Instead of being swayed by the logical 
and compelling arguments against the foolish introduction of unlimited new 
TLDs, 

ICANN comes up with increasingly creative and extreme ways of ignoring that 
input. ICANN talks about "innovation" --- the only "innovation" many of us are 
seeing is the way ICANN has been "innovative" about maximizing the benefits to 
itself and to insiders ahead of the interests of the broader public. ICANN has 
been "innovative" about keeping the public in the dark about the true negative 
implications of its proposals.

Let's take a look at a few examples. On page 5 of the Summary/Analysis of 
Comments:

http://www.icann.org/en/topics/new-gtlds/summary-analysis-agv4-12nov10-en.pdf

ICANN asserts "Since creation of the consensus policy to introduce new gTLDs, 
ICANN has commissioned several economic studies to describe the costs, benefits 
and conditions necessary to maximize net social benefit of the program. The 
studies have also explored anticipated benefits of gTLD expansion."

This is clearly false. Firstly, these are not independent studies at all, these 
are reports that are engineered to support a predetermined outcome. As was 
pointed out previously:

http://forum.icann.org/lists/economic-framework/msg00001.html

ICANN simply hired Compass Lexecon multiple times! These lack the 
"independence" 

of true scholarly and peer-reviewed studies, and are more akin to documents 
that 

are produced by lawyers to "cover their ass" to be blunt (i.e. talking points 
to 
support a 

predetermined point of view in a debate). For example, Compass Lexecon says:

http://www.compasslexecon.com/about_us/Pages/default.aspx

"At Compass Lexecon, we believe that critical economic issues – whether in 
connection with litigation, regulatory review, strategic planning or other 
corporate activities – are best understood when subjected to a rigorous 
empirical analysis. "

Where is that "rigorous empirical analysis"? I'm an economist by training, and 
I 
(along with many others)
laughed at the Carlton reports and the latest report that ICANN has had 
created. 

They wouldn't pass muster in a graduate school seminar, given all the 
hand-waving that takes place. They lack rigour and data.


Where would one get that "data"? It's simple, by studying past introduction of 
new TLDs! That'd be the obvious methodology. However, ICANN pretends that this 
is the first time that new TLDs are being introduced, which is clearly not the 
case. There is a multibillion dollar industry surrounding domain names, which 
supports a multi-trillion dollar internet economy. Why haven't they been 
properly studied, as has been demanded in the past? They say on page 7 of the 
Summary/Analysis of Comments:

"There are other ways success could be measured. The Affirmation of Commitments 
calls for a review of Competition, Consumer Trust and Consumer Choice one year 
after new gTLDs go into operation. This analysis will likely answer critical 
questions that are asked today, for instance: has there been an increase in 
choice for consumers?" 

These are "critical questions" that need to be studied *before* unleashing a 
free-for-all that would undermine the stability of the naming system. The 
players who found loopholes in ICANN policy (e.g. cybersquatters, domain 
tasters, etc.) are salivating at the prospect of gaming the new TLD process. 
ICANN proposes to study the issue only AFTER the proverbial horse has already 
left the barn! If one wanted to do a proper analysis (and ICANN has not 
demonstrates it actually *wants* to do that analysis, which the AoC says it 
*must* do), one might look at the "proof of concepts reports" at:

http://www.icann.org/en/registries/poc/

where each *registry* presented its one-sided view of history. However, where 
is 
the *independent* analysis of those past rollouts, ones not produced by the 
registries themselves? Those are of critical importance, yet ICANN has simply 
not done the work (or, more cynically, ICANN might have "done the work", but 
found the conclusions to be against its predetermined position and has refused 
to publish the truth). It does not take a graduate degree in economics, though, 
to see the truth that new TLDs have been failures. The NTIA/DOC/DOJ said so in 
their famous letter to ICANN of December 2008, which ICANN has yet to refute:

http://www.ntia.doc.gov/comments/2008/ICANN_081218.pdf

That letter (including the Deborah Garza report) should be mandatory reading, 
as 
page 2 itemizes a list of prerequisites for new TLDs that ICANN continues to 
violate. It even asserted that "we discovered that .info often seems to have 
little value as a stand alone gTLD." That document has many other important 
points that need to be considered, yet which ICANN has ignored completely. It 
ended with the statement that new TLDs not be introduced "unless and until 
ICANN 
develops a credible and effective policy that compels it to employ tools such 
as 
competitive bidding to manage TLDs in a manner that safeguards the interests of 
registrants in obtaining high quality domains at the lowest possible prices. To 
date, we believe ICANN has not come close to fulfilling its obligations to 
employ competitive principles in its management of TLD registry operations."

