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VeriSign Bears Layoffs, Billing Headaches

VeriSign's newest customers have a hard time believing the registrar's motto, "The Value of Trust," after seven months of billing problems that put them out hundreds of thousands of dollars in the hole.

Add to that rumors on Internet posting sites of a massive round of layoffs at the world's largest registrar before its first quarter 2002 conference call after the bell Thursday afternoon, and you have a recipe for disaster.

The rumors were true, as VeriSign announced it would cut 10 percent of it staff as part of a company-wide reorganization. The cost of restructuring two of its latest acquisitions, Illuminet Holdings and H.O. Systems, as well as paying severance to departing employees and asset write downs, would reach somewhere between $70-80 million.

Stratton Sclavos, VeriSign chairman and chief executive officer, blames the workforce reduction and $21 million in net losses for the first quarter partly on its domain name business.

"Clearly, our first-quarter results were not up to our expectations as we encountered significant spending delays in our IT and telecom customer bases, particularly in the last few weeks of March, as well as more severe challenges in our mass markets domain name business," he said.

And, in addition to freshly pink-slipped employees, there are disgruntled customers to contend with. Last year, VeriSign customer Sam Martin and thousands of others fell under the VeriSign umbrella when the company bought up a major portion of rival Registrars.com's business in June 2001 and made the company a subsidiary. Seven months later, VeriSign officially closed Registrars.com and began migrating customers to its own database.

Therein lies the problem, Martin contends. Fully half of the invoices for his 206 domain names he owns through his Internet service provider (ISP) business were lost in the shuffle, the contracts and invoices lost in the ether of Internet space.

Despite proof to the contrary, VeriSign billed Martin's Officeonweb.com for what they consider lack of payment on leases to the domain names, a situation he finds incredibly frustrating.

"I have the proof that I've paid for these domains, I have the records for them to look at," he said. "Some of the records made it through (the migration from Registrars.com to VeriSign), some didn't. Those that didn't, I had to re-sign for the domain and essentially pay double for a name I already own."

The billing snafu has already cost his company $10,000, a figure he says grows by the day as he tries to find someone, anyone at VeriSign to talk to about the lost invoices. Employees who should be designing Web sites and working on network issues, he said, are instead working at reaching someone at the registrar to get an answer.

Martin's already filed a complaint with the Federal Trade Commission and is mulling a class-action suit against VeriSign to recoup his damages, though the process will likely be costly.

VeriSign officials say they are aware of a problem they say affected "some" of Registrar.com's customers, but downplayed the extent of the lost invoices.

"Registrars.com had some minor billing and notification issues and we've been working to correct them," said Patrick Burns, a VeriSign spokesperson. "We've told our customers to work out any (discrepancies) they had through our customer support team to resolve the problems."

That's the major problem with the whole situation, said one domain reseller who wished to remain anonymous for fear of reprisal. The staff is a nameless entity that seems unable to resolve the problem without fielding the question to managers who often don't call back.

"They've got me by the shorthairs," he said. "When the migration problems began, they just shut me off without contacting me and my business was down for five days; their (customer support team) was as unhelpful as they possibly could be.

You're life's blood is on the line, so you pay for the domain names again, what choice did I have?" he concluded.

So is it a case of an isolated few caught in an unfortunate error, or a company-wide example of incompetence, as Martin puts it? Since this story was originally published Wednesday afternoon, a flood of e-mails from disaffected VeriSign customers point towards the latter.

Bernardo Joselevich ran a popular e-mail list with more than 12,000 subscribers from his domain @bernardoslist.com, until a VeriSign error this week wiped out his records by mistake. Scrambling to reinstate his domain, he was told the wait would be a month -- a death knell for someone who makes a living off Web site sales.

What has Joselevich upset is the inability of the VeriSign customer support crew to fix a problem they admit the registrar made.

"The customer services representatives were not unwilling, some were even polite, though not all were, the problem is their apparent inability to deliver," he said. " The most important unkept promise that I received from them was being told that despite the original difficulties with their payment system and that my payment didn't show on the WHOIS, they knew payment had been received and my domain name was not in jeopardy and there was no chance of it being erased."

With more than 530,000 domain names registered through the company in 2000 and 2,500 more every day, Registrars.com was a popular company before getting bought out. At one point, it was the fifth-largest registrar in the world.

VeriSign downplays the extent of the problems, saying it's only affected a relative few, though officials wouldn't go any further into the billing problems than Burn's statement.

Set to announce its first quarter results Thursday afternoon, VeriSign is in a difficult position. Questions of mismanaged revenues and botched invoices are the last thing officials at the company want publicized.

Downgraded Wednesday by SoundView Technology and last week by UBS Warburg, the company has been dogged by unfounded allegations of misleading revenue tricks called "round-tripping, where company A invests in affiliate company B, who then uses the money to buy company A's services -- a serious charge on post-Enron Wall Street.

"We don't comment on rumors or innuendo," Burns said in reply to the rumors flying on the Internet these days.

VeriSign's problems are also affecting its current crop of customers, who are taking their thousands of domains, and the revenues VeriSign receives from the management of those domains, elsewhere.

While updating an expired domain name, one VeriSign domain name reseller in Japan (who also asked to remain anonymous) with more than 1,000 domain under his belt found out the bill for the domain in question had already been paid. How that was possible, he doesn't know, since he never made a payment to the company.

But the VeriSign database showed the domain was, in fact, expiring. The response?

"The WHOIS database is wrong, though the programming team is aware of the issue," he claims the rep stated.

Telephone calls back and forth ensued, with the end result of VeriSign losing a profitable customer.

"I will be working through the data in the reseller panel and my own lists to move all my remaining domains away from Verisign before the end of 2002 - a small moral victory, I guess, for all the hassle they've put me through," he said. "All told, they are essentially throwing away over $20,000 of business a year from me."

On a day that Internet stocks in general led the overall stock market higher, VeriSign shares (QUOTE NASDAQ:VRSN) plummeted Wednesday afternoon by more than 16 percent. Shares continue to fall Thursday afternoon prior to the registrar's financial call, falling more than a dollar to $16.85 at press time.