Domain players ready to compete

The Commerce Department and would-be players are preparing for the government's plan to transfer the stewardship of domains to the private sector.

9 min read
Internet users rarely give any more thought to domain names than the oxygen they breathe. But, like clean air, Net names aren't free and some businesses would love to control the supply.

That's why later this week or early next week, the Clinton administration is expected to announce a plan to turn over the stewardship of domain names to the private sector.

For the past several months, President Clinton's Internet policy adviser, Ira Magaziner, has been sitting in the referee's chair, trying to judge a game with many teams and even more competing interests.

So far, the plan appears to be leaning in the direction of a loose coalition of independent businesses that favor individuals retaining rich pieces of the domain name pie in the form of databases of domain names.

One of the less controversial points appears to be the government's plan to transfer power of the Internet Assigned Numbers Authority (IANA)--the body that oversees the actual mechanism that makes domain names function--from the Defense Department to the private sector, where it would be managed by a private nonprofit company.

And the group that expected it would get the lion's share of the business--the group that for months has been promising seven new top-level domain names, even though it never had full authority to deliver on those promises--looks like it is going to be disappointed.

The transfer is risky: If it is not completed in an orderly way it could literally bring the Net to a halt. The domain name system controls everything from the way valuable Net addresses are distributed to delivery of information.

No one is more aware of that than Magaziner and those who have been discussing, studying, and holding hearings about this issue since last March. Those meetings have intensified dramatically in the last few weeks as the government attempts to achieve what some say is impossible: consensus on the issue.

"There are a lot of interests, and the community of Internet stakeholders is growing and expanding as rapidly as the Internet itself is expanding," said Becky Burr, the senior Internet policy adviser for the Commerce Department, which will release the so-called green paper that outlines the government's transfer of power. "It's a very delicate process. Our goals are to end the U.S. government management of this in a responsible manner that preserves the stability of the Internet, and to end the government's involvement as soon as possible."

Whenever a Netizen registers a new domain name, it costs money. Right now Network Solutions (NSI) holds the lucrative government contract to register domain names under the most top-level domains (TLDs), such as ".com," ".net," ".org," and ".edu."

But NSI's contract with the National Science Foundation runs out in September.

And there are a lot of companies, including NSI, lining up to try to pick up a piece of the business.

As for NSI, the company has publicly stated that it supports competition. In fact, it has been preparing for the inevitability of its contract ending by creating a new registration service at WorldNIC.

Magaziner is planning to split the tasks of those who register domain names and those who run the actual databases. Right now, NSI not only runs the databases for its TLDs, but it also runs the registration services at InterNIC. Under Magaziner's plan, NSI would have to allow others to also register the TLDs it runs.

NSI's claim that it is in favor of competition may sound like a politically sensitive answer--and it is--but it also makes good business sense.

Competition among those who register domain names would open up the business to free price-setting. Right now, NSI is held to a $100 price point for a two-year registration of a new domain. But valuable domain names often are resold for thousands--sometimes tens of thousands--of dollars. Registrars with valuable domains could reap big profits from a system where they can set prices.

Along with the money that companies would get directly from registration, NSI has been putting aside a portion of its domain name fees to "preserve and enhance" the infrastructure of the Internet. The fund now stands at some $34 million.

Congress has tapped into some of that money, but questions remain as to how the rest of it will be used.

But the bigger question is, who will run the show? While the struggle to get all or some of that business is being waged, there are plenty of accusations of greed and anticompetitive behavior to go around.

Though Magaziner is hoping to make a decision that will balance all sides, when he finally does release the green paper, there will be winners and losers. And all sides will, no doubt, continue to add their input to the wealth of feedback both Magaziner and Congress already have received.

The paper was originally due in November, but has faced several delays due to the complexity of the issue.

"You have sort of a collision of different perspectives--the collision between values associated with intellectual property, network administration, growth of the Internet, and the free market," said Brian Kahin, a senior policy analyst for the White House and chairman of the interagency task force on domain names. "And nobody really knows how much money is at stake. We know people will pay a lot for domain names, more than they pay NSI to register them."

While there are plenty of sides to this story, right now the main opposing camps have dominated discussion on the issue.

On one hand, there is the Policy Oversight Committee (POC), also known as iPOC, a powerful international group that has been working for several months on its own domain name plan. The POC is basically a savvy group that represents the old guard of Internet programmers and academics, many of whom have run the domain name system by consensus from the beginning of the Internet. POC, which grew out of the Internet Ad Hoc Committee (IAHC), formed a group called CORE, the Internet Council of Registrars, a group of 88 businesses worldwide that each paid $10,000 to start their own registry with seven TLDs.

