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<P><FONT face=Verdana size=2>Dear Members of the ICANN Finance committee and
Board</FONT> </P>
<P><FONT face=Verdana size=2>I represent a medium sized Registrar based out of
India operating under the name of Directi. I would like to offer my comments on
the ICANN 2004-05 budget posted on the ICANN website, as I do believe it
negatively impacts the business of a large number of Registrars and breaks down
this entire structure that ICANN has created over the last several
years.</FONT></P>
<P><FONT face=Verdana size=2>Due to the lack of a public forum on ICANN's
website I am having to send this email directly to you. I would appreciate it if
ICANN could put up an online forum to allow public comment on this budget
proposal. I detail out below in a structured format the reasons why I believe
the budget in its current proposed form would negatively impact the entire
domain name industry and ICANN itself</FONT></P>
<P><U><B><FONT face=Verdana size=2>Impact of the new ICANN Budget on
Registrars</FONT></B></U></P>
<P><FONT face=Verdana size=2>In very simple terms the new ICANN budget will have
one primary impact on Registrars - <I><B>"the SMALLER ones will DIE and newer
ones will stop entering the field"</B></I></FONT></P>
<P><FONT face=Verdana size=2>Lets investigate each of the effects on Registrars
-</FONT></P>
<P><U><FONT face=Verdana size=2>Effect 1: Larger Registrars will not have to
change their Selling price while smaller Registrars will have to increase their
selling price</FONT></U></P>
<P><FONT face=Verdana size=2>The $19000 per annum additional fee increases the
per domain name cost of large Registrars such as Netsol, Tucows, Godaddy etc by
a meagre 0.5 cents or lesser. Infact the $19000 per annum additional fee
increases the cost price of the top 20 Registrars by a meagre 10 cents per
domain name</FONT></P>
<P><FONT face=Verdana size=2>The $19000 per annum fee however increases the cost
per domain of smaller and mid-sized Registrars by a large component. Check the
below table which shows how much the Registrar per domain cost would increase if
a Registrar is in any of the brackets below</FONT></P>
<TABLE id=AutoNumber1 style="BORDER-COLLAPSE: collapse" borderColor=#111111
cellSpacing=0 cellPadding=3 border=1>
<TBODY>
<TR>
<TD align=middle bgColor=#eaeaea><B><FONT face=Verdana size=2>Registrar
Size</FONT></B></TD>
<TD align=middle bgColor=#eaeaea><B><FONT face=Verdana size=2>Increase in
per Domain Cost</FONT></B></TD></TR>
<TR>
<TD align=middle><FONT face=Verdana size=2>1000 domains</FONT></TD>
<TD align=middle><FONT face=Verdana size=2>19 dollars</FONT></TD></TR>
<TR>
<TD align=middle><FONT face=Verdana size=2>2000 domains</FONT></TD>
<TD align=middle><FONT face=Verdana size=2>9.5 dollars</FONT></TD></TR>
<TR>
<TD align=middle><FONT face=Verdana size=2>5000 domains</FONT></TD>
<TD align=middle><FONT face=Verdana size=2>3.8 dollars</FONT></TD></TR>
<TR>
<TD align=middle><FONT face=Verdana size=2>10000 domains</FONT></TD>
<TD align=middle><FONT face=Verdana size=2>1.9 dollars</FONT></TD></TR>
<TR>
<TD align=middle><FONT face=Verdana size=2>20000 domains</FONT></TD>
<TD align=middle><FONT face=Verdana size=2>95 cents</FONT></TD></TR>
<TR>
<TD align=middle><FONT face=Verdana size=2>50000 domains</FONT></TD>
<TD align=middle><FONT face=Verdana size=2>38
cents</FONT></TD></TR></TBODY></TABLE>
<P><FONT face=Verdana size=2>There are over 120 Registrars who fit in the above
set. This means that over 120 Registrars will find themselves in a situation
where they have to significantly change their selling price. This is no easy
task. Customers and Resellers will never accept a pricing modification of this
magnitude.</FONT></P>
<P><FONT face=Verdana size=2>I have also attached an excel sheet showing the
ENTIRE LIST of Registrars (the list is 3 months old) and the direct increase
