[registrars] RE: Appeal to ICANN Finance committee to modify ICANN Budget proposal

[Jean-Michel Becar]

I reread again and again the document and talking with my colleagues we 
realized that the real problem is not how to finance...the real problem 
is the budget itself....100% increase and the biggest part of the 
increase is paid by the registars :-(

ICANN wants to increase its budget of almost U$8M and us, registrars we 
will pay U$6.4M of the increase....is it fair????

So I think we should try to find a way to make this budget revised to a 
lower level:

Does ICANN really needs 59 people to operate?
Does ICANN really needs more than US$2M for Board Meetings and Other 
travels? (I'm able to travel to each ICANN meeting for US$4000 ~ 5000 
and I'm living in the most expensive country for the flight tickets)
Why ICANN should be involved in the IDN promotion shoudn't be the 
registries?

Jean-Michel

Bhavin Turakhia wrote:

>Hi all,
>
>I noticed that many of you have responded on the registrars list. Tom,
>Patricio etc I would urge you to also send in your responses to the budget
>public discussion forum, since those are the comments that will be used to
>whet this. So I would suggest to mark a copy to budget-comments at icann.org
>
>Best Regards
>Bhavin Turakhia
>Founder, CEO and Chairman
>DirectI
>--------------------------------------
>http://www.directi.com
>Direct Line: +91 (22) 5679 7600
>Direct Fax: +91 (22) 5679 7510
>Board Line (USA): +1 (415) 240 4172
>Board Line (India): +91 (22) 5679 7500
>--------------------------------------  
>
>  
>
>>-----Original Message-----
>>From: tbarrett [mailto:tbarrett at encirca.biz] 
>>Sent: Thursday, May 20, 2004 2:29 AM
>>To: 'Bhavin Turakhia'; 'Kurt Pritz'
>>Cc: 'Registrars Constituency'
>>Subject: RE: [registrars] RE: Appeal to ICANN Finance 
>>committee to modify ICANN Budget proposal
>>
>>I have more point that I wanted to make before hitting the 
>>"send" button.
>>
>>The ICANN budget assumes new revenue sources from cctld's, 
>>registry services and new registrar accreditations.
>>
>>What happens if these revenue sources do not materialize as 
>>expected?  Will ICANN have already committed itself to 
>>spending funds it will not receive?
>>Who will it turn to to make up for the short-fall?  This is 
>>why a growth cap is required.
>>
>>Best Regards,
>>
>>Tom Barrett
>>EnCirca, Inc
>>
>>
>>-----Original Message-----
>>From: owner-registrars at gnso.icann.org
>>[mailto:owner-registrars at gnso.icann.org] On Behalf Of tbarrett
>>Sent: Wednesday, May 19, 2004 4:01 PM
>>To: 'Bhavin Turakhia'; 'Kurt Pritz'
>>Cc: 'Registrars Constituency'
>>Subject: RE: [registrars] RE: Appeal to ICANN Finance 
>>committee to modify ICANN Budget proposal
>>
>>
>>I have some serious concerns about the recent ICANN budget 
>>discussions.
>>
>>1. The various business models deployed by registrars should 
>>not be an issue in determining the appropriate ICANN budget.  
>>The registrars should not allow this to be a distraction.  
>>The real issue, in my view, is to how to insure fiscal 
>>discipline and accountability (to ICANN tax-payers)in the 
>>ICANN budgeting process.
>>
>>2. I'm dismayed to see that ICANN staff has factored 
>>registrar business models into their budgeting thinking as 
>>well.  The ICANN staff and board should not be using various 
>>registrar business models as rationale for increased budget 
>>fees.  Simply put, ICANN should be developing their budget 
>>based on their needs and not based on industry business 
>>models that may or may not exist in a few months.  This is a 
>>slippery path.  A more business-model-agnostic approach would 
>>be to simply add a ICANN transaction tax on the fees paid by 
>>the registries to ICANN.
