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Vertical Integration: A View from the Bottom Up

Authored by Afilias, Neustar and Public Interest Registry

An interesting thing happened on the way to ICANN's new Affirmation of Commitments. ICANN staff has consistently recommended a reversal of its longstanding policy that prohibits a registry from acting as a registrar in its own top level domain ("TLD"). We see two good reasons why this anti-consumer proposal is unacceptable.

First: ICANN's proposal will open the door to consumer abuse and harmful practices

In the Affirmation of Commitments, ICANN states, "to ensure that its decisions are in the public interest, and not just the interests of a particular set of stakeholders, ICANN commits to perform and publish analyses of the positive and negative effects of its decisions on the public, including any financial impact on the public, and the positive or negative impact (if any) on the systemic security, stability and resiliency of the DNS."

ICANN'S own economists, as well as the U.S. Department of Justice, have said that ICANN needs to undertake sufficient economic analysis and carefully weigh the potential consumer benefits and harms resulting from ICANN's proposal. Leaving aside the fact that there has been no such analysis, what are the harms?

ICANN's proposal will facilitate "insider trading" that will open the door to abusive domain registration practices and higher domain name prices for some registrants. This proposal will provide a registrar access to sensitive registry data that includes the entire universe of data for potential and existing domain names from all registrars that sell the TLD. Additionally, a registry has the unique power to see traffic in its domain. With access to this data, an affiliated registrar would be in a unique position to identify potentially high value names and monetize them through auctions, traffic sites or secondary market sales.

Domain name tasting and front running are just two recent examples of the type of bad practices that will result if a vertically integrated registry can sell its TLD through its affiliated registrar. Both practices could result in registrars withholding valuable names from average registrants and have the effect of raising prices for the average consumer who seeks to register names in what is supposed to be a first-come-first-serve system.

ICANN recently pronounced the end of domain tasting and the absence of any evidence of front running in the market. Not so fast. There are flaws in these conclusions. First, ICANN's proposal will make it possible for a registry-registrar combination to eliminate nearly the entire current financial penalty on tasting. A vertically integrated registry registrar eliminates 94% of the current cost imposed on a registrar that engages in tasting. With regard to front running, ICANN's survey was inaccurate. The third party used to conduct the survey on front running, though reputable, reached its conclusion by reviewing zone file data notwithstanding Network Solutions' previous disclosure that its practice was to withhold registration data from the zone file after registering the names in question. Simply put, they looked in the wrong place to see if front running had occurred.

Given ICANN's stated intent to enhance its compliance efforts, continuing to combat these and other related abusive practices should be a top priority. Eliminating the current policy that prohibits a registry from selling its own TLD will allow an affiliated registrar to have and use insider information that is currently not readily available to other registrars. By continuing the policy against acting as a registrar in its own TLD for registry operators and implementing the policy for backend service providers ICANN can provide safeguards that will, at the very least, help to prevent some of these abuses and their obvious harmful effect on consumers. Ignoring the benefits of this longstanding policy or the likely harms that will arise from abandoning the policy is not an affirming signal to send to the community and especially registrants in a post JPA world.

Second: the process that led to ICANN staff's proposal

It was "top down," not "bottom up" which is the way ICANN policy is supposed to be made. It appears to be driven primarily by a handful of ICANN staff and a few large self-interested registrars. On the other side of the ICANN community, noting concern or outright opposition, are the Business Users Constituency, the Intellectual Property Constituency, the Non Commercial Users Constituency, the Government Advisory Committee and the Registries Constituency. Also, many registrars have noted concern over the effect of some competing registrars having their own TLDs and selling them directly to the public. Nevertheless, "a particular set of stakeholders," rather than the community, seem to be driving the process.

In a recent article in CircleID, Network Solutions, one of the registrar proponents of the policy reversal argues that the debate is "whether ICANN should adopt rules that restrict a registrar from offering the registration service of an affiliated registry."

Let's set the record straight:

In reality, registries are asking ICANN to continue its longstanding and successful policy that prohibits a registry from selling its own top level domain. This is not a new rule.

The same article argues that continuation of the policy would inhibit a registry operator's ability to "choose any service provider they wish and enter into services contracts with whomever they wish."

We say:

This is nonsense. Registry operators and registrars can do business with any backend services provider they like. They would only be equally prohibited from selling their respective TLD directly to the consumer.

Our position is clear:

Registries have no problem with full, reciprocal cross-ownership of registrars, registry operators and registry backend service providers so long as ICANN maintains the prohibition against selling direct in their own top level domains. ICANN can apply the policy as an implementation matter to backend registry services providers in the newTLD round to ensure that all registration service providers are on an equal playing field and to prevent "backdoor" abuses of registrants.

Network Solutions suggests that it has offered a "middle ground" proposal that would allow a registrar to "sell registration services of affiliated registry operators, but only up to a certain threshold — currently 100,000." Don't be fooled. This proposal is a reversal of longstanding policy that prohibits a registry from distributing in its own TLD. Not only that, this proposal is at the center of the controversy over ICANN staff's top down management of this issue. Nowhere in the record is there proof that consensus was reached that led to this proposal becoming part of the DAG.

The public is welcome to voice their support for our position at the True Registry-Registrar Separation website or directly in the ICANN public comments forum.

About Afilias
AfiliasAfilias is a global provider of Internet infrastructure services that connect people to their data. Afilias' reliable, secure, scalable, and globally available technology supports a wide range of applications including Internet domain registry services, Managed DNS, and services in the RFID and supply chain market with its Afilias Discovery Services. (Learn More)

About NeuStar
NeuStarNeuStar provides market-leading and innovative services that enable trusted communication across networks, applications, and enterprises around the world. (Learn More)

About PIR

PIR

Public Interest Registry is a nonprofit corporation that operates the .org top-level domain – the world's third largest "generic" top-level domain with more than 10 million domain names registered worldwide. As an advocate for collaboration, safety and security on the Internet, Public Interest Registry's mission is to empower the global noncommercial community to use the Internet more effectively, and to take a leadership position among Internet stakeholders on policy and other issues relating to the domain naming system. (Learn More)

Related topics: Domain Names, Registry Services, ICANN, Internet Governance, Policy & Regulation, Top-Level Domains

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