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:
- An independent publicly trading company
- Part of VeriSign (current structure)
- Dividing the dot-com registry into number of
competing companies
- A regulated monopoly
- 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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