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Dear Michael,<br>
<br>
thank you for your extensive analysis which, IMHO, is spot on. Many
years ago I raised the point that with inflation being what it is,
ICANN's costs are going to increase accordingly, thus ICANN's annual
budget will not stop increasing just to keep the same level of
services. All was indeed well when the domain name market kept on
expanding, but it is a different kettle of fish when the market has
matured.<br>
It sounds like tough negotiations gave rise to the ICANN transaction
fee being set, but that was in USD back then. It would make much
more sense, just like any tax revenue model, that the fee be set as
a percentage of the base selling price of the domain. That is
something which ICANN is going to need to consider as a matter of
survival.<br>
<br>
As for the overwhelming market shares (and thus funding) of two
actors, Verisign in the Registries and GoDaddy in the Registrars
this is historical and I have no idea how this can be resolved.
These two companies hold the key to ICANN's financial wellbeing.<br>
<br>
Kindest regards,<br>
<br>
Olivier<br>
<br>
<div class="moz-cite-prefix">On 26/08/2023 23:41, mike palage.com
via CPWG wrote:<br>
</div>
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<p class="MsoNormal">Evan,<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">I am keenly aware of the remit of ALAC
under Section 12.2(d)(i) of the ICANN bylaws. However, I do
not view the interests of Internet end users and Registrants
as being mutually exclusive. I have multiple domain names and
email addresses, some of which are purely for business
purposes and others purely personal. I have enjoyed
participating in CPWG calls for years because I believe they
give some of the best objective reviews of the issues being
discussed within the community. Do I always agree with them,
no, but there is much less spin than other stakeholder groups
within the ICANN community.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">I <b>FULLY</b> agree with your comments
about ICANN funding, in fact, I raised some of these concerns
in connection with the Verisign .NET registry agreement
renewal. During my time on the ICANN Board (2003-2006) ICANN
staff (Paul Twomey, John Jeffrey and Kurt Pritz) were
instrumental in changing the original ICANN funding model. I
had significant concerns then, and I believe those concerns
have been validated in hindsight based on current trends
within the industry. For those non-dinosaurs on this mailing
list, allow me to provide an “extensive” historical context. <o:p>
</o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">ICANN currently operates on what can
roughly be described as a tax and spend model. ICANN imposes a
mix of fixed and variable fees on Registrars and Registries.
In connection with Registrars, they pay an annual $4,000
accreditation fee and a quarterly variable fee ($120/$370
depending upon the domain names under management) and a per
domain name ICANN transaction fee of approximately $0.18, see
<a
href="https://static.sched.com/hosted_files/icann76/e0/ICANN76%20Being%20an%20ICANN%20Accredited%20Registrar.pdf"
moz-do-not-send="true" class="moz-txt-link-freetext">
https://static.sched.com/hosted_files/icann76/e0/ICANN76%20Being%20an%20ICANN%20Accredited%20Registrar.pdf</a>.
On the Registry side, the vast majority (but not all) of
Registries pay ICANN a $25,000 annual fixed fee, and then a
$0.25 per domain name transaction fee for domain names
transactions in excess of 50,000. There are a couple of
exceptions to this rule of thumb, the most glaring being
Verisign which pays ICANN approximately $11 million annually
above and beyond the baseline requirements in the standard
Registry Agreement in connection with .COM and .NET. So back
of the napkin math, the vast majority of ICANN’s 140 million
dollar budget comes from these ICANN fees imposed on
contracting parties.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Prior to implementing this transactional
tax and spend model, ICANN operated on what I would
characterize as a cost recovery model. ICANN would collect
fixed accreditation fees from Registrars and Registries and
then impose a per domain name variable fee on Registrars to
pay for the previous year’s approved budget. There was a
tiered pricing structure for Registries based on the number of
domain names under management, see Paragraph 3.14 of the
baseline non-sponsored registry agreement, see
<a
href="https://www.icann.org/en/registry-agreements/multiple/proposed-unsponsored-tld-agreement-11-5-2001-en"
moz-do-not-send="true" class="moz-txt-link-freetext">
https://www.icann.org/en/registry-agreements/multiple/proposed-unsponsored-tld-agreement-11-5-2001-en</a>.
