Additional Comments from Network Solutions
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.
SIG VRSN Oct 2005.pdf