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Studies & Opinions

Nix the ICANN-VeriSign Deal

Alex Tajirian
March 20, 2001

The Internet Corporation for Assigned Names and Numbers (ICANN) has negotiated a revision of their contract with VeriSign allowing VeriSign to keep operating both its registry (top-level domain management) and its registrar (selling new domain names) businesses. The new deal would allow VeriSign to maintain control of the lucrative dot-com top-level domain, but relinquish control over the dot-net in 2006, and dot-org in 2002. ICANN Chairman, Vin Cerf, has called for a teleconference on April 2, 2001 to approve or nix the deal.

Alternative Structures:
There are a number of possible alternative governance structures for the dot-com domain name registry. Unfortunately, the viable options lead to a monopoly business environment. Given such a structure, a domain name owner would be better off with a stand alone publicly traded company. In the current situation, VeriSign exclusively owns the lucrative cash cow registry service as well as being an entrenched domain name registrar.

Plausible alternatives include:

  1. An independent publicly trading company
  2. Part of VeriSign (current structure)
  3. Dividing the dot-com registry into number of competing companies
  4. A regulated monopoly
  5. A non-profit organization

Not all of these alternatives are equally desirable to owners of domain names. Publicly trading companies face performance disciplining from the market in that companies that don't perform well would see their share prices plummet. Economists have pointed out a number of advantages to consumers of such an organizational governance structure. While option (3) may sound appealing to a consumer, it is not a viable structure. Maintaining an efficient domain name registry business dictates that a single entity be in full control and hold all the responsibility. If there is not a single governing body: chaos will prevail as coordination of tasks and responsibilities between different independent entities is bound to break down. At the same time, changing the registry's current governance structure to that of a nonprofit organization is highly unlikely. This leaves us with only options (1) and (2) being truly viable. Hence, we would not be able to avoid a governance structure that does not end up being a monopoly.

Advantages of a stand-alone structure:
A domain name owner consumer, also referred to as a registrant, does not deal directly with the registry. To register a domain name a registrant has to go through the website of a registrar, an intermediary that is ICANN approved. With ICANN opening up competition for registrars, Network Solutions monopoly has eroded to about 40% market share of new domain registrations.

The advantages to registrars of stand alone registry services include:

  • Stronger market discipline in place when the registry is a separate publicly trading entity than when the registry is bundled with other services within a company. Thus, service of a stand alone company would be superior.

  • Market discipline is also more likely to result in better prices for the consumer. There is no reason to believe that VeriSign would charge registrars a better price than a stand-alone registry. With increasing competition among registrars, most of the registry price savings referred to above would most likely be passed to domain name owners, as opposed to being retained by the registrars. Thus, both current and new owners would benefit from lower prices. Current owners would reap financial rewards as renewal registration fees would be lower. And new owners of domain names would benefit from lower registration costs.

What about VeriSign's current shareholders?
The benefits to the shareholders depend on the amount of synergistic benefits from VeriSign managing the combined company, and the incremental value associated with market discipline of the two independent components. While I will not now take the time to discuss the implications in detail, the antitrust implications are clear. Moreover, if VeriSign were to sell the registry, the price would reflect the monopoly power that the registry business currently enjoys.

Topic tags: ICANN

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