My recollection from the 2003-2005 time frame was that
Verisign and Afilias were each paying ICANN approximately
$127,000 annually for the operation of the .COM, .NET and
.INFO TLDs because of the fee caps provision in Paragraph
3.14.4. On a quarterly basis, ICANN would then impose a per
domain name fee on Registrars based upon their domain names
under management to collect the remainder of the annual
budget. As the number of domain names was regularly increasing
during this time, this variable fee fluctuated but generally
trended down.
<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Now there were a couple of problems with
this original funding model, the biggest being that ICANN was
beholden to getting the annual approval of 2/3 of the
accredited registrars (based on market share) for the fees
ICANN charged them. During this time Registrar fees were the
vast majority of the fees collected by ICANN, as Verisign was
only paying ICANN approximately a quarter of a million dollars
per year as the Registry Operator of the .COM and .NET TLDs.
If ICANN did not get the annual approval from Registrars,
ICANN would quickly become insolvent as an organization. While
I have had my fair share of disagreements with Kurt Pritz over
the years, it generally fell upon his shoulders during this
time to corral the registrars into approving the budget/fees.
To this day, that probably remained one of the most difficult
tasks ICANN staff
<b><u>EVER</u></b> had to undertake and for that I do respect
Kurt.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">For those wondering, why didn’t ICANN just
collect the registrar's fees from the Registries. Simply put
it did not have the contractual authority to do so. To ICANN’s
credit, ICANN has amended the baseline registry agreement so
that Paragraph 6.3(a) now provides ICANN the ability to
collect a variable registry fee via the Registry Operators if
the Registrars do not approve the budget, see
<a
href="https://itp.cdn.icann.org/en/files/registry-agreements/base-registry-agreement-30-04-2023-en.html"
moz-do-not-send="true" class="moz-txt-link-freetext">
https://itp.cdn.icann.org/en/files/registry-agreements/base-registry-agreement-30-04-2023-en.html</a>.
<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Given this conundrum, ICANN was in a very
precarious position at a time that it needed to raise its
annual budget from 8.3 million to 15.8 million. I would
encourage anyone interested to read this article from 2004
that gives an excellent historical analysis, see <a
href="https://www.computerworld.com/article/2566345/icann-ends-malaysia-meeting-with-budget-approval.html"
moz-do-not-send="true" class="moz-txt-link-freetext">
https://www.computerworld.com/article/2566345/icann-ends-malaysia-meeting-with-budget-approval.html</a>
<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">At this time, many people per the
ComputerWorld article thought that ICANN was going to seek
additional funds from the ccTLDs. However, ICANN staff had
decided a different plan. As part of its negotiations with
the Registrars, ICANN raised the per domain name fee to $0.25
annually with the promise that the fee would be fixed
annually. This was of economic interest to the Registrars as
they could now pass this fee directly onto Registrants.
Because the per domain name fee under the old model was
variable, Registrars could not pass this “fixed” fee onto
Registrants. Most Registrars today now include in their
invoice to Registrants a per domain name ICANN fee. After
ICANN began collecting substantial revenue from the
Registries, ICANN lowered the Registrar variable fee to the
current $0.18. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">During these negotiations, ICANN
represented that they would be getting the additional fees
associated with the doubling of ICANN’s annual budget from 7
to 15 million from gTLD registries, under the auspices of
getting gTLD registries to pay their fair share. What ICANN
staff did not share with the Registrars during these
negotiations is what they would be giving up to get Registries
to agree to these increased fees. As noted above the baseline
non-sponsored registry agreement had fee caps on the prices
Registries could charge Registrars, and the potential for a
competitive rebid process in connection with each Registry
term, see Paragraph 5.2 of the original non-sponsored registry
agreement,
<a
href="https://www.icann.org/en/registry-agreements/multiple/proposed-unsponsored-tld-agreement-11-5-2001-en"
moz-do-not-send="true" class="moz-txt-link-freetext">
https://www.icann.org/en/registry-agreements/multiple/proposed-unsponsored-tld-agreement-11-5-2001-en</a>.
