Network Solutions Put on Alert

The U.S. Department of Commerce has put Network Solutions on notice
that it plans to play hardball if the domain registration company resists
open competition.

In a 28-page letter authored by
general counsel Andrew Pincus and made public late Friday, Commerce provides a rare glimpse into the
private negotiations between the government and Network Solutions, its
exclusive contractor for the past six years.

The letter was penned as a response to one sent last month by Rep. Thomas
Bliley, chairman of the House Commerce Committee, to Commerce Secretary
William Daley, in which Bliley criticized the Internet Corporation for
Assigned Names and Numbers’ handling of the privatization of the domain
name system.

While Commerce’s reply contained strong admonitions for both sides, the
document for the first time revealed Commerce’s frustration with NSI’s
position on several key issues related to opening up domain registration
competition.

One major sticking point is the Commerce Department’s authority to
terminate NSI’s cooperative agreement with the US government, which expires on Sept. 30, 2000.

According to Pincus, NSI believes Commerce lacks such authority. Should the
United States terminate or fail to renew its contract, NSI believes it has the right
to manage the .com, .net, and .org domains “in perpetuity without any
oversight or supervision by the US government.”

Such a position, said Commerce, has “disturbing implications for the future
of the Internet.” The letter suggests NSI could raise its fees, thwart
competitors, and block access to the whois database of registration data.

“An NSI unconstrained under U.S. law,” Pincus also warned, “would quickly become a target of action by other countries in order to protect consumers against the exercise of market power.”

While Commerce said it could decide to reassign NSI’s functions to another
contractor, such an outcome “would be extremely destabilizing for the
Internet and therefore quite harmful to its development.”

Similarly, the agency said it believes NSI’s refusal to sign a registrar
accredation agreement with ICANN would thwart robust competition and the
benefits of lower prices and greater choice. “The agreement must assure
reasonable supervision to prevent the exercise of market power in a way
that injures consumers.”

Other key issues revealed in the Commerce Department letter:

  • The agency wants to facilitate the transfer of existing domain
    registrations between registrars by instituting a cost-based domain
    transfer fee. The agency would also like registrars to be able to offer
    registrations of varying lengths rather than the current two-year term.

  • NSI is reluctant to give competing registrars access to whois information
    about when domains were registered, for fear that competitors will “harass”
    the registrants when the domain comes up for renewal.

  • NSI claims that “personnel resource limitations” will permit it to
    support the addition of new registrars at the rate of only five per month.

    More than 50 firms are waiting in the queue of ICANN-accredited registrars.

  • Commerce would like NSI to revise the InterNIC site so that visitors can search a comprehensive whois database of all registrars.

  • To prevent NSI from having an unfair advantage, its registry and
    registrar operations should be separated, according to the agency.

Despite Commerce’s criticism of Network Solutions, the agency said it is
confident it will resolve the outstanding issues and reach an agreement.
According to Paul Merenbloom, an analyst with Prudential Securities which
has a “strong buy” rating on the stock, the US government wants to prevent the situation from imploding, and that works to NSI’s advantage.

“We have a multi-trillion dollar world economy that’s based on the
continued smooth operation of the DNS. No entity is going to want to stand up and say `I took this thing offline.'”

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