That's a very important statement. It tells ICANN directly what it should be 
doing, i.e. namely that TLD operators need to be competitively tendered! i.e. 
the operator of .shop or .example should be the one who can operate it at the 
lowest cost for the benefit of REGISTRANTS!! It directly challenged the concept 
of "presumptive renewal" for registry operators. What has ICANN done, though 
--- 
they've done the EXACT OPPOSITE! ICANN continues to produce Guidebooks which 
give complete ownership of the TLD to the registry operator, to run as they 
please, to maximize the benefits to the REGISTRY (and to ICANN), and not to 
following the principles that "safeguards the interests of registrants in 
obtaining high quality domains at the lowest possible prices"

We see, for example, ICANN continues to refuse price caps to protect consumers. 
On page 141:

"There is no need for a centralized and uniform price control mechanism across 
all gTLDs, particularly where market power is not an issue. Nor could such a 
program be effective considering the number of innovative and different 
business 
models anticipated. Controls would shackle that innovation. However, if market 
power were to develop and be abused, then governmental consumer protection and 
competition authorities will have all powers available to them under law to 
ensure that consumers and competition are protected." 

In other words, ICANN says "if there's a problem, let governments deal with 
it"! 
But, ICANN has no hesitation to actually *create* the problem in the first 
place! Has ICANN consulted with those governments, asking whether they have the 
manpower in place to fix ICANN's mistakes? Of course not. ICANN wishes to 
burden 
other people with the effects of its decisions. ICANN seeks to profit directly 
from these "externalities" that it imposes upon the public. If there are going 
to be hundreds of meetings around the world to discuss "fixing" problems, ICANN 
staff and insiders will LOVE THAT! ICANN creates a problem, and then spends 
tens 
of millions of dollars to "study it" and to "solve it" (and usually the 
"solution" ends of being paid for by consumers). What's the "proof" that ICANN 
is directly profiting? One need only look at the fact that it uses "for-profit" 
comparables in setting its employee compensation:

http://www.circleid.com/posts/20090105_icann_for_profit_companies_comparables/

and that it is paying its CEO and staff enormous salaries that are obscene in 
relation to those in the not-for-profit sector, see for example:

http://gnso.icann.org/mailing-lists/archives/ga-200709/msg04046.html
http://www.icann.org/en/financials/tax/us/fy-2009-form-990-en.pdf  (column 9, 
page 46)

(in a recession, ICANN paid at least 16 employees $200K+ per year, and 8 of 
those made more than $300K/yr)

Or the *guaranteed* compensation for CEO Rod Beckstrom (not counting bonus, or 
the millions of dollars wasted on new ICANN offices near his home):

http://www.thedomains.com/2010/02/11/nonprofit-icann-releases-salaries-beckstrom-over-2-2-million-guaranteed-cfo-270k-lawyer-230k-plus-plus/


In short, this is a story about ICANN insiders profiting at the expense of the 
public interest. To see this, one need only look at the price of a .com 
registration charged by VeriSign (used to be at $6/yr, and has been soaring 
since the settlement with ICANN over SiteFinder), and compare that to the 
wholesale cost of toll-free numbers (under $1.50/yr). Why are toll-free numbers 
so much less expensive (see the tariff at www.sms800.com)? Perhaps because the 
regulators for toll-free numbers are doing a far better job at protecting the 
public and consumers than ICANN.

Let's go back, and talk about the studies that could have been done about past 
TLDs, but have not taken place. Why has ICANN not done this? Simple, because 
it's obvious to everyone that past new TLDs have been utter failures for the 
public.

