The first phase of the test program will begin on April 26 and last through June 24,1999. The other four companies selected by the Internet Corporation for Assigned Names and Numbers (ICANN) are CORE (Internet Council of Registrars), France Telecom/Oleane, Melbourne IT, and Register.com.
After the test period, the Shared Registry System for domains will be opened up to 29 other competitors, including AT&T.
ICANN selected the first five participants based on their technical capability, business experience, and geographic reach.
"Those picked today--while being honored and recognized--are not the lucky ones. They are going to be doing a lot of work and learning by making mistakes," ICANN interim chairman Esther Dyson said today at a press conference announcing the selection. "What we have today is...a few small steps for three domains and one giant leap for domain kind."
Though adding the new companies under a shared system is designed to end Network Solutions' monopoly, critics of the plan say it will fail to put the new competitors on equal footing with the incumbent.
During the test period, NSI will charge a $9 per registration per year fee to the new registrars. However, the Commerce Department and NSI have yet to reach a final agreement on the fee structure based on the cost-recovery principles set forth in Amendment 11 to the earlier Cooperative Agreement.
"[The $9 fee] does not reflect price determination under Amendment 11, which we entered into with Network Solutions last year," said Andrew Pincus, general counsel for the Commerce Department. He added that the amendment requires reaching a price based on NSI's costs while allowing a reasonable return on the company's investment.
The testbed fee agreement was reached with NSI in order to accredit the test participants and "for the test to proceed," said Pincus. "More work needs to be done, but as we go down the road to full competition, we will also work out those issues."
An NSI spokesman noted that the fee is charged only to the registrars and is not the final cost to consumers, who may be charged more by the registrars.
While both parties have maintained that the negotiations are progressing in a cooperative fashion, critics have voiced concerns over why pinpointing NSI's costs is taking such a long time.
"There is a good deal of study on the side of the government to determine the pricing model," said NSI spokesman Christopher Clough. "We have been actively engaged on pricing since last fall."
Pincus said that the issue of cost analysis always takes a long time. He added that complicating the matter is the task of determining how long NSI will be running the registry, which will affect the time for recouping its costs. The Commerce Department has an agreement with NSI that expires in September 2000. NSI has spent $20 million dollars on building up the registry, Clough told News.com.
"One of the things that will be going on during this period of discussion with NSI and ICANN is developing a contractual relationship that may...bring more certainty to the pricing discussion," said Pincus.
Talks also continue over the contents of the government-owned InterNIC Web site, which provides bare-bones registration services at a reduced fee. One of the main concerns has been changes NSI made that caused InterNIC visitors to be redirected to NSI's home page.
"[InterNIC] is a topic we will be discussing with Network Solutions...and we are eager for it to be used as a site that links to all the accredited registrars," said Pincus.
NSI will be reporting its first-quarter earnings tomorrow. NSI also has invited its five new competitors to its facilities on Friday for an introductory meeting.
When the five selected companies were asked how much profit and in what time frame they hope to generate the profits, each company passed the buck without flinching.
Richard Forman, Register.com chief executive, said only, "Our company is privately held and can't release that [information], but there are some public companies here," referring to AOL and France Telecom.
France Telecom's vice president Olivier Muron quipped, "We are a publicly traded company, but we try to avoid presenting our strategy in front of our competitors."
AOL's vice president of global public policy, William Burrington, said, "It's a great question, and as you can tell, there is no answer to it."
"This is all new--this is Internet time," Burrington added. "We don't know where this is all going...but when you have competition, people innovate and consumers benefit."
Clearly, how the testbed participants plan to profit from their new roles is open to question. But Dyson repeatedly looked forward to the period when competition would lead to unexplored potential for the Internet.
"Competition does not just create lower prices but more imagination," she said. "If imagination is run loose, you are going to have exciting new services built around domain names."
Still, now that the five have been selected, it is up to them to create and exploit the benefits, Dyson said.
"What we are talking about is competition, and those who are the best marketers and most effective at promoting interesting services will be the ones to get the most customers," Dyson added. "So this is not a cooperative [effort]; it is a collaborative effort right now."
AOL declined to comment on its marketing strategy for its new service.
"We still haven't decided," said Burrington. "We are about convenience and being a one-stop shopping place, especially for e-commerce people.
"It is truly a testbed, and now we have made our testbed and will have to sleep in," Burrington added.
Under a contract awarded in 1993 by the National Science Foundation, Network Solutions has held the exclusive right to register domain names ending in ".com," ".net," and ".org." Those endings grace an estimated 50 percent to 70 percent of the world's roughly 5 million addresses, and sales of domain names were responsible for the bulk of NSI's $93 million in revenues last year.
Under the new arrangement, NSI will continue to maintain the database that its new competitors must access in order to provide domain names. NSI also will receive a fee for every domain name its competitors register and will charge them for the software they must use to access the database.
"Today's announcement marks a milestone in the joint effort of the public and private sectors to bring Internet users the benefits of real competition in registration services in the most popular Internet domain," Dyson said in a statement.
The final details aren't settled: NSI and officials from the Department of Commerce, which took over responsibility for the Net last fall, are still negotiating. But critics say that as long as it controls the Net's master database of domain names, also known as the registry, NSI will maintain the upper hand.
"If the point is to have competition and to make sure that the registry is open to everyone on nondiscriminatory terms, it probably doesn't make any sense to have one of the competitors in charge of the registry," said Mark Lemley, a University of Texas professor specializing in antitrust and Internet law.
"We're going to be as cooperative as possible with whoever is chosen," pledged NSI spokesman Brian O'Shaughnessy.
The government has been looking for a way to end its role as the Net's administrator since the early 1990s, saying that the job would be better filled by a private entity. The cooperative agreement, however, under which NSI built and runs today's registration service, only prolonged the government's oversight.
Detractors have characterized the present arrangement as a sweetheart deal that has padded NSI's wallet even as service outages and a controversial resolution policy for trademark disputes has alienated some customers of the Herndon, Virginia, company. NSI and its supporters, meanwhile, say the company provides reliable service at a reasonable fee, even as the popularity of the Net has exploded.
Whichever the case, today marks an important milestone toward a more competitive system. By the end of the summer, an unlimited number of companies meeting minimum requirements will be authorized to participate.
For some, the terms of NSI's continued operation in the domain name market are privileged and unlikely to be surrendered. "I would not expect [NSI] to give up control," said Martin Burack, executive director of the professional group the Internet Society, noting NSI's reputation as savvy negotiators.
"They're deeply entrenched, and I don't see anything on the near horizon that's going to change that," he said.
Commerce Department officials have put in place safeguards into the shared registration system that prevent NSI from taking advantage as its role as the Net's registry, NSI's O'Shaughnessy countered.
Under its cooperative agreement, NSI will hold on to its registry role at least until September of 2000. Mike Roberts, interim president of the Internet Corporation for Assigned Names and Numbers, which is overseeing the opening of competition, called the registry "a natural monopoly" because there can be only one master list of domain names.
"Most of the ICANN people believe that the registry function ought to be maintained on a not-for-profit basis," said Roberts. As a model worth considering, he pointed to the non-profit organizations that maintain databases relied on by the banking, airline and telephone industries.
"People need to understand the importance and unique role of the domain name system and understand there are issues of stability," O'Shaughnessy added.
But the government, too, may be required to continue its oversight. "We're certainly going to have to regulate the registry in the sense of guaranteeing that the different registrars are guaranteed access to it," said Lemley, the University of Texas professor.
News.com's Sandeep Junnarkar reported from Washington, and Dan Goodin reported from San Francisco.