Budget woes plague Net administrator

ICANN, based in Marina del Rey, Calif., is facing a tight deadline to revise its record $15.8 million budget to placate a growing number of rebellious registrars united in opposition to a new fee structure.

The nonprofit corporation on July 19 convenes for one week in Kuala Lumpur, Malaysia, where its board of directors will vote on the controversial budget, which nearly doubles last year's spending of $8.3 million.

Proposed in May, the budget modifies a tripartite fee structure for registrars, the ICANN-member businesses that sell domain names to the public. (Registries, by contrast, control individual top-level domains like ".com," or ".info.")

The new fee structure combines a $4,000 annual fee with two variable fees--one determined by how many registrars are ICANN members at the time, the other by how many domains a registrar sells. Fearful that the combined fees could top $19,000 and put them out of business, 75 smaller registrars have banded together to protest the budget.

"We're all for having a strong and well-financed ICANN," said Bhavin Turakhia, chief executive of Bombay-based registrar DirectI and an organizer of the registrar revolt. "But we want to make sure that the model is stable."

Turakhia and other budget critics complain that it favors larger registrars, and that a proposed forgiveness system, under which less profitable registrars could wind up paying only a third of the normal fees, will introduce even more ambiguity and uncertainty into the business of selling domains.

"The larger registrars are positive about the budget because a fee of $20,000 per year will wind up eliminating a number of smaller ones," Turakhia said. "The larger registrars are supporting the budget for this reason."

Balancing fee concerns
ICANN counters that it has spent the months since first proposing the budget trying to address the smaller registrars' concerns.

"The budget has moved from that position where it might have been harmful to some of the smaller registrars," said Kurt Pritz, ICANN's vice president for business operations. "ICANN doesn't want to be in the business of straining registrars' business models--that's not what we're here for. We're here to promote competition."

Pritz is hoping a confluence of external events and budget modifications will allay registrars' concerns. For one thing, the number of registrars dividing a $3.8 million slice of the budget pie has grown to 224, up from 197 when the $19,000 figure was calculated in May.

That number is expected to rise by the time the fees are levied, easing burdens all around. With 350 registrar members, Pritz said, ICANN could make up the $3.8 million with individual contributions of $10,850.

ICANN also proposed decreasing the $3.8 million figure with unanticipated revenues; per-transaction revenues of 25 cents per domain sale or transfer have outstripped expectations.

But Turakhia objects to an ICANN proposal that only 50 cents on the dollar be counted against the $3.8 million, with the remainder set aside for a reserve fund. His alliance insists that money should reduce registrars' budget liability dollar for dollar.

Citing a recent unexpected spike in litigation costs to deal with a lawsuit by VeriSign, Pritz defended creating a reserve.

"If we gave it all back in the third quarter and found ourselves short in the fourth quarter, we wouldn't be able to meet payroll," Pritz said.

ICANN and the registrars agree that future budgets will have to find new sources of revenue, for example new registry fees that will come with new top-level domains.

Turakhia acknowledges that the ICANN board will almost certainly approve the budget in Kuala Lumpur later this month. After that, the budget still requires sign-off by a two-thirds vote of the registrars, whose votes are weighted according to their total ICANN fees.

That calculus favors the larger registrars, to the point that both sides say the budget could pass with approval of fewer than a third of the individual registrars.

ICANN says it is campaigning for its budget by focusing on common ground.

"It's a lot of education with 224 registrars," Pritz, said. "By and large, we all agree that ICANN needs more money. It's just a matter of deciding where it comes from."