[Gnso-newgtld-wg-wt4] Notes and Action Items: New gTLD Subsequent Procedures PDP WG - Track 4 - 14 September 2017

Emily Barabas emily.barabas at icann.org
Thu Sep 14 21:17:46 UTC 2017

Dear Work Track members,

Please see below the action items and notes from the meeting today.  These high-level notes are designed to help WG members navigate through the content of the call and are not a substitute for the recording or transcript. See the chat transcript and recording at: https://community.icann.org/x/ERohB.

Slides are attached for reference.

Kind regards,



2.     SOIs

-- No updates

3.     Financial Evaluation

-- Program Review feedback:

-- "Consider whether an alternative approach to the Financial Capability evaluation would be worthwhile."  -- CC2 comments are in agreement with this feedback

- "Review Financial Capability CQs and responses to determine whether improvements to the application questions can be made."

-- From the slides -- if the approach to financial evaluation changes, 2012 questions won't be of much use

-- Feedback from ICANN org:

-- Financial evaluation from 2012 -

-- Criteria didn't recognize different business models, one set of questions for all

-- No differences in criteria for TLDs that were cost centers vs. revenue generating TLDs

-- Something for the WT to consider - what is the purpose of financial evaluations?

-- Set of criteria to see if the applicant understood what evaluators would check financially based on the technical approach proposed.

-- Significant number of CQs in the 2012 round that followed up on financial questions

-- Did the applicants really understand the financial questions?

From the chat:

Steve Chan: If anyone is interested in reviewing the Program Implementation Review Report, Financial Capability Evaluation section, there is an extract here on the Wiki: https://community.icann.org/download/attachments/58735969/PIRR_2.7%20Financial%20Capability%20Evaluation.pdf?version=1&modificationDate=1484003566000&api=v2[community.icann.org]<https://urldefense.proofpoint.com/v2/url?u=https-3A__community.icann.org_download_attachments_58735969_PIRR-5F2.7-2520Financial-2520Capability-2520Evaluation.pdf-3Fversion-3D1-26modificationDate-3D1484003566000-26api-3Dv2&d=DwMFaQ&c=FmY1u3PJp6wrcrwll3mSVzgfkbPSS6sJms7xcl4I5cM&r=mBQzlSaM6eYCHFBU-v48zs-QSrjHB0aWmHuE4X4drzI&m=2FxE833aRhjeZjkh4FAxP2Ufj5A2Y3M7S8s3st9cvn8&s=wo7ESsntXxPGNmEFcrgEvcWS-Q1wR37vK4FtPOL2bik&e=>

- Threats being addressed: insolvent registry, lack of market performance, parent company extinction or business fine closure, unwillingness to provide financial stantements to contract due diligence, applying for more TLDs than a company can handle

- In what other ways can we address those threats: current financials, stock exchange listed companies (but some companies are not profitable, what about startups?)

- Another group of applicants that struggled with meeting financial criteria: large orgs that are not publicly traded. They were not comfortable providing financial statements. ICANN had to have a lot of discussions to help them understand the requirements.

- All applications passed financial evaluation, but 25 failed the initial evaluation: 2 failed multiple financial and technical questions, 18 failed question 45 (financial statements), 2 open TLDs and 1 brand TLD failed question 50 (contingency planning), 1 geoTLD failed question 48 (funding and revenue).

From the chat:

Jeff Neuman: what is it about the financial statements that caused failures?

Jeff Neuman: Is it just related to proposed business cases?

- There are a number of those 25 applicants that failed due to question 45, and eventually decided they did not want to share confidential information in evaluation and felt more comfortable going to extended eval (primarily large companies that are not publicly traded)

- Some didn't provide financial statements for the correct period.

- Some did not take into acount methodology for evaluating applications, but this is a small number

- What did ICANN actually do with those financial statements? Was it a box checking exercise, or did they evaluate the financial health of the applicant?

- Q45 criteria - asked for audited financial statement, if no financial history, gave options for other info to provide. Evaluators checked that the criteria for question 45 were met (provision of cash flow, balance sheet, etc for the correct period).

- What if the company provided the requested information, they follow correct accounting practices, but it showed poor financial health. Would this be evaluated?

- If there is a concern that was flagged by the auditor, this would trigger a clarifying question.

- Audited financials do reflect if the company could take on the additional business. There was not evaluation to see if the company was stable enough to handle a new gTLD. Is that accurate? Yes. There was not financial due diligence.  Financial evaluation does not evaluate business models.