>>
>>3. As any business person knows, there are never the 
>>resources available to do everything on the budget "wish 
>>list".  The process of prioritizing business needs and 
>>conducting "triage" is healthly for the business.
>>Providing a business unlimited funds, to do anything it wants 
>>to do, is a recipe for failure.  When an organization is not 
>>forced to make spending trade-offs, it leads to bloat.
>>
>>Just as we registrars are forced to make hard choices to how 
>>to spend our available funds, so too, ICANN needs to make 
>>hard choices in how to spend its funds.  This is not bad.  
>>This is good and will lead to a lean and efficient ICANN.
>>
>>4.  The only way ICANN will be forced to make hard choices, 
>>is to deny it the full budget it is asking.  There needs to 
>>be a fiscal discipline and a growth cap imposed on ICANN funding.  
>>
>>As a quasi-governmental body, ICANN generates funds through 
>>taxes from registrars and registries.  As tax-payers, we need 
>>to push for a cap on the annual growth of taxes that we pay 
>>to ICANN.  The ICANN staff and board should agree on this 
>>growth cap to help enforce fiscal discipline within the ICANN 
>>organization.  Without this, ICANN will not be truly 
>>motivated to pursue other sources of revenue.  A growth cap 
>>also helps create accountability by ICANN to its tax-payers.  
>>Without it, ICANN will simply come back year after year 
>>asking for more money.
>>
>>Sincerely Yours,
>>
>>Tom Barrett
>>EnCirca, Inc.
>>
>>
>>-----Original Message-----
>>From: owner-registrars at gnso.icann.org
>>[mailto:owner-registrars at gnso.icann.org] On Behalf Of Bhavin Turakhia
>>Sent: Wednesday, May 19, 2004 2:04 PM
>>To: 'Kurt Pritz'
>>Cc: 'Registrars Constituency'
>>Subject: [registrars] RE: Appeal to ICANN Finance committee 
>>to modify ICANN Budget proposal
>>
>>
>>
>>Hi Kurtz,
>>
>>Thanks for the fairly detailed response. I too definitely see 
>>your view point and appreciate the time and effort that ICANN 
>>and other participants have spent on this exercise. Trust me, 
>>despite my personal passion on this subject I cannot match 
>>the time effort you all would have spent on this document. 
>>Nevertheless I am of opinion (as are other Registrars) that 
>>there are certain key areas in this proposed budget that 
>>should change. This opinion is NOT based on quick irrational 
>>thinking, but as a concerted logical reasoning. I am quite 
>>positive and certain that all of us as Registrars will be 
>>able to convince ICANN on our viewpoints and am very happy 
>>for the audience and the discussion process.
>>
>>I have run through your email in a blazing speed reading 
>>fashion :) and thank you indeed for taking the time to pen 
>>out such a detailed response. I will read it once more with 
>>the attention and time it deserves shortly and then respond 
>>back with my viewpoint.
>>
>>Best Regards
>>Bhavin Turakhia
>>Founder, CEO and Chairman
>>DirectI
>>--------------------------------------
>>http://www.directi.com
>>Direct Line: +91 (22) 5679 7600
>>Direct Fax: +91 (22) 5679 7510
>>Board Line (USA): +1 (415) 240 4172
>>Board Line (India): +91 (22) 5679 7500
>>--------------------------------------  
>>
>>    
>>
>>>-----Original Message-----
>>>From: Kurt Pritz [mailto:pritz at icann.org]
>>>Sent: Wednesday, May 19, 2004 11:15 PM
>>>To: 'Bhavin Turakhia'
>>>Cc: ivanmc at akwan.com.br; tricia.drakes at parvil.demon.co.uk; 
>>>tniles at uscib.org; twomey at icann.org; 'Dan Halloran'; 'Registrars 
>>>Constituency'; 'Divyank Turakhia'; 'Namit Merchant'; 'Rob Hall'; 
>>>'Elana Broitman'; 'Tim Ruiz'; webmaster at icannwatch.org; 
>>>fausett at lextext.com; ali at circleid.com; froomkin at law.miami.edu; 
>>>vinton.g.cerf at mci.com; 'John Jeffrey'; 'Kieran Baker'
>>>Subject: RE: Appeal to ICANN Finance committee to modify 
>>>      
>>>
>>ICANN Budget 
>>    
>>
>>>proposal
>>>
>>>Bhavin Turakin, Chairman & CEO
>>>Directi.com
>>>
>>>[in plain text and pdf formats]
>>>
>>>
>>>Dear Bhavin:
>>>
>>>Thank you for your letter outlining the concerns you have with the 
>>>proposed ICANN Budget. It is clear and well thought out. I 
>>>      
>>>
>>know that 
>>    
>>
>>>your letter was addressed to Vint Cerf. Vint and I communicated to 
>>>determine an appropriate response and he has contributed to the 
>>>composition of this letter.
