Domain name price hikes come under fire

A proposal would let VeriSign charge billions more for .com domains, but some are skeptical about its continued monopoly.

WASHINGTON--A dispute over the cost of Internet domain names has spilled over onto Capitol Hill, where allegations of monopolization and unreasonable price hikes surfaced in a congressional hearing on Wednesday.

The dispute arises out of a lawsuit settlement reached on March 1 in which the Internet Corporation for Assigned Names and Numbers (ICANN) gave VeriSign the right to raise fees on .com domains by 7 percent annually. The settlement, approved by ICANN's board by a 9-5 vote, ended a legal spat that started with VeriSign's controversial move to take control of all unassigned .com and .net domain names in 2003.

Those guaranteed price hikes struck some members of the House of Representatives' Small Business Committee as unreasonable. "When you're talking about increased prices and you're allowed to do that at VeriSign, I don't know that's going to produce any better safety or security from anyone who's paying that additional cost," said Rep. Sue Kelly, a New York Republican. "And I haven't heard anything today that tells me that would be the case."

While ICANN--which was birthed by the Clinton administration--makes most decisions about domains on its own, the March settlement needs to be approved by the U.S. Commerce Department before it becomes final. That requirement has politicized the dispute, with registrars that sell .com domains and must pay the higher prices trying to gain ground in Washington against VeriSign, which has a far more muscular lobbying operation.

It was no coincidence, then, that Rep. Cliff Stearns, the Republican chairman of a House Energy and Commerce subcommittee, wrote a letter to the Commerce Department on May 26 saying the settlement "is crucial" to international commerce. "We should insist on an environment that provides ample resources and long-term legal certainty for this vital part of our economy," wrote Stearns, who has accepted money from VeriSign's political action committee.

Deal under attack
During Wednesday's hearing, domain registrars attacked the deal as a way to let VeriSign bilk consumers for the foreseeable future.

"I have no objection to VeriSign's continuing to run the .com registry," said W.G. Mitchell, CEO of Network Solutions (which split from VeriSign in 2003). "What I do have is an objection to it being done in a manner that gives a perpetual monopoly to a company with unregulated price increases."

Mitchell estimated that consistent 7 percent price increases over that time period would eventually yield $1.3 billion in new revenue for VeriSign--more than half of which would be paid by the estimated 10.5 million small businesses that use the Internet. He said the allowance of rate hikes is inconsistent with the agreement reached last year with VeriSign over the .net registry, in which the base price of domain names was actually lowered.

VeriSign and ICANN have defended the deal, making arguments about Internet security that have been echoed in letters sent to the Commerce Department by sympathetic politicians.

The agreed-upon percentage increase means that the most .com fees would rise between now and 2012 is $1.86, given the current wholesale .com domain name rate of $6, ICANN General Counsel John Jeffrey said.

"If I had to give up the latte I bought this morning in order to ensure that reliability remains the same, I'd do it in a heartbeat," said Craig Goren, CEO of Clarity Consulting, a 50-person information technology firm based in Chicago.

It's not clear what happens next. While Congress doesn't have the authority to block approval of the settlement unless new laws are enacted, even the threat of congressional action could spur the Bush administration to try to negotiate new concessions.

What's more, other members of Congress have raised red flags about the proposed agreement. Rep. Rick Boucher, a Virginia Democrat, urged the Bush administration in a letter earlier this year to examine the proposal carefully, saying it could have "serious anti-competitive implications." He also asked the House Energy and Commerce Committee to launch a formal investigation.

And in late May, Sen. Orrin Hatch, a Utah Republican, sent a letter of his own to Attorney General Alberto Gonzales in which he asked the Justice Department to scrutinize the deal for antitrust implications.

In responses to members of Congress, the Bush administration has expressed tentative support of the settlement. John Kneuer, a Commerce Department acting assistant secretary, said that "the resolution of long-standing and costly litigation would be a positive step." Kneuer added, though, that the Commerce Department is "in consultation" with the Justice Department's antitrust division.

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