As evidenced by the Registry Agreements from 2005 onward,
ICANN not only granted the ability for Registry Operators to
increase their prices, but it also made every gTLD Registry
Agreement a de facto monopoly in perpetuity - unless the
Registry Operator is really stupid, see Paragraph 4.3 of the
current baseline registry agreement,
<a
href="https://newgtlds.icann.org/sites/default/files/agreements/agreement-approved-31jul17-en.html"
moz-do-not-send="true" class="moz-txt-link-freetext">
https://newgtlds.icann.org/sites/default/files/agreements/agreement-approved-31jul17-en.html</a>.
The other major concession that Registry Operators granted
ICANN was the removal of the ICANN indemnification provision,
see Section 4.6 of the original baseline non-sponsored
Registry Agreement <a
href="https://www.icann.org/en/registry-agreements/multiple/proposed-unsponsored-tld-agreement-11-5-2001-en"
moz-do-not-send="true" class="moz-txt-link-freetext">
https://www.icann.org/en/registry-agreements/multiple/proposed-unsponsored-tld-agreement-11-5-2001-en</a>
<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">As a result of these ICANN funding and
Registry Agreement changes, Verisign went from paying ICANN
approximately $250,000 per year in connection with the
operation of .COM and .NET, to Verisign paying ICANN over $55
million to operate the .COM and .NET registries. Today
Verisign is paying ICANN in excess of 41 million annually to
operate .COM, and in excess of $10 million annually to operate
.NET. When you throw in the $4 million dollars annually of the
Binding Letter of Intent that equates to 55 million dollars
annually and that does not include the Registry fees (a couple
of hundred thousand) associated with .NAME, .VERISIGN, and
Verisign’s portfolio or defensive IDN TLDs.
<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Now does anyone in the ICANN community find
it odd that Verisign went from paying ICANN a couple of
hundred thousand dollars annually in the early 2000s to over
55 million dollars annually today? Does anyone find it
concerning that over 1/3 of ICANN’s total revenue is
attributed to one company? Is anyone in the ICANN community
concerned about how this financial dynamic could potentially
impact the health and operation of the ICANN multistakeholder
model?<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Now for the past 20-plus years, this has
not been a problem because the zone files during this time
have consistently increased. However, with a growing maturity
in the domain name market, the industry as a whole has
experienced a much lower growth rate. Most problematic for
ICANN is the potential for the domain names under management
to contract. While this is unlikely in the near foreseeable
future, the trend long term does not bode well for ICANN
especially as its costs continue to grow steadily.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The removal of price caps from the Registry
Agreement, with no potential for ICANN to periodically rebid
the TLD Registry Agreement removes any downward pressure on
that Registry Operator to constrain pricing. This is one of
the reasons I so strenuously advocated in my .NET public
comment period for ICANN to include Section 2.15 of the
baseline registry agreement into the .NET Registry Agreement.
This section states in relevant part that “[i]f ICANN
initiates or commissions an economic study on the impact or
functioning of new generic top-level domains on the Internet,
the DNS or related matters, Registry Operator shall reasonably
cooperate with such study, including by delivering to ICANN or
its designee conducting such study all data related to the
operation of the TLD reasonably necessary for the purposes of
such study requested by ICANN or its designee.”<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">This provision is missing from both the
.NET and .COM registry agreements. Again I ask anyone “still”
reading this email, do they find it a bit odd that a single
entity controlling approximately 80% of the gTLD market share
AND contributing over 1/3 of ICANN’s annual budget is one of
the only gTLD Registry Operators not required to participate
in an ICANN economic study?<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">After reading the NameCheap IRP, I began
accumulating publicly available pricing information from gTLDs
and ccTLDs and I noticed a very disturbing trend.
Specifically, the pricing on gTLDs appears to be rising
substantially higher than ccTLDs. I found this interesting for
a couple of reasons. ccTLDs and gTLDs provide the same
technical functionality, and in several cases, ccTLDs are
actually ran on the same backend infrastructure as gTLDs.
