[registrars] Analysis of changes to proposed .com agreement against the registrar statement

[Bruce Tonkin]

Hello All,

Below is the registrar statement 
(http://icann.org/topics/vrsn-settlement/registrar-constituency-statemen
t.htm )
on the first proposed .com agreement, along with my initial analysis of
what was changed in response.   The responses are identified with the
text "RELATED CHANGE" below.

The main beneficial change that I can see is the removal of clause 7.3
(h) in the first proposed agreement that allowed Verisign to pass on the
increases in the ICANN Registry fee.   Verisign still has the effective
ability to increase prices by 7% per year.

Regards,
Bruce Tonkin

 
1.    New Registry Services 
 
The proposed .com contract locks ICANN and VeriSign in for three years
on a
version of the consensus policy covering the standards and process for
consideration of new registry services.  The new registry services
consensus
policy process that recently was approved by the ICANN board is
untested,
and it is likely that the ICANN community will need to refine and
improve it
after it is implemented.  A three year lock will unnecessarily handcuff
ICANN and the ICANN community.
 
We recommend the deletion of Sections 3.1(b)(v)(B) and 3.1(b)(v)(C), and
allowing the existing ICANN policy development and refinement process to
be
used during the term of the agreement.
 

RELATED CHANGE (1.1) : 3.1 (b) (v) (C) was updated to two years (instead
of three).
 

2.    Registry Agreement Renewal
 
According to its own Bylaws and the Memorandum of Understanding between
ICANN and the United States Department of Commerce, one of ICANN's core
missions is to promote competition.  We understand that the current .com
contract contains a "presumptive renewal" provision, which by its nature
hinders competition.  The proposed .com contract, however, goes much
farther
than the existing contract by strengthening the presumptive renewal and
termination provisions on behalf of VeriSign, thereby making it
virtually
impossible for VeriSign to lose the .com registry and impossible to reap
the
benefits of competition.  VeriSign should be appointed as the
administrator
of the .com registry, not its owner.
 
We recommend reverting from Section 4.2 of the proposed .com agreement
to
the renewal terms of Section 25 of the current .com agreement, which
requires a six month review of a "Renewal Proposal" provided by VeriSign
and
only under terms that are in "substantial conformity with the terms of
registry agreements between ICANN and operators of other open TLDs. . ."
ICANN also should strengthen the termination provisions currently
contained
in Section 6.1 of the proposed agreement by using the relevant text from
Sections 16(B-E) of the current agreement.
 

RELATED CHANGE (2.1): No changes made as requested by registrars.  In
Verisign's favour, a sentence (section 4.2, last sentence) has been
removed that stated that the registry fees at time of renewal could be
modified provided any increase did not exceed the average of price
increases of the 5 largest gTLDs.   No changes in section 6.1.  

 
3.    Registry Fees
 
The proposed .com contract would permit VeriSign to unilaterally raise
registration fees by 7% per year.  The existing .com contract and all
gTLD
registry agreements (other than the .net agreement with VeriSign, which
was
entered into without community input in violation of ICANN's Bylaws)
require
the registries to cost-justify any price increases.  In an industry
where
the economics suggest that fees should be going down when there is
competition, it is particularly troublesome and anti-competitive to
grant a
monopolist or a single source provider the unilateral right to increase
costs without justification. Unfortunately, these fee increases would
result
in cost increases to individual registrants.  We note that in the recent
competitive process for .net, VeriSign significantly lowered its
registry
fees.  There is no reason for unilateral cost increases for the larger
.com
registry.
 
We recommend that the Board delete the current text of Section
7.3(d)(ii)
and replace it with Section 22(A) of the current .com agreement
requiring
VeriSign to justify and ICANN to approve any proposed fee increase.  If
there is a dispute between ICANN and VeriSign over a cost increase,
ICANN
should have the right to seek competitive price proposals from other
registry operators to ensure that the ICANN community receives the
benefits
of competition.


RELATED CHANGE (3.1): A minor change.  Verisign can only increase its
fees by 7% in any four of the six years in the contract.   However for
the remaining two out of the six years, Verisign can still increase fees
by 7% as a result of additional costs from a new consensus policy, or
from a document identifying an additional expense resulting from an
attack (or threat of an attack) on the DNS.  There doesn't seem to be
any real external check required to justify the additional expense.  So
it could simply be a document asserting that costs have increased,
therefore prices must increase by 7%.
 
 
4.    New ICANN Fees
 
ICANN and VeriSign propose a new ICANN fee that would be assessed on
VeriSign and passed on to the registrars.  This fee would result in
excess
of approximately $150 million dollars to ICANN, and would be an end run
around the existing ICANN budget approval process.  As proposed, ICANN
staff
has removed an important check on the ICANN budget process. All ICANN
fees
that impact registrants should be subject to the ICANN budget approval
process and should not only be the subject of negotiations between
VeriSign
and ICANN.   
 
In addition to the changes suggested in number 3 above, we recommend the
removal of Sections 7.3(g-h) in the proposed contract.  Any transaction
fees
that ICANN needs to collect from registrars (and hence registrants)
should
be assessed through the current transaction fees charged by ICANN to
registrars and be subject to the existing budget approval process.
 
 
While we understand the desire to finalize the litigation, it should not
be
done so without a sufficient review process nor at the expense of major
tenets of ICANN's mission.  In its current form, it is a bad settlement
for
ICANN, the ICANN community, and the public-at-large. We, therefore, urge
the
ICANN Board to take advantage of the six month review of a "Renewal
Proposal" contemplated in the existing .com agreement, which doesn't
expire
until November 2007.  The Board should use this time to review the
complicated contracts in their entirety, have a public comment period
commensurate with the importance of the issue, and make the changes
necessary to improve the agreement.


RELATED CHANGE (4.1): Verisign's initial fee to ICANN has been reduced
from US$1.25 million to US$625,000.   

RELATED CHANGE (4.2): New Fixed Registry Fee.   Initially US$1,500,000
per quarter.  Rising to US$2,000,000 per quarter beginning 1 July 2007,
and US$3,000,000 per quarter beginning 1 July 2008.  After 1 July 2009,
the fees can be increased based on volumes of additional registrations.
See the agreement for the detailed formulas.   ICANN has removed the
text that allocates the funds to special funds.

RELATED CHANGE (4.3): Back up if registrars don't pay their transaction
fees (called Veriable Registry-level fee).  ICANN can get the
transaction fee from the Registry capped at 25 cents instead of 15
cents, and the Registry will in turn invoice registrars for that fee.

RELATED CHANGE (4.4): As requested by registrars, ICANN has removed
clause 7.3 (h) that allowed the passing on of the Fixed Registry Fee.