Beware of Monopolies
Jay Fenello
FYI:
Beware of Monopolies Proposing to "Open Up" Markets:
An Analysis of Network Solution’s 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’s
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’ ability to compete effectively with NSI. The proposal is
designed to prolong NSI’s 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’s 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’s 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’s 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’s pricing and policies.
Working out governance arrangements among over 100 registrars, with new
ones being accredited every month, will not be simple, contradicting NSI’s
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’s claim that new
TLDs require "proof of concept."
The European gambit
NSI’s 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’s 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’s suggestions, NSI’s 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
Respectfully,
Jay Fenello,
New Media Strategies
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http://www.fenello.com 770-392-9480
Aligning with Purpose(sm) ... for a Better World
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