While there are different policies that may impact pricing,
the following graphic from Neustar’s .US bid package really
hit home the divergent pricing on ccTLD and gTLDs, see
<a
href="https://ntia.gov/files/ntia/publications/technical_proposal_volume_3.pdf"
moz-do-not-send="true" class="moz-txt-link-freetext">
https://ntia.gov/files/ntia/publications/technical_proposal_volume_3.pdf</a><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal"><img style="width:5.7777in;height:3.1805in"
id="Picture_x0020_1"
src="cid:part1.8jGiBAO3.0b8Mj4hb@gih.com" alt="A graph with
different colored lines
Description automatically generated" class="" width="555"
height="305" border="0"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">It is noteworthy that while .US domains I
still believe are priced at $6.50, .COM is now $9.59, an
almost $2 dollar increase in the approximately 5 years since
this chart was published.
<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">So Evan here is my proposal to you. I am a
big believer in wanting to be part of the solution as opposed
to be part of the problem. Now if we both want to be part of
the problem we can engage in a tit for tat email exchange what
will likely get us nowhere. Alternatively, I would really like
to tap your old ZDNET skillset to help expand my research into
the growing disparity between ccTLD and gTLD pricing. As noted
above, as a result of changes made back in the early 2000’s to
the baseline registry agreements, ICANN’s current tax and
spend model is heading for trouble as increasing gTLD prices
will likely have an adverse impact on the number of domain
names under management. While Registry Operators have the
unfettered ability to raise their prices, ICANN is locked into
what it can charge gTLD registries. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Let me be VERY clear, I want to work with
the ICANN community to help bring this information to the
attention of the current ICANN Board. I believe we are
confronted with a unique opportunity in the history of ICANN
for this Board to critically analyze a number of issues which
some ICANN staff have conveniently brushed under the rug in
the past.
<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Hopefully this is something that you and I
can reach consensus on and collaborate together within ALAC.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Best regards,<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Michael<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<div style="border:none;border-top:solid #E1E1E1
1.0pt;padding:3.0pt 0in 0in 0in">
<p class="MsoNormal"><b>From:</b> Evan Leibovitch
<a class="moz-txt-link-rfc2396E" href="mailto:evan@telly.org"><evan@telly.org></a> <br>
<b>Sent:</b> Friday, August 25, 2023 12:36 AM<br>
<b>To:</b> mike palage.com <a class="moz-txt-link-rfc2396E" href="mailto:mike@palage.com"><mike@palage.com></a><br>
<b>Cc:</b> Steinar Grøtterød <a class="moz-txt-link-rfc2396E" href="mailto:steinar@recito.no"><steinar@recito.no></a>; CPWG
<a class="moz-txt-link-rfc2396E" href="mailto:cpwg@icann.org"><cpwg@icann.org></a>; John Jeffrey
<a class="moz-txt-link-rfc2396E" href="mailto:john.jeffrey@icann.org"><john.jeffrey@icann.org></a><br>
<b>Subject:</b> Re: [CPWG] Communication to ICANN GC<o:p></o:p></p>
</div>
<p class="MsoNormal"><o:p> </o:p></p>
<div>
<div>
<p class="MsoNormal">On Thu, Aug 24, 2023 at 3:17 PM mike <a
href="http://palage.com" moz-do-not-send="true">
palage.com</a> via CPWG <<a
href="mailto:cpwg@icann.org" moz-do-not-send="true"
class="moz-txt-link-freetext">cpwg@icann.org</a>>
wrote:<o:p></o:p></p>
</div>
<div>
<p class="MsoNormal"><o:p> </o:p></p>
</div>
<div>
<blockquote style="border:none;border-left:solid #CCCCCC
1.0pt;padding:0in 0in 0in
6.0pt;margin-left:4.8pt;margin-top:5.0pt;margin-right:0in;margin-bottom:5.0pt">
<div>