they will perceive in their DOMAIN PURCHASE cost as well as the percentage
increase they will see in their budget contribution. It is clearly visible from
this list that the smaller and mid-sized Registrars (well over 120 in number)
will be significantly impacted by the current budget as proposed.</FONT></P>
<P><FONT face=Verdana size=2><BR><U>Effect 2: Larger Registrars will Save a HUGE
amount of money while smaller Registrars will be footing that
bill</U></FONT></P>
<P><FONT face=Verdana size=2>Until now the variable component of ICANN's budget
was divided amongst all Registrars in the ratio of the number of Domains that
they managed. This resulted in a per domain fee of 12 cents. In the new budget
if the same model had been adopted then the per domain fee would be around 37.5
cents. Instead by passing on a $19000 per Registrar fee, this has been reduced
from 37.5 cents to 25 cents. This results in significant savings of money for
the larger Registrars at the cost of the smaller Registrars. For instance lets
compute the savings of the top five Registrars (Note the market share figures
are over 3 months old and therefore give only an approximate idea. The actual
savings are higher than the below figures)</FONT></P>
<TABLE id=AutoNumber1 style="BORDER-COLLAPSE: collapse" borderColor=#111111
cellSpacing=0 cellPadding=3 border=1>
<TBODY>
<TR>
<TD align=middle bgColor=#eaeaea><B><FONT face=Verdana
size=2>Registrar</FONT></B></TD>
<TD align=middle bgColor=#eaeaea><B><FONT face=Verdana size=2>Savings
[(Domains x 12.5 cents) - $19000]</FONT></B></TD></TR>
<TR>
<TD align=middle><FONT face=Verdana size=2>Enom</FONT></TD>
<TD align=middle><FONT face=Verdana size=2>$302,215</FONT></TD></TR>
<TR>
<TD align=middle><FONT face=Verdana size=2>Register.com</FONT></TD>
<TD align=middle><FONT face=Verdana size=2>$332,531</FONT></TD></TR>
<TR>
<TD align=middle><FONT face=Verdana size=2>GoDaddy</FONT></TD>
<TD align=middle><FONT face=Verdana size=2>$339,507</FONT></TD></TR>
<TR>
<TD align=middle><FONT face=Verdana size=2>Tucows</FONT></TD>
<TD align=middle><FONT face=Verdana size=2>$435,358</FONT></TD></TR>
<TR>
<TD align=middle><FONT face=Verdana size=2>Netsol</FONT></TD>
<TD align=middle><FONT face=Verdana
size=2>$904,208</FONT></TD></TR></TBODY></TABLE>
<P><FONT face=Verdana size=2>As you can see from the above table in the earlier
variable model fee Netsol would have to pay $900,000 (or 1 million dollars)
extra, which it is saving now by that cost being passed on in the form of a
fixed $19000 fee to the other smaller Registrars. While netsol makes money on
every one of those domains it sells, the variable component of that is being
borne by the tinier Registrars.</FONT></P>
<P><FONT face=Verdana size=2><BR><U>Effect 3: Smaller Registrars and startup
Registrars will be </U></FONT><U><FONT face=Verdana size=2>unable to sustain
operations</FONT></U></P>
<P><FONT face=Verdana size=2>Smaller Registrars and Startup Registrars will not
be able to sustain operations. As such they already have to compete in a market
where the larger Registrars have had a head start. Now think about the fact that
they have to additionally start at a disadvantage as compared to the larger
Registrars - namely a higher per domain Cost. This means a new Registrar who
does not currently have the capability to offer the features that an existing
old large Registrar does, now also buys the commodity at a higher cost. This
will completely stifle competition and put many a startup Registrars out of
business.</FONT></P>
<P><FONT face=Verdana size=2><BR><U>Effect 4: Several international Registrars
in other countries will DIE, and new potential applicants will be
discouraged</U></FONT></P>
<P><FONT face=Verdana size=2>A large chunk of the internet as everyone knows is
still concentrated in the United States. A large number of the world's domain