>>>
>>>Please know that the ICANN staff put a great deal of 
>>>      
>>>
>>thought and work 
>>    
>>
>>>into the proposed budget model. That effort included considerable 
>>>discussion of the effects of rate increases on large and small 
>>>registrars, barriers to entry, and the DNS marketplace.
>>>
>>>Please take this response to your paper as constructive 
>>>      
>>>
>>discussion and 
>>    
>>
>>>not argument. The ICANN staff, board and various constituencies 
>>>discussed several finance models and their effects on the 
>>>      
>>>
>>ICANN budget 
>>    
>>
>>>and on the community. Many hours were spent in this 
>>>      
>>>
>>activity - just as 
>>    
>>
>>>are you doing now.  Many of the arguments you make were 
>>>      
>>>
>>considered - 
>>    
>>
>>>most were adopted as part of the plan.
>>>
>>>First, the lack of public forum you mentioned has been 
>>>      
>>>
>>cured. It was 
>>    
>>
>>>under construction when ICANN received your letter. It will 
>>>      
>>>
>>be posted.
>>    
>>
>>>On the more important issues:
>>>
>>>As you probably recognized from the budget document, the 
>>>      
>>>
>>per annum fee 
>>    
>>
>>>was developed in recognition of the fact that while some of ICANN's 
>>>effort resulting from relationships with registrars is 
>>>      
>>>
>>proportional to 
>>    
>>
>>>the size of the registrar, significant other effort 
>>>      
>>>
>>expended on behalf 
>>    
>>
>>>of registrars is fixed for each registrar regardless of the 
>>>      
>>>
>>number of 
>>    
>>
>>>names registered.
>>>
>>>An example of this latter activity is ICANN addressing issues with 
>>>contractual compliance. There are costs related to consumer 
>>>      
>>>
>>protection 
>>    
>>
>>>and compliance activities that do not vary with the number of names 
>>>under registration. ICANN invests to maintain linkages with various 
>>>government agencies to protect consumers and help ICANN do a better 
>>>job of assuring that all registrars follow the rules of the road in 
>>>fair fashion. As ICANN adopts a more proactive contractual 
>>>      
>>>
>>compliance 
>>    
>>
>>>program during the next fiscal year, activities will incur per 
>>>registrar, rather than per name expenses.
>>>
>>>Other activities include administration of various databases and 
>>>responses to business and technical queries.
>>>
>>>So while ICANN proposed that some of the costs be allocated 
>>>      
>>>
>>on a per 
>>    
>>
>>>registrar basis and that some form of such an allocation is fair, I 
>>>take your queries to center around the question of whether the 
>>>allocation methodology in the budget is fair. ICANN submits 
>>>      
>>>
>>that it is 
>>    
>>
>>>fair, asks that you consider the following, and then asks that we 
>>>continue the dialogue so that a consensus is reached.