From the chat:

Phil Buckingham: jeff  - there was no due diligence .  It was  ticking boxes according to a " balancing templated model  "  The template didnt balance . It was  standardised for ALL  applicants

Phil Buckingham: how did they ( evaluators ) deteremine when  the application  ( rather than the applicant )  was a (not) a going  concern

- There was no evaluation of projections in Q46, and whether those align with the business model.

- Funding and cost questions looked at projections template to see if there was adequate projected funding to align with proposed technical infrastructure provided.

- Question 46 - What guide did evaluators use to evaluate whether applicant can cover costs? Is it just based on the information the applicant provides?

- In the technical section of the application, the applicant provided information about the infrastructure they planned to use. Evaluation checked that there is alignment betweeen financial calculations and infrastructure proposed.

- Evaluators were taking the projections on registrations the applicant expected to generate and made sure that it aligned with other information provided in the application on costs and funding.

- Straw person proposal: "No need to do any financial evaluation as part of the application process. ICANN Org would be allowed to evaluate any financial information deemed appropriate as required by usual corporate governance before contract signing (like OFAC regulations and credit reports). Applicants will be provided in AGB a non-exhausive list of likely documents to be required as part of the contracting process, if they succeed in their applications."

From the chat:

Jeff Neuman: So we have to go back to the original 2007 policy which states:  Applicants must be able to demonstrate their financial and organisational operational capability.

- The straw person would be a change to the 2007 policy.

- By not evaluating financials, we don't deliver on a mentioned goal of potentially blocking speculation through financial analysis, but was it possible to implement this in the first place?

- But we do streamline the process and provide fairness among applications.

- There is a precedent for self-assessment in other industries.

- Could this decision suggest an application fee floor or applicant support design when WT1 and WT4 proposals are combined?

From the chat:

Cheryl Langdon-Orr (CLO): In applicant support situations , support may even be required to present in appropriate language and form , business planning and financials etc.

Phil Buckingham: so if there is no financial evaluation then  the  overall  mission statement ( q18) needs to be points scored in terms of financial , technical , operationally capability . This would need to be  points scored on an annual basis to check if there are any material changes .

- Eliminating financial evaluation may not be accepted by some members of the community. Are there alternatives that we could propose? Ususally there are ways to ensure that the group you are doing business with is financially stable –such as credit reports, financial/credit evaluation firms, and other measures. To what extent are these tools the same/different in different countries. The idea of eliminating financial evaluation completely is difficult to swallow. Getting rid of the 2007 policy completely will likely not be acceptable to many.

From the chat:

Trang Nguyen: or obtaining a certified statement from an auditor...

Cheryl Langdon-Orr (CLO): there is a risk of being too US  or EU centric on all this though Jeff

Cheryl Langdon-Orr (CLO): we always base things on our own experience set of course

- Straw person does not prevent ICANN from asking for information, such as credit checks, but this would not be part of the application and evaluation process.

From the chat:

Phil Buckingham: any certified statement  would need to in complaince with US  GAAP , since ICANN is a US corporation . This could prove to be very problematic to  (say)  an African NGO applicant

Jeff Neuman: But what is the remification of not passing any of these checks?

-Ramification would be not getting a contract.

From the chat:

Jeff Neuman: Of course "passing the checks" has to be defined

Jeff Neuman: So you can be awarded the TLD, but not sign a contract?

- We need to look at something allows appropriate flexibility and meaningful results while supporting stability.

- ICANN regional hubs may be able to provide information about local norms. It would be good to allow greater flexibility in terms of the information provided to accomodate different norms.

- If ICANN is going to look at credit reports, they should state it up front in the AGB along with the standard it is going to apply to make its determination. Not convinced that ICANN shouldn't ask for this info in the evaluation process if this is going to be part of the process, even if it is just a box-checking exercise.

From the chat:

Rubens Kuhl: Credit scores are very jurisdiction-dependent...

Cheryl Langdon-Orr (CLO): "credit score of [....]  or ratifyable alternate"  perhaps  Jeff

Jeff Neuman: But personally agree that the existing questions and answers did not really assess what it was meant to assess

Phil Buckingham: +1  Rubens  it might work in 1 st world countries . I cant see how this would work in  3 rd world ( potentially more riskier / corrupt )  countries

5.     AOB

-- None

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