names are concentrated in the United States. Other countries have a relatively
small share in the Domain Name market. There were still however many Registrars
in various countries who had started operations and managed to sustain them
since the ICANN fee so far was primarily variable and based on the size of the
Registrar. This allowed a startup Registrar to begin operations without a
significant working capital overhead, and bring it to a sustainance
level.</FONT></P>
<P><FONT face=Verdana size=2>Now with the new budget process, Registrars in
other countries and emerging markets will not have the ability to gain as many
domain names as to be able to make operational profits. This will reduce
international participation in the ICANN process.</FONT></P>
<P> </P>
<P><U><B><FONT face=Verdana size=2>Impact of the new ICANN Budget on
ICANN</FONT></B></U></P>
<P><FONT face=Verdana size=2>In short and simple words the new budget proposal
<B><I>"violates ICANN's core principles and does not foster healthy competition
and international participation"</I></B></FONT></P>
<P><FONT face=Verdana size=2>Lets investigate this impact in more
detail</FONT></P>
<P><FONT face=Verdana size=2><U>Effect 1: The new Budget destroys smaller
Registrars and reduces Registrar competition, creating monopolies</U><BR><BR>As
detailed already above in the previous section, the current budget favours
larger Registrars and will actually put the smaller and the mid-sized ones out
of business.</FONT></P>
<P><FONT face=Verdana size=2><BR><U>Effect 2: The new budget goes against a few
principles stated in the ICANN Registrar Accreditation Agreement</U></FONT></P>
<P><FONT face=Verdana size=2>The new budget in its spirit is against certain
statements in the Registrar Accreditation Agreement as follows -</FONT></P><FONT
size=2>
<P><I><FONT face=Verdana>"Clause 2.3 General Obligations of ICANN. With respect
to all matters that impact the rights, obligations, or role of Registrar, ICANN
shall during the Term of this Agreement:</FONT></I></P>
<P><I><FONT face=Verdana>2.3.2 not unreasonably restrain competition and, to the
extent feasible, promote and encourage robust competition;"</FONT></I></P>
<P><FONT face=Verdana>The new budget DOES NOT promote and encourage robust
competition thus not maintaining the spirit of the above clause</FONT></P>
<P> </P>
<P><I><FONT face=Verdana>"Clause 3.9.2 Variable Accreditation Fee. Registrar
shall pay the variable accreditation fees established by the ICANN Board of
Directors, in conformity with ICANN's bylaws and articles of incorporation,
provided that in each case such fees are reasonably allocated among all
registrars that contract with ICANN and that any such fees must be expressly
approved by registrars accounting, in the aggregate, for payment of two-thirds
of all registrar-level fees."</FONT></I></P>
<P><FONT face=Verdana>The above paragraph explicitly states - "provided that in
each case such fees are reasonably allocated among all registrars". The new
budget does NOT reasonably allocate the variable fees amongst all
Registrars.</FONT></P>
<P><BR><U><FONT face=Verdana>Effect 3: The new budget will not meet the ICANN
budget objectives</FONT></U></P>
<P><FONT face=Verdana>At a few places in the budget document ICANN states how
the new budget is supposed to be heavily reliant on Registrant fees paid to
Registrars. One of the objectives of ICANN's new budget was to try and work a
way whereby the final stakeholders, ie the Registrants, participate in the
process of paying for the ICANN budget. However this current budget allocation
mechanism does not do that. This is because the top ten Registrars will not even
bother to change their selling price to the Registrants since their cost does
not change dramatically in the new budget allocation process. These top ten set
represent over 25 million Domain Names.</FONT></P>