The POC advocates a plan in which it would start seven new top-level domains and collectively share the ownership of them among all members of Council of Registrars. Council members, in turn, would be able to sell registrations of the domain names.

The POC's idea is that competition among the CORE members would keep individual prices down and provide real competition to Network Solutions.

Members of the POC and CORE have been promoting the plan for months as a done deal, saying that it had reassurances from high-level government officials that the plan was a go. In fact, not only has the POC collected money from registrants, but its registrants, in turn, have been out on the market selling its seven domains.

But the problem is, for the POC's business plan to work, the government has to accept it as a whole. Right now, the government is taking a cautious approach of limiting the total number of TLDs that any one party can have to prevent chaos during the transfer of power.

The plan now is to allow each party that meets a certain set of criteria--which is still being developed--the authority to run one to two TLDs.

For instance, one company would own the database with all the ".web" or ".shop" domain names, should those TLDs be accepted.

At the same time, the plan calls for there to be competition to actually register the names. So several companies might be able to go out to the Internet public to sell domain names in ".web or ".shop," for example, while another company would manage the physical database.

But even if the plan is expanded to allow each company to have more than one or two TLDs, it's unlikely that the POC would get all seven. If the government did that, it would probably have to allow any group or entity to have seven TLDs, and that could prove to be too many.

Nobody really knows how many TLDs the Internet can handle, both from an infrastructure and a social point of view. The government is more likely to err on the side of caution--that is, fewer domains.

That could spell disaster for the POC, which has hundreds of thousands of dollars invested in its plan.

If its business plan fell apart, that would be just fine with many on the other side (although in the strange universe of domain names, there is an overlap between the two sides), who for months have been critical of the POC plan. That side is primarily composed of individuals and businesses that have long been fighting to get their own TLDs accepted into the registration system.

While not an organized or unanimous group, that side largely believes that to have true competition, the domain name system must be opened up to all comers.

And so far, the government plan--whether intentional or not--appears to favor their philosophy over CORE's.

"We're extremely ecstatic that the process that Mr. Magaziner has used and the conclusions they have come to," said Jay Fenello, president of alternative registry Iperdome."We've won the war, but we're not sure if we've won the battle yet. We think the U.S. government is doing the best for the long term of the Internet."

He also called CORE's plan exclusive and anticompetitive, and said Magaziner's plan as it now stands would represent a triumph of the Davids over the Goliaths.

"For the most part, we're a small, rag-tag group of people who have felt philosophically there was something wrong here, and we think the U.S. government agrees with us," he said.

Members of the POC, on the other hand, are taking the offensive, trying to convince Magaziner and others that their plan is best.

POC members say allowing individual companies to run TLDs would fuel increases in price within each TLD. For instance, the owner of ".web" could compete with other TLDs by offering a good price, and then the next year turn around and sell the same TLDs for three times the price. Companies that have invested in the domain name would be stuck with the tab because it is too expensive to change domain names, they charge.

Backers of the plan, however, call the criticism misleading, adding that any TLD manager that dramatically raised prices would go out of business, even with the high cost of shifting domain names.

The best idea, said David Maher, chairman of the POC, would be for the government to simply say that it is getting out of the domain name business entirely, without presenting any sort of plan.

"Magaziner had a grand scheme for what I would say is micromanaging the domain name system, setting up competing registries," Maher said. "The reaction of the CORE was that, you're making all these changes, many of which will have a severe impact on all our businesses. This won't work. We can't blindly say go ahead. Some of this would have such a serious impact that CORE would be out of business."

"CORE met and concluded the best way to approach this would be to ask the U.S. government to get out, just withdraw at the end of the contract period," he said.

Of course, if that were to happen, it would mean a victory for CORE.

"Jon Postel [who runs the Internet Assigned Numbers Authority] said he wants to implement the CORE and POC proposal," Maher said.

In response to questions about the potential anticompetitive nature of that move, Maher was clear. "We're convinced that CORE has the only viable plan that anyone has proposed," he said. "There are simply no other [viable] plans in existence."

But in spite of what may appear to be retractable viewpoints, the government is still determined to come up with a workable solution.

"It's really important to us to stress that it's not in anybody's interest to split the Internet," said the Commerce Department's Burr. "We need to proceed to achieve consensus, and that's what we've been working towards."