The Internet Corporation for Assigned Names and Numbers (ICANN) is preparing to launch a new round of top-level domains (TLDs) in early 2010. According to ICANN’s latest draft of the applicant guidebook, they intend to reverse nearly a decade of successful policy regarding the separation of registry (wholesale) and registrar (retail) functions in the domain name marketplace. If ICANN permits cross-ownership of registries and registrars, they will in fact undermine healthy competition and potentially place the security and stability of the Internet at risk.

Open Letter to ICANN in favor of "True Registry-Registrar Separation"

The undersigned wish to express concerns regarding a position being promoted in ICANN’s new gTLD process that would dismantle a key protection built into the DNS market nearly 10 years ago. Specifically, this position eliminates the policy of vertical separation of registrars from the registry within the distribution channel of a given TLD. While we welcome the expanded opportunities for innovation and competition, we hold the strong belief that expansion of the gTLD space must apply the lessons of the past and proceed in a responsible manner in order to avoid undermining the benefits with unintended consequences.

We believe that this would return the industry to the badly flawed model of the past. When ICANN was formed, Network Solutions was the vertically integrated services provider, providing both registrar and registry functions for the .COM, NET and .ORG TLDs. To remedy this inherently uncompetitive situation, ICANN made a policy choice to discard the vertically integrated provider model and replace it with a two tier system which separated registry operators from accredited registrars (and associated resellers). This action eliminated the conflict of interest inherent in the system and resulted in robust, competitive markets for both registrars and registries, significantly lower consumer prices, and dramatic DNS growth--without jeopardizing stability or security.

The reasons to keep the successful two tier model and not turn the clock back to the vertically integrated approach are as valid today as they were then, and include the following:

• A vertically integrated service provider would have an unfair pricing advantage: Registrars affiliated with the vertically integrated provider have an inherent advantage over independent registrars: they share the revenue and profits from both tiers, which enables them to field predatory retail pricing that non-affiliated registrars (who have only one income stream) cannot afford to offer. Price is critical to success in the domain business, and a return to the vertically integrated model would create a most un-level playing field
• A vertically integrated service provider would have unfair access to competitors’ confidential data: With the thick TLD model favored by ICANN, confidential registrant data must be provided to the registry by all registrars (affiliated and independent). With a vertically integrated model, all data transmitted to the registry could be shared with the affiliated registrar(s), unfairly exposing the customers of independent registrars to precisely targeted direct marketing. Independent registrars would either avoid selling vertically integrated TLDs entirely (which would limit consumer choice) or obfuscate the data in some way (which would impair the value of WHOIS data).
• A vertically integrated service provider could unfairly use proprietary registry data: Normal registry operations result in substantial amounts of data which could be used to benefit the affiliated registrar(s). Examples of these are DNS traffic data (for monetization), independent registrar sales data (to identify successful marketing strategies), and bulk WHOIS data (to target competitors’ customers). Today, this data is protected by confidentiality requirements and enforced by the two tier structure. A vertically integrated model eliminates these protections and creates unfair competitive advantages for the affiliated registrar.

A return to the vertically integrated model would work against the goals of the new TLD process and lead to less choice and less innovation. Few, if any, registrars could survive price competition against a vertically integrated services provider, and few would want to share their proprietary customer information with a direct competitor (the affiliated registrar). Rather, they would continue to focus on traditional TLDs, irrevocably damaging competition and diminishing consumer choice. Since ICANN’s own economic studies admit that “going back” from a vertically integrated model (again) would be difficult, we believe ICANN should avoid it.

It is recognized that single registrant TLD’s (which may arise) and community based TLDs (which have limited distribution) may benefit from a vertically integrated approach without jeopardizing the DNS. In concert with this, we fully support the language for Section 2.8 of the Draft Base Agreement as proposed (with broad acclamation) by the gTLD Registries Constituency.

The two-tier model is now so universally accepted that it is surprising that ICANN would even consider turning back the clock. Indeed, the European Union notes: “The main advantage of this model is that, by avoiding any commercial relation between registrants and the Registry, the independence of the latter as relates to the allocation of domain names is guaranteed*.” Vertical separation of registry and registrar was instituted to encourage competition and, ultimately, to protect consumers, and it has been successful. To reverse course now in the context of new gTLDs is undoubtedly the wrong path for ICANN to follow.