<div>
<div>
<p class="MsoNormal"
style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto">So
we are in agreement that protecting registrants
should be a focal point of our work,<o:p></o:p></p>
</div>
</div>
</div>
</blockquote>
<div>
<p class="MsoNormal"><o:p> </o:p></p>
</div>
<div>
<div>
<p class="MsoNormal"><span
style="font-family:"Tahoma",sans-serif;color:#0B5394">Some
of "us", that is . Others see such a corrupt
consensus as mission creep of the highest order.<o:p></o:p></span></p>
</div>
<div>
<p class="MsoNormal"><span
style="font-family:"Tahoma",sans-serif;color:#0B5394"><o:p> </o:p></span></p>
</div>
<div>
<p class="MsoNormal"><span
style="font-family:"Tahoma",sans-serif;color:#0B5394">As
usual.<o:p></o:p></span></p>
</div>
<div>
<p class="MsoNormal"><span
style="font-family:"Tahoma",sans-serif;color:#0B5394"><o:p> </o:p></span></p>
</div>
<div>
<p class="MsoNormal"><span
style="font-family:"Tahoma",sans-serif;color:#0B5394">ALAC
has no mandate and thus no standing to protect the
interest of registrants. Anyone checking the bylaws
will notice that fully half of the GNSO is dedicated
to representing the interests of various kinds of
registrants. They don't need ALAC as a booster, ALAC
has its own unique mandate and community.<o:p></o:p></span></p>
</div>
<div>
<p class="MsoNormal"><span
style="font-family:"Tahoma",sans-serif;color:#0B5394"><o:p> </o:p></span></p>
</div>
<div>
<p class="MsoNormal"><span
style="font-family:"Tahoma",sans-serif;color:#0B5394">With
so much energy spent on the bylaw-infringing
protection of registrants, no wonder so little gets
done on behalf of non-registrant end-users. This
disease has, does and will continue to inhibit ALAC
from putting all energies and resources into serving
its bylaw mandate. If ALAC were doing its job,
anyone with a conflict of interest -- making money
in the creation, buying or selling of domains --
ought to be disqualified from At-Large decision
making. There is already so much self-dealing within
ICANN; ALAC could be an oasis of policy ethics but
actively chooses not to.<o:p></o:p></span></p>
</div>
</div>
<div>
<div>
<p class="MsoNormal"><span
style="font-family:"Tahoma",sans-serif;color:#0B5394">Let
alone focal point, prices of Internet domains are no
business of ALAC's mandated constituency. I have yet
to hear ANY evidence, let alone compelling evidence,
that domain pricing is an ALAC issue. Arguably,
ALAC's only concern should be that ICANN fees must
be sufficient to allow it to understand the needs of
end users, enact complementary policies, provide
education and enforce protections. And if that means
fees that are higher than registrants want, well
that's too bad, this becomes an area where end-user
interests conflict with those of registrants and the
side for which ALAC must advocate is quite explicit.<o:p></o:p></span></p>
</div>
<div>
<p class="MsoNormal"><span
style="font-family:"Tahoma",sans-serif;color:#0B5394"><o:p> </o:p></span></p>
</div>
<div>
<p class="MsoNormal"><span
style="font-family:"Tahoma",sans-serif;color:#0B5394">Pity
the diversion of appropriate focus is so
predictable. At least it's spoken out loud with no
attempt to hide.<o:p></o:p></span></p>
</div>
<div>
<p class="MsoNormal"><span
style="font-family:"Tahoma",sans-serif;color:#0B5394"><o:p> </o:p></span></p>
</div>
<div>
<p class="MsoNormal"><span
style="font-family:"Tahoma",sans-serif;color:#0B5394">-
Evan<o:p></o:p></span></p>
</div>
</div>
<p class="MsoNormal"><o:p> </o:p></p>
</div>
</div>
</div>
<br>
<fieldset class="moz-mime-attachment-header"></fieldset>
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<pre class="moz-signature" cols="72">--
Olivier MJ Crépin-Leblond, PhD
<a class="moz-txt-link-freetext" href="http://www.gih.com/ocl.html">http://www.gih.com/ocl.html</a></pre>
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