Registrars End Budget Holdout

A slight change in the fee structure for registrars was just enough to
ratify Internet Corporation for Assigned Names and Number’s (ICANN) $15.8
million budget measures.

The new fee structure goes into effect Nov. 1.

The ICANN announcement, made earlier this week, signals the end of a nearly
three-month holdout by the companies who buy and sell domain names for their
customers. While many of the more successful registrars supported the
proposed budget, a coalition of smaller registrars was dead-set on opposing
fees they said violated the Internet organization’s mandate to promote
globalization and competition because of their amount.

ICANN executives needed only a majority two-thirds vote in support of the
budget measures to garner registrar approval, a group that’s paying $11.4
million of the $15.8 million budget. Voting power is determined by the
amount of fees an individual company pays into the organization every year,
so larger companies have more of a say in ICANN matters than smaller
registrars.

When officials adopted
the 2004-2005 budget in July, Paul Twomey, ICANN CEO, said ICANN
was within a “whisker” of having the necessary votes from registrars. It
wasn’t until Friday, however, that it got the majority support needed when
U.S.-based registrar Network Solutions signed on.

However, the fee structure for registrars remains much the same as it was
when adopted. Registrars still pay a $4,000 annual fee for the right to
sell generic top-level domains (gTLDs) like .com, .net or .org; they’re charged 25 cents
for every billable transaction they make (new subscriptions, renewals or
transfers to domain names); and they’re still each paying a portion of the $3.8 million
ICANN officials say is needed to cover registrar-related costs during the
year, though a part of the variable fee for smaller registrars can be
forgiven and put back in the overall pool of money for fee redistribution.

The only recent change to the registrar’s fee structure comes from the
manner in which registrars recognize their individual 25-cent transactions,
a recent addition to ICANN’s proposed budget. Companies now have two
choices when it comes to multi-year domain registrations: they can either
pay ICANN the entire transaction fee — thus a three-year renewal would net
ICANN 75 cents in the current fiscal quarter — or they can defer payments
yearly.

So, instead of paying 75 cents right away, registrars can pay 25 cents
annually over three years. For a company like Network Solutions, which in
March started a 100-year domain registration service, it means they can
spread their payment to ICANN with 100 small installments, rather than 10
larger payments of $2.50 (ICANN only recognizes 10-year terms on domain
registrations).

Susan Wade, a spokeswoman for Network Solutions, said the
company has been working with ICANN on the proposed budget for some time, but
could not confirm at press time that the deferred payment clause was added
at their request.

“It was a compromise situation; we didn’t get everything that we wanted, and
they didn’t get everything they wanted,” she said of the company’s talks
with ICANN officials.

Officials at the Marina del Ray, Calif., organization were not available at
press time for comment.

Bhavin Turakhia, the front man for a coalition of small registrars opposed
to the ICANN fee structure, was able to wring some concessions in order to
swing some votes ICANN’s way earlier this year. His
Web site proposed a fee structure
he said is less of a burden on smaller registrars than the current model but that provides the same revenues
ICANN needs.

He said the 76-member coalition, which collectively makes up 10 percent of
the registrar voting power, was able to convince ICANN officials to modify
the budget to include a price cap clause freezing the transaction fee at 25
cents, as well as a promise to fix the variable fee at $3.8 million dollars
for the next three years.

Additionally, if the money ICANN collects from
per-transaction fees exceeds projections, that extra money is used to reduce
the fixed variable fee and build up ICANN’s reserve fund.

Turakhia considers the concessions a 40 percent to 50 percent success, but the
caps aren’t set in stone. According to the budget’s wording, it’s ICANN’s
“sincere intention” to honor the fees for the next three years. Turakhia
said there’s nothing to stop ICANN from removing the caps in next year’s
budget except its word, which he doesn’t find likely.

“If ICANN backtracks on its commitments in next year’s budget, there’s
very little chance of it getting approved, so I don’t think they will do
that,” Turakhia said. “I doubt very much that ICANN would have a budget issue
where they, once again, increase the budget and try to squeeze the money out
of various sources.”

Still, he had a tough time convincing the coalition he founded to approve
the fee structure. Turakhia said only about half of them followed suit when
he gave his blessing to the proposed budget.

ICANN is in a quandary concerning the payment for its operations.
According to its budget proposal, litigation costs ran 300 percent over the
amount budgeted for the current fiscal year. Notable is the organization’s
legal disputes with VeriSign , registry owner of the .com
and .net gTLDs.

The company is trying
to sue ICANN for suspending a number of its marketing initiatives, primarily
the controversial Wait-List Service (WLS) and
SiteFinder.

The organization also needs funding to support new programs to become an
independent, worldwide Internet body.

Currently, ICANN is under contract
with the U.S. Department of Commerce to manage the technical aspects
of DNS management for TLDs. Independence means fulfilling
certain milestones, some of which are due to be implemented by Dec. 31.

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