<P><FONT face=Verdana>This means over 25 million Registrants will not even
contribute towards the increased budget. Rather their contribution will actually
come from the smaller and mid-sized Registrars who will suffer in the
bargain.<BR> </FONT></P>
<P><U><FONT face=Verdana>Effect 4: The new budget proposal will not meet the
ICANN budget targets and is essentially flawed</FONT></U></P>
<P><FONT face=Verdana>The new budget will directly result in a large number of
Registrars going out of business and additionally discourage a large number of
new potential applicants who were looking at applying for accreditation. This
will result in reduced revenues to ICANN if ICANN chooses to charge a $19000 +
$4000 per Registrar fee, since every Registrar who ceases to exist, or any
potential applicant who gets discouraged will result in one less participant
paying this $23000 fee.</FONT></P>
<P><FONT face=Verdana>If however ICANN instead does not charge a fixed fee per
Registrar but charges a variable fee per domain name only, ICANN will NEVER be
impacted even if certain Registrars cease to exist. Since ICANN will continue to
be funded on a per domain name basis, it will not matter as to the number of
Registrars who exist. I do believe this was the intent of ICANN - ie to have its
budget dependant largely on the end Customers (ie Registrants) as directly as
possible. The best way to achieve this would be to charge ONLY A PER domain year
fee (37.5 cents instead of 25 cents). This way smaller and mid sized Registrars
continue to survive and continue to pay their $4000 per annum fee, and
additionally ICANN does not bear the risk of not meeting its targets since the
revenue is not dependant on the number of Registrars, but on the number of
domains.<BR> </FONT></P>
<P><U><FONT face=Verdana>Effect 4: The new budget does not comply with the MoU
signed between DoC and ICANN</FONT></U></P>
<P><FONT face=Verdana>The Memorandum of Understanding between ICANN and DoC
starts of with<BR><BR>"On July 1, 1997, as part of the Administration's
Framework for Global Electronic Commerce, the President directed the Secretary
of Commerce to privatize the management of the domain name system (DNS) in a
manner that increases competition and facilitates international participation in
its management."<BR><BR>This budget move will unfortunately REDUCE competition
and REDUCE international participation, violating the principles laid out in
this MoU<BR> </FONT></P>
<P><FONT face=Verdana size=2><U>Effect 5: The new budget is partial to a set of
Registrars</U></FONT></P></FONT>
<P><FONT face=Verdana size=2>The New budget is partial to a certain set of
Registrars in two ways. Firstly it is partial to the larger Registrars since it
does not increase their per domain cost.</FONT></P>
<P><FONT face=Verdana size=2>Secondly it is partial to a set of Registrars who
will fall under the criteria of reducing their annual fees. The budget mentions
the ability for Registrars to apply for waiving of 2/3rds of their $19000 fee
component. Since the criteria for evaluating this are not objective it may
result in differences and partiality</FONT></P>
<P><BR> </P>
<P><FONT face=Verdana size=2>In light of all of the above points I request the
finance committee and all other participants to modify the current budget
proposal by making one simple change - eradicating the fixed per Registrar fee
and replacing the same with a reasonable per domain (per transaction) fee
only.</FONT></P>
<P><FONT face=Verdana size=2>Thanking you</FONT></P>
<P><FONT face=Verdana size=2>Yours sincerely<BR>Bhavin Turakhia<BR>Founder, CEO
and
Chairman<BR>DirectI<BR>--------------------------------------<BR>http://www.directi.com<BR>Direct
Line: +91 (22) 5679 7600<BR>Direct Fax: +91 (22) 5679 7510<BR>Board Line (USA):
+1 (415) 240 4172<BR>Board Line (India): +91 (22) 5679
7500<BR>-------------------------------------- </FONT></P></BODY></HTML>