>>>
>>>EFFECTS ON SMALLER REGISTRARS
>>>ICANN believes that smaller registrars will not be forced 
>>>      
>>>
>>to leave the 
>>    
>>
>>>market place for two reasons:
>>>
>>>1)  Many or most of the smaller registrars can easily 
>>>      
>>>
>>afford the fee 
>>    
>>
>>>due to revenues received by use of access to the batch pool, and
>>>
>>>2) The fee will be mostly forgiven for those registrars that do not 
>>>employ their right to access the batch pool and for whom 
>>>      
>>>
>>the fee would 
>>    
>>
>>>severely affect the ability to carry on.
>>>
>>>To the first point, it has been estimated by others that over 110 
>>>registrars presently derive revenue from using or selling their 
>>>contractual right to access the batch pool in an effort to register 
>>>deleted names. That revenue has been estimated at $20,000 
>>>      
>>>
>>to $30,000 
>>    
>>
>>>per month for, in the words of one registrar, sitting and doing 
>>>nothing. (These activities should be contrasted with the business 
>>>models of registrars conducting standard marketing and registration 
>>>operations where margins and revenue streams are tighter.)
>>>
>>>There are a number of accreditation applications in the pipeline, 
>>>including several with clear indications that the 
>>>      
>>>
>>accreditation is to 
>>    
>>
>>>be used to gain access to the batch pool. ICANN anticipated none of 
>>>those applicants will withdraw their application based upon the new 
>>>fee structure. As stated in an earlier registrar posting concerning 
>>>the budget, none of the existing registrars earning over $240,000 
>>>annually should protest the fee.
>>>
>>>ICANN does not condone the use of accreditations that are used 
>>>strictly for access to secure deleted names. In fact, when 
>>>      
>>>
>>faced with 
>>    
>>
>>>an abnormally large spate of accreditation applications, ICANN 
>>>temporarily halted the accreditation process and convened 
>>>      
>>>
>>an emergency 
>>    
>>
>>>session of the ICANN Board to discuss whether large number of 
>>>accreditations should be granted in an environment where so 
>>>      
>>>
>>many new 
>>    
>>
>>>accreditations were intended solely to access the batch pool.
>>>
>>>With regard to the second point, forgiving fees in certain 
>>>circumstances will avoid situations forcing smaller 
>>>      
>>>
>>registrars out of 
>>    
>>
>>>the market.
>>>
>>>One registrar posting inferred that smaller registrars 
>>>      
>>>
>>might be better 
>>    
>>
>>>off as resellers rather than have to bear the burden of fees as an 
>>>accredited registrar. While this may be true in some cases, 
>>>      
>>>
>>ICANN also 
>>    
>>
>>>recognizes that several small registrars, especially those 
>>>      
>>>
>>outside the 
>>    
>>
>>>United States, play a meaningful role in the DNS community.
>>>
>>>As soon as the per annum fee was postulated, ICANN staff began 
>>>discussing alternatives for fair, bright line rules for 
>>>      
>>>
>>establishing 
>>    
>>
>>>forgiveness. One registrar posting suggested that ICANN 
>>>      
>>>
>>developed the 
>>    
>>
>>>theory in a knee jerk reaction to comments made during the Budget 
>>>Advisory Group meeting and had no ideas for creating the rules for 
>>>such a procedure.
>>>
>>>This is not true.  As stated above, ICANN considered the issue ever 
>>>since the per annum fees were suggested. Forgiveness was 
>>>      
>>>
>>not included 
>>    
>>
>>>in an earlier version of the budget because many in the community 
>>>stated that it was too difficult to develop a fair method 
>>>      
>>>
>>that could 
>>    
>>
>>>not be "gamed." After discussion before and during the 
>>>      
>>>
>>Budget Advisory 
>>    
>>
>>>group meeting, ICANN worked on developing a model that is fair and 
>>>predictable.
>>>
>>>The model was not included in the budget posting because it 
>>>      
>>>
>>is still 
>>    
>>
>>>being tested with the opinions of various technical and business 
>>>experts in the community. That testing continues. The model 
>>>      
>>>
>>will first 
>>    
>>
>>>be built around determining which registrars are realizing revenues 
>>>through use of the batch pool. At this point, it can be 
>>>      
>>>
>>said that the 
>>    
>>
>>>model will require those receiving substantial revenue by 
>>>      
>>>
>>hitting the 
>>    
>>
>>>batch pool to pay the per annum fee and that those 
>>>      
>>>
>>registrars can be 
>>    
>>
>>>clearly and easily identified through the numbers and types of 
>>>transactions incurred.