(1) .name was sold to VeriSign after essentially failing
(2) .asia continues to ask for price concessions (promise one thing to ICANN, 
and then when you fail, seek to change the terms of the agreement). See them 
beg 
for a fee adjustment 
at http://www.icann.org/en/correspondence/chung-to-pritz-20may10-en.pdf -- yet 
then you see .asia waste money to "Sponsor" ICANN parties around the world, 
i.e. 
a "Silver Sponsor" at Cartagena, http://cartagena39.icann.org/ 
(3) .travel is a complete bust 
(4) .pro is a complete bust, and you saw how much "gaming" has taken place 
where 
registrants lend their "credentials" to others to use the generic .pro domain 
names
(5) .jobs is another complete bust, and the registry is seeking to grab all the 
generic domain names for itself (which has not gone unnoticed by companies like 
Monster.com)
(6) .mobi was a disaster, and was sold off to Afilias after huge losses:

http://paidcontent.co.uk/article/419-dotmobi-sells-.mobi-domain-name-operator/

.mobi was a classic "hyped" TLD launch, where the registry operator kept the 
best domain names to be auctioned off for its own benefit. Now, it's 
essentially 
a ghost town TLD. Each of these TLDs created wildly optimistic business plans, 
talking about innovative business models, etc. All failed miserably. ICANN 
continues to sell the "myth" that innovation will take place, though, trying to 
bamboozle the DOC/NTIA/DOJ and GAC.

Now, you might say, how could ICANN have known that these TLD launches would be 
such failures? Everybody knew, or should have known! You had experts like Tim 
Berners-Lee saying they were a bad idea:

http://www.w3.org/DesignIssues/TLD
http://forum.icann.org/lists/competition-pricing-prelim/msg00016.html

Read the title "New Top Level Domains Considered Harmful" (note, .xxx and .mobi 
were *examples*, but the document applied to ALL new TLDs). How could it have 
been more direct? The document even went into the economics of the matter. What 
did ICANN do? It ignored these warnings, as it does again in the present! One 
would think that ICANN would have learned its lesson. A rational and 
responsible 
organization would have learned from its mistakes. However, ICANN seeks to 
repeat the mistakes of the past, and indeed to SURPASS and EXCEED those 
mistakes. Why? See above -- ICANN insiders seek higher and higher levels of 
compensation for themselves, at the expense of the public. ICANN has grown from 
an annual budget of less than $5 million/yr to one that is on the order of $60 
million+ per year, which is obscene given that it should be in a "steady state" 
equilibrium as a simple "trusted custodian" of the naming system. A trusted 
custodian would have a small and stable budget, and would resist plans to 
engage 
in reckless activities. Instead, ICANN acts like a rogue political 
organization, 
seeking to expand its interests, power and resources by taxing the public --- 
"mission creep" taken to the extreme to encroach upon areas that are best left 
to the ITU, UN, governments, or the private sector.

Commenters like ourselves have even created thoughtful alternatives for an 
*orderly* introduction of new TLDs. For example, one could have a small 
increase 
of new TLDs that the public decides are desirable, and have those tendered 
(like 
Deborah Garza of the DOJ suggested) via competitive bidding (e.g. someone could 
operate .bank for the operation of banks, with VeriSign, Neustar, and other 
prospective TLD operators bidding to run it at the lowest cost for banks, for 
fixed term contracts, like any other procurement contract). We put forth 
another 
approach called "Ascended TLDs"

http://forum.icann.org/lists/irt-draft-report/msg00016.html

which uses the legal concept of "Easements" to ensure that any new TLDs are 
allocated fairly, taking into full account of existing property rights of 
domain 
registrants. It would allow owners of 2nd level domains (e.g. 
verizon.com/net/org) to easily "ascend" to a top level (.verizon), if they 
wanted to, and at low cost, and also easily allow them to block an 
infringing/conflicting TLD that did not obtain the proper easement rights. This 
kind of proposal strengthens the property rights of domain name registrants, 
and 
was economically efficient. This kind of proposal was not considered by ICANN, 
because ICANN only favours proposals that profit itself and insiders (the 
"insiders" include the "ecosystem" of consultants/lawyers and other service 
providers who act as parasites upon the naming system, always seeking to tax 
registrants). The proposal we made would not be able to be gamed to the extent 
that the currently proposed process has been gamed. Because ICANN and its 
insiders profit directly from all the "gaming" that takes place (who do you 
think pays for all the lavish parties, travel and salaries of ICANN?), they are 
very much opposed to any logical proposal that would reduce the extent of 
gaming, like our own. They also reject the high standards that the DOC/DOJ set 
in their 2008 letter and in the Affirmation of Commitments.

