FC: Beware of monopolies trying to add new domain names --paper

[Declan McCullagh <declan () well com>]

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http://dcc.syr.edu/nsi.htm

Beware of Monopolies Proposing to "Open Up" Markets:
An Analysis of Network Solution^Òs proposal for new top-level domain names.

Milton Mueller
Associate Professor, Syracuse University School of Information Studies

New top-level domains (TLDs) are badly needed, as the dot com space is 
getting increasingly crowded. But for five years changes in the TLD space 
have been stymied by political controversy.

On April 14 an official ICANN working group proposed to create six to ten 
(6-10) new top-level domains. The official working group report can be 
found at: http://www.dnso.org/wgroups/wg-c/Arc01/msg01095.html

On April 19, Network Solutions Inc. (NSI) released a proposal to ICANN to 
reduce the number of new top-level domains to two (2). Only one of the two 
proposed new domains (.shop) would provide an alternative to NSI^Òs 
longstanding monopoly on registration in the .com, .net, and .org top-level 
domains. The other would be a restricted TLD for banks (.banc). NSI 
"generously" offered to operate the registry for .banc.

The NSI proposal is a step back from where ICANN should be going. It would 
slow the introduction of new TLDs down to a crawl and limit new domain name 
registries^Ò ability to compete effectively with NSI. The proposal is 
designed to prolong NSI^Òs dominance of the domain name market.

The NSI proposal can be characterized as profoundly anti-competitive for 
four reasons.

-  It would require the new (.shop) registry to offer exactly the same 
terms and prices as the NSI com/net/org registry
-  It drastically limits the number of competing registries, for no good 
reason.
-  Its ownership arrangements would institutionalize cartel-like controls 
on the name space.
-  It would put NSI in charge of the back-office services of one the .banc 
registry, further reinforcing NSI^Òs dominance of the domain name registry 
market.

1. The proposal eliminates competitive differentiation

The proposal would have ICANN sign a contract with a new registry 
"substantially identical" to NSI^Òs current registry agreement with ICANN 
and the US Department of Commerce. That means that the new commercial 
registry would be forced to offer exactly the same terms and conditions, 
including price, that NSI now does. If new registries are unable to charge 
lower prices or to differentiate their terms of service, how can they 
engage in real competition with the well-known NSI dot com registry?

2. The proposal drastically limits the amount of competition.

The official ICANN working group charged to develop recommendations on new 
TLDs reached a broad consensus that there should be at least 6-10 new TLDs 
this year. This recommendation commanded a two-thirds consensus of the 
working group members, and was supported by public comments. The 6-10 
number was proposed in order to achieve a more competitive marketplace and 
to allow a variety of different ideas and business models to be tested. 
However, NSI proposed to create only two new top-level domains. Only one of 
them (.shop) would be an open name space similar to .com/net/org. Thus, the 
level of competition created by the proposal is about as minimal as it can get.

The highly publicized Network Solutions proposal was part of a deliberate 
effort by NSI to divert attention from the Working Group^Òs recommendations. 
At the Names Council meeting April 19, Network Solutions representative 
Roger Cochetti led a vote to reject the broad consensus for 6-10 new TLDs.

3. Proposed ownership arrangements undermine competition and diversity

The new registry proposed by NSI would be cooperatively owned by all the 
existing registrars accredited by ICANN. This means that NSI, which 
currently controls about 80% of the registrar market and holds a monopoly 
on the gTLD registry market, will hold a major stake in the new registry 
and will profit from its success. The NSI proposal does not specify 
ownership and governance arrangements, but typically ownership shares are 
based on market share. Given its size and resources, NSI would have 
significant influence on the proposed new registry^Òs pricing and policies. 
Working out governance arrangements among over 100 registrars, with new 
ones being accredited every month, will not be simple, contradicting NSI^Òs 
claim that their proposal will speed up the introduction of new TLDs. Even 
if NSI does not dominate ownership of the new registry, neutral observers 
must be concerned with the spectacle of a Domain Name policy making body 
that is only able to award resources to its own members.

4. Collusion proposed

In its desire to protect itself from competition, NSI was not satisfied 
with reducing the number of new registries from ten to only two. It also 
proposed to run the "back-office services" for the .banc restricted TLD. In 
other words, one of the two new registries NSI proposed would be none other 
than NSI itself.

Other significant points:

"Proof of concept" a deceptive ruse

The NSI proposal is based on the false premise that authorizing a new 
top-level domain registry is a step into unknown territory. The small 
number is justified as reflecting the need for "proof of concept." But 
technical experts agree that there are no technical barriers to adding 
thousands of new names to the root. Operationally, there is nothing new or 
untested about adding new top-level registries to the Internet root. The 
TLD .int for international organizations was added a few years ago with no 
significant problems. The late technologist Jon Postel, who administered 
the DNS root for more than a decade, drafted a proposal defining procedures 
for adding 150 new TLDs back in 1996. In 1994 alone, 50 new country code 
TLDs were added to the root, and country code TLDs operate in the same way 
as .com/net/org TLDs. There is simply no evidence for NSI^Òs claim that new 
TLDs require "proof of concept."

The European gambit

NSI^Òs proposal to locate the new .shop registry in Europe is a calculated 
attempt to win political favor for the proposal. US-European rivalry has 
played a major role in the domain name wars, and the Europeans are 
extremely sensitive to their status. However, the move could also be seen 
as an attempt to pre-empt European efforts to create their own new registry 
under the .EU or .EUR TLD. A new, truly European TLD would attract much 
more business registrations from Europe than NSI^Òs proposed .shop, and cut 
into the dominance of dot com. Shared ownership of the new registry by 
ICANN-accredited registrars ­ 60 percent of which are American ­ would 
further dilute European market share. The small number of new TLDs under 
the NSI proposal also shuts out other regions, such as the growing 
Asia-Pacific region.

Conclusions

If ICANN implements NSI^Òs suggestions, NSI^Òs dominance of the domain name 
market would be prolonged for another year or more. Management of the 
domain name space will take on all the features of an international cartel. 
The NSI proposal offers vested interests privileged access to the new name 
space while shutting out consumers, non-commercial organizations, and 
independent entrepreneurs.

Members of the public can submit comments to ICANN on the new gTLD issue at 
this web site: http://www.icann.org/dnso/new-gtlds-01apr00.htm

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