>>>
>>>The second part of the model, will judge whether the 
>>>      
>>>
>>financial status 
>>    
>>
>>>and business model of the registrar require some relief. I believe 
>>>through interactions such as these exchanges of 
>>>      
>>>
>>information, the best 
>>    
>>
>>>model will be devised. In any case, it is ICANN's position that 
>>>deserving registrars should retain their accreditation.
>>>
>>>The fees suggested in the budget indicate that qualifying 
>>>      
>>>
>>registrars 
>>    
>>
>>>would pay approximately $10,000 annually (the $4,000 
>>>      
>>>
>>accreditation fee 
>>    
>>
>>>plus a per annum fee of approximately $6,000) and be granted the 
>>>ability to sell names from all registries, including 
>>>      
>>>
>>anticipated new 
>>    
>>
>>>sTLDs.
>>>
>>>EFFECTS ON LARGER REGISTRARS
>>>I understand your viewpoint that under the present scenario, larger 
>>>registrars will save a huge amount of money compared to a 
>>>      
>>>
>>budget where 
>>    
>>
>>>they would be paying 37 cents a transaction instead of 25 cents.
>>>
>>>Looking at the other side of the same coin, the larger 
>>>      
>>>
>>registrars (and 
>>    
>>
>>>all
>>>registrars) are paying at least 7 cents per transaction 
>>>      
>>>
>>more than in 
>>    
>>
>>>the present budget year. Using the numbers developed on your 
>>>spreadsheet, NSI is being asked to pay $536K more than last year, 
>>>Tucows $273K more, GoDaddy $253K more and so on. It is true 
>>>      
>>>
>>that these 
>>    
>>
>>>amounts are smaller percentage increases than paid by smaller 
>>>registrars, but these amounts can materially affect the 
>>>      
>>>
>>business model 
>>    
>>
>>>of the larger registrars.
>>>
>>>The fairness argument applies equally to these registrars. 
>>>      
>>>
>>The larger 
>>    
>>
>>>registrars are paying 40-50% increases in fees and that increase is 
>>>applied to a numerically large base. Your model suggests it 
>>>      
>>>
>>is fairer 
>>    
>>
>>>that the larger registry fee increase should be as high as 
>>>      
>>>
>>$1.4MM or 
>>    
>>
>>>108%.
>>>
>>>In the cases of smaller registries, the six-figure increases heads 
>>>asymptotically to the $20-$30K range in fairly rapid order. As 
>>>discussed above, most of these registrars derive 
>>>      
>>>
>>significant revenue 
>>    
>>
>>>from sources other than the straight registration of domain 
>>>      
>>>
>>names and 
>>    
>>
>>>can afford the fee. Many others can be forgiven a large 
>>>      
>>>
>>portion of the 
>>    
>>
>>>fee.
>>>
>>>As in all fairness discussions, the topic of a judging the 
>>>      
>>>
>>percentage 
>>    
>>
>>>of a big number against a percentage of a small number must be 
>>>considered. In the ICANN proposed model it was thought that 
>>>      
>>>
>>the larger 
>>    
>>
>>>registrars were paying a considerable increase by any 
>>>      
>>>
>>standard while 
>>    
>>
>>>the smaller registrars' payments were increased by amounts 
>>>      
>>>
>>consistent 
>>    
>>
>>>with their business models.
>>>
>>>EFFECTS ON THE ICANN BUDGET
>>>If the programs described in the ICANN budget are effectively 
>>>implemented, many registrars should not abandon their accreditation.
>>>In fact, and based upon the number of accreditation applications in 
>>>queue, ICANN expects the number of accreditations to increase 
>>>significantly between now and the start of the fiscal year. 