In conclusion, we suggest ICANN go back and read our past comments, and 
actually 
take them into account this time. We must have submitted dozens of public 
comments by now throughout the process, but not have participated in all the 
backdoor scheming that has taken place by ICANN and its insiders. We have taken 
great issue with all the redacted documents that ICANN has produced, and the 
lack of any rigour in the documents that have been published that allegedly 
support their plans. The voices of the public must take priority over those of 
the handful of ICANN insiders that hope to make short-term profits at the 
expense of the stability of the naming system. The public has NOT been 
clamouring for new TLDs. The past introduction of TLDs has been a failure, and 
ICANN seeks to compound that failure, repeating mistakes.

ICANN has even made the foolish assertion that it can "fix" any mistakes (e.g. 
Vertical Integration) through a registry compliance process. That's clearly 
impossible, given that registry and registrar interests control the GNSO 
policymaking body, and so no consensus policy could be passed that would reign 
in new TLD operators. Furthermore, look at the history of ICANN compliance. 
VeriSign created SiteFinder, and what was the "penalty"?? The "penalty" was 
that 
ICANN and VeriSign agreed that ICANN would get more money, and VeriSign would 
be 
allowed to get 7% annual price increases! The stock of VeriSign has soared 
since 
that "penalty", at a cost of hundreds of millions of dollars per year to the 
public (and a true penalty of billions of dollars compared to the optimal 
policy 
of regular tender processes for operation of .com). We see the same abuse 
happening in the RSEP policy, where ICANN regularly rubber-stamps one-sided 
proposals by registry operators:

http://www.icann.org/en/registries/rsep/

ICANN simply does not protect consumers when considering registry contractual 
changes. With an unlimited number of new TLDs, all clamouring for additional 
one-sided concessions, it's clear ICANN (and the public) cannot scale properly 
to handle and review all these requests. With Vertical Integration, even 
registrars would not be looking out for consumers anymore, because registrars 
would have a conflict of interest if they themselves also operate registries. 
What we'll see is more and more abusive requests like that which took place by 
.biz/info/org (for tiered pricing):

http://www.circleid.com/posts/icann_tiered_pricing_tld_biz_info_org_domain/

and the public will simply be overwhelmed and not able to keep up with all the 
"loopholes" that new TLD operators will try to sneak through. The only true 
"innovation" that takes place is the number of new loopholes that crafty 
lawyers 
and insiders try to sneak past the public, with a complicit ICANN.

Should ICANN continue on this dangerous path, we call upon the NTIA, DOC, DOJ 
and the GAC to put an end to this plan, in the most direct language possible. 
They should leave open the option of dismantling ICANN, by ending the IANA 
contract and taking the functionality in-house again. Ultimately, it is the 
Department of Commerce that has full control over any new TLDs that enter into 
the root zone (see the steps in the root zone management process, e.g. point #3 
I made at http://forum.icann.org/lists/scaling/msg00000.html ). I suggest that 
the DOC exercise its discretion and simply reject all attempts to increase the 
number of TLDs (besides the ones that do have consensus public support, such as 
IDN ccTLDs), until such time as a process exists that has the support of all 
stakeholders. The NTIA/DOC/DOJ has never said that it is imperative that new 
TLDs be introduced. It's always been "if they are a net benefit" -- we ask that 
this standard be upheld, and that new TLDs be rejected as they simply are not a 
net benefit. 

Even if they were a "net benefit", the MAXIMUM benefit to consumers would not 
happen via the proposed Guidebook, but would instead happen either through 
competitive tenders (without presumptive renewals), or via our own proposal for 
"Ascended TLDs." It's clear that ICANN must scrap its existing work, and 
properly research all possible allocation mechanisms before any final decisions 
are made. There has been a lot of staff turnover at ICANN of late, and this is 
a 
clear warning sign of an organization that is in decay and does not have the 
confidence of the public. Such an organization should not be entrusted with 
making decisions for the benefit of the public, given its past poor record of 
decision-making.

Sincerely,

George Kirikos
President
Leap of Faith Financial Services Inc.
http://www.leap.com/