In a surprising decision, VeriSign Inc. and the Internet Corporation for
Assigned Names and Numbers Thursday said they had ironed out a deal in which
VeriSign will cede control over .org and .net suffixes in exchange for
keeping rights to manage .com names.
Good until 2007, the deal inked between ICANN and VeriSign, which holds the
world’s coveted list of major domain names in addition to a digital
certificate business, would result in three separate Internet registries to
replace the current single one.
More importantly, it means VeriSign will remain whole.
In what some may call the “New Deal” of the New Economy
because of its monumental importance to businesses and individual
registrants alike, VeriSign would continue to operate the .com Registry
until at least 2007 and the .net Registry until at least 2006. Editor’s
Note: Further details of the proposition are posted at the end of this
article.
The agreement came as a shock to many insiders because it seemingly
overturns an October 1999 deal with ICANN and the U.S. Department of
Commerce that required VeriSign to divest ownership of its registry or
registrar businesses to extend the agreement to operate the registry for
.com, .net and .org for another 4 years beyond November 2003.
Those with the inside track on the ICANN/VeriSign dealmaking have speculated
that increased competition in the Web address market was a catalyst for the
deal.
Indeed, VeriSign now sells between 40 and 50 percent of the world’s 28.2
million Web addresses ending in .com, .net or .org — a far cry from the
disturbing monopoly it enjoyed up until 1999.
That VeriSign would have had to spin off its domain name business was a
stipulation put in place because of rival registrars’ perceptions that if
VeriSign served as both a registry and registrar, it would get a significant
advantage over competitors, according to VeriSign Executive Vice President
of Corporate and Business Development Robert J. Korzeniewski.
“There was a concern that the so-called Chinese Wall between the two
businesses wouldn’t work,” Korzeniewski told InternetNews Radio Thursday.
“But I think in the community, other registrars have complimented us on what
an exceptional job we have done and really putting a very, very serious
Chinese Wall between those two businesses so that our registrar gets no
advantage out of our registry.”
Again, because of the increased competition, registry opportunities have
opened up for other registrars.
Korzeniewski pointed to the fact that because of the awarding of new
top-level domains at the November ICANN meeting in Marina Del Ray, Calif.,
a handful of VeriSign rivals, including Register.com (.pro) and Melbourne IT
(.biz), have also gotten registries.
“The competition has been successful earlier and to a deeper extent than
ICANN thought it would be and the community thought it would be, so it’s a
very competitive environment, one that we have a substantial business in,
but certainly but it’s been easy for entrants to come in and a number of
them have been successful in that business,” Korzeniewski said.
One registrar was pleased with the proposed plan — Tucows Inc., the third-largest seller of domain names and a potential bidder on .org and .net.
In an e-mail sent to InternetNews.com, Tucows President and CEO Elliot Noss, who is decidedly pro-ICANN and believes “what’s good for ICANN is good for the industry” said the proposition is fair.
“We expect a more level playing field,” Noss said. “This agreement has not given the NSI Registrar
business to someone else, nor has it introduced a new competitor. The only
alternative to this deal that would be better for us would be if Tucows got
the business. So we see this as a pretty good second choice.”
But VeriSign’s chief rival register.com doesn’t see the proposition in as
bright a light. Elana Broitman, director of po
licy and public affairs for register.com, said
her firm is very concerned about the proposition.
“We viewed the break between the registry and registrar that VeriSign had as
fundamental to the new TLD process,” Broitman said. “I don’t know how it’s
going to move forward, but I thought, at the least, the new TLDs needed to
be rethought. It looks like they’re going to be controlled by a behemoth.
What [VeriSign] gets is to keep the registrar and registry and it’s patently
unfair.”
Broitman also disagrees with Korzeniewski’s assertion that cracking into the
registrar and registry business is as easy as it seems.
“At the very least, they should be giving up the .net registry when the
initial 4 years is up,” Broitman continued, musing about ways that might
make the deal open to competition. “Now they’ve got this monopoly and these
struggling new registries are trying to get into the business and they’ve
still got one company running two registries.
Broitman said new registries have to invest significant resources in
building themselves up to compete.
“ICANN should give them the benefit of new competition,” Broitman said.
“Let’s have more competition, let’s let those flowers bloom.”
Like Broitman, Ellen Rony, co-author of
“The Domain Name Handbook,” agreed that the proposition was not only
shocking in its content, but for the fact that it was so “fully formed” even
before the landmark decision is actually made.
Rony said ICANN seems to be talking through both sides of its mouth because,
she said, though ICANN asserts that “‘it will largely eliminate the vestiges
of special or unique treatment of VeriSign based on its legacy activities,’
in fact the agreement does precisely that.”
Rony said that despite currently owning less than half the market share that
“[VeriSign] still has more than five times as many customers as the next one
based upon relative invoices from ICANN to the registrars,” po
sted here.
“Today’s announced proposed agreement ICANN and VRSN provides a virtual
lock-in for VRSN as the leader in the .COM registration marketplace,” Rony
said. “That arrangement is market manipulation, not technical coordination,
and I hope that our Congress critters will not go down that road.”
As for ramifications in the stock market, analysts are extremely bullish on
the potential the deal could have for VeriSign.
To be sure, while the whole matter is suited for hours of debate, some
analysts see the agreement as a slam dunk.
Jon Feeney, an analyst who covers Verisign for CS First Boston said the
proposed agreement, if implemented, will not affect near-term revenues.
However, he said it does remove uncertainty about Verisign’s ability to
upsell to its retail registrar customers. Incidentally, Feeney gave VeriSign
a “buy” rating.
“The potential spinoff of the DNS registrar represented a key piece of
uncertainty that they announced on Jan. 31 that has been hanging over the
stock directly or indirectly for months now because people know the 2003
deadline is coming,” Feeney told InternetNews Radio Thursday.
“This agreement, if it’s approved, is giving up very little to get a lot to
relieve a lot of uncertainty. It’s not going to affect near-term revenues
but it removes an uncertainty. We believe VeriSign has a unique
infrastructure. The long-term upside is selling these high-margin services
to these customers; if you’re a dot-com you are directly or indirectly doing
business with VeriSign.”
Another potential value-add for VeriSign, would come to pass if it retained
its $6 domain fee for registries as the company believes it will.
Bill Whyman, president of market research firm Precursor Group, told
InternetNews Radio Thursday that if VeriSign does indeed lock in the $6 per
domain fee it receives for each domain
added to the registry, it would pose
another slam dunk.
“If it stays at $6 it’s a gold mine for VeriSign,” Whyman contended.
“Everywhere else throughout technology and communications prices are going
down and if you have fixed prices and volume is going up it’s just a cash
machine.”
Further attenuations of the proposed deal between VeriSign and ICANN
include:
- VeriSign will give up .org addresses for good by December 2002, as well
as create an endowment of $5 million toward future .org addresses It also
pledged to spend $200 million in research over 10 years to improve the
functionality of Internet registries. - VeriSign said it would cede control over .net Web addresses by January
2006; the company can bid on the rights for .nets in the
future. - Furthermore, VeriSign has an unofficial invitation or “presumption” to
continue operating .com suffixes thereafter. - Both ICANN and VeriSign said the changes should not advertently affect
consumers because they will be made within the organizations. - ICANN will officially vote on the agreement by April 1. The deal also
must be approved by the Commerce Department.
InternetNews Radio Host Brian McWilliams contributed to this story.