>>>      
>>>
>>There are 
>>    
>>
>>>indications in these applications that most of these new registrars 
>>>will derive significant income through their access to the 
>>>      
>>>
>>batch pool.
>>    
>>
>>>As stated above, ICANN does not condone this business model but a 
>>>special meeting of the board concluded that applications 
>>>      
>>>
>>could not be 
>>    
>>
>>>denied based upon apparent business model absent substantial more 
>>>study into this subject matter. As I stated earlier, ICANN 
>>>      
>>>
>>estimates 
>>    
>>
>>>that none of the existing applications for this purpose will be 
>>>withdrawn given the new fee structure.
>>>
>>>Similarly, new registrars will not be precluded from forgiveness at 
>>>the time of the first quarterly invoicing. ICANN does stand for 
>>>promotion of competition. It is also understood however, that 
>>>potential registrars should have robust financing and a 
>>>      
>>>
>>solid business 
>>    
>>
>>>pan before entering the field. (As counterpoint to your discussion, 
>>>when larger registrars discussed potential resources, it 
>>>      
>>>
>>was offered 
>>    
>>
>>>that a $17-$19K fee should be reasonable to an ongoing, robust 
>>>registrar operation.)
>>>
>>>Given all this, it is anticipated that ICANN will have over 250 
>>>accredited registrars by the start of the fiscal year. The 
>>>      
>>>
>>increased 
>>    
>>
>>>numbers should ensure the planned for revenue stream while allowing 
>>>some reductions in rates to the smaller registrars.
>>>
>>>Effects of new sources of revenue
>>>ICANN agrees with every registrar posting regarding the 
>>>      
>>>
>>generation of 
>>    
>>
>>>new sources of revenue. ICANN's business model should not 
>>>      
>>>
>>be based on 
>>    
>>
>>>sole or few sources of revenue. It is not sound practice. 
>>>      
>>>
>>New sources 
>>    
>>
>>>of revenue are intended to limit any increases to the 
>>>      
>>>
>>registrar fees 
>>    
>>
>>>and to reduce them. Those revenues will be realized in time for or 
>>>before the following fiscal year.
>>>
>>>Where the budget ascribed to holding the 25 cent fee constant, it 
>>>should also be taken as making the same commitment to the per annum 
>>>fee.
>>> 
>>>CONCLUSION
>>>I realize this writing does not address all your concerns. However, 
>>>there is a basis from which to work. The fact that many small 
>>>registrars have significant revenue streams means that 
>>>      
>>>
>>there are not 
>>    
>>
>>>as many registrars adversely impacted by the fee structure 
>>>      
>>>
>>as some may 
>>    
>>
>>>have thought. Also, I believe we can develop a method for 
>>>      
>>>
>>waiver of a 
>>    
>>
>>>portion of the fees that is objective and does not result in 
>>>differences and partiality.
>>>
>>>Given the above two conditions above, a fair model can be 
>>>      
>>>
>>created in a 
>>    
>>
>>>budget that: significantly increases cash fees from large 
>>>      
>>>
>>registrars, 
>>    
>>
>>>charges registrars availing themselves of the batch pool a very 
>>>reasonable fee, moves to forgives the debt of smaller registrars, 
>>>adjusts to significant changes in the marketplace and plans 
>>>      
>>>
>>for other 
>>    
>>
>>>sources of revenue.
>>>
>>>Having written this document, I know the work that went into yours. 
>>>Everyone at ICANN appreciates the passion that went into 
>>>      
>>>
>>your effort 
>>    
>>
>>>and we all generally agree with your principles. As stated 
>>>      
>>>
>>above, this 
>>    
>>
>>>document is not intended as an end. We are looking forward to your 
>>>comments and those from the community.
>>>
>>>Sincerely,
>>>
>>>Kurt Pritz
>>>ICANN
>>>4676 Admiralty Way, #330
>>>Marina del Rey, CA  902
>>>      
>>>