Domain Registries, Registrars at Odds over Separation Rule

Relaxing the separation requirement should benefit registrants, by making rollout of new products easier or by creating an environment where new registries can thrive, ICANN said in a memorandum for the latest version of its guidebook. A report examining the economic aspects of the proposal found that requiring ownership separation where vertical integration is possible can hamper competition, ICANN said.

If the plan is approved, registry agreements will no longer bar registries and registrars from being integrated. But TLD registries would have to continue using only ICANN- accredited registrars, ICANN said. Separation of the registry and registrar functions, with distinct data escrow and customer interface, must be maintained. Registries couldn’t discriminate among registrars, and, except for 100,000 domain names, registrars couldn’t sell domain services of an affiliated registry. Registries are supposed to provide reasonable notice before making any pricing changes on domain renewals.

The proposal drew fire in May from three leading registries: Afilias, for .info, the Public Interest Registry for .org and NeuStar for .biz. They urged ICANN Chairman Peter Dengate Thrush to reject cross-ownership, saying the current ban serves the public interest and there are efforts to get around it.

This is “going back to the future,” Brian Cute, Afilias’ vice president for discovery services, said in an interview. “People have a short memory” and are forgetting complaints that VeriSign favored Network Solutions registrants, he said. ICANN set up structural separation because the arrangement gave the companies a competitive advantage, he said.

ICANN’s plan is missing an important safeguard, Cute said. Many registrars are planning to launch TLDs and integrated registrar-registries should be prevented from marketing their own domains, he said. In anticipation of the new TLDs, registrars have been “luring” prospective applicants for registries to serve as their back-end -- technical -- registry operators by promising to deliver an established customer base, prominence on the registrar’s Web sites and guaranteed marketing to end-users, the May registry letter said. The “Registrars can promise to deliver exactly what existing Registries cannot -- a direct marketing relationship with the ultimate registrant,” they said. It’s already happening, Cute said.

Registrars will also be able to refuse to carry TLDs of new entrants, he said. Small registries will fail, with results for consumers such as interruptions of service, he said. Integrated registries and registrars may engage in predatory pricing and may allow registrars access to competitors’ registration data held by the registry, he said. Information such as domain name renewal rates and customer distribution data will help an integrated registrar target competitors’ customers, he said.

Afilias’s biggest complaint is that the proposal doesn’t seem to be supported by evidence that it’s needed, Cute said. From an antitrust law standpoint, ICANN must explain why it wants to revise a policy that has led to a booming domain- name market since VeriSign was broken up, and how the change will affect consumers, he said.

But .PRO General Manager Catherine Sigmar dismissed the larger registries’ stance. In a letter Wednesday to Dengate Thrush, she said the views of smaller registries are probably closer to that of prospective new registries than to Afilias and the others. Diversity, choice and competition will only be served if ICANN regulates separation of function and not ownership or affiliation, relaxes restrictions to new and small accredited entities, and sets up protections applicable to organizations with market power, Sigmar wrote.

.PRO’s experience shows that separation of registry and registrar functions can be maintained without imposing strict cross-ownership or affiliation restrictions, she said. Registries may have had greater market power than registrars in the past, but that’s changing, she said. In the current market, “is it not function that dictates market power, but size and market share” she said.

Registrar Network Solutions accused PIR, Afilias and NeuStar of protectionism, saying in a May 15 letter to ICANN that the registries’ position is based on unsupported factual allegations, blanket statements and innuendo. The point of introducing new TLDs is registry competition, Senior Vice President Jonathon Nevett wrote. That’s why some registries “circle the wagons,” he said.

ICANN’s proposed safeguards strike the right balance between protecting the market and satisfying longstanding demand for more competition among registry services, Nevett said. He criticized Afilias and the others for trying to limit competition for back-end registry services to keep registrars out.

Social media distributor Demand Media accused the companies of trying to quash competition. There’s no reason registries - “the ‘manufacturers’ of domain products” -- shouldn’t be allowed to sell their products directly to the public, Senior Vice President-Registry Richard Tindal and Chief Strategy Office Paul Stahura wrote ICANN. A registry- owned registrar is more likely to be motivated to offer better service, support and value to end-users because they have an interest in the TLD’s success, they said.

A discussion of economic issues related to vertical separation of registries and registrars is scheduled Monday in Sydney. The third version of the guidebook will be published after the Sydney meeting when this and other pending issues are resolved, ICANN said. Applications for new TLDs are expected to be accepted starting in the first quarter of 2010, it said.