.com Registry Agreement Renewal: Changes at ICANN and Politics will Affect ICANN-Verisign Negotiations to Renew the.com Registry Agreement

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1 July 7, 2015.com Registry Agreement Renewal: Changes at ICANN and Politics will Affect ICANN-Verisign Negotiations to Renew the.com Registry Agreement Changes Facing VeriSign s Negotiating Partners Creates Uncertainty for 2018 Contract Masters of the.com contract. VeriSign s exclusive agreement with the Internet Corporation for Assigned Names and Numbers (ICANN) to assign.com generic Top-Level Domain (gtld) names (the.com registry agreement ) expires on November 30, Currently, VeriSign has two masters when it comes to the.com contract ICANN and the National Telecommunications and Information Administration (NTIA). ICANN is currently in charge of negotiating the terms of the contract, including price. NTIA is currently in charge of reviewing the contract after VeriSign and ICANN agree to terms, and is also responsible for assuring that the agreement addresses competition issues, Internet stability, and security. VeriSign s relationship with ICANN. ICANN previously has had a cozy relationship with VeriSign resulting in favorable contract terms, even though ICANN is a nonprofit corporation required to serve the general public benefit (i.e., to ensure that its terms maximize internet stability and security). ICANN is under pressure from international policymakers and advocates to increase its accountability. As a result, ICANN s relationship may become more merit-based rather than friendly. VeriSign s relationship with NTIA. NTIA previously took a tougher-than-expected stance on the pricing terms of the.com contract by bringing in the DOJ s antitrust division to conduct an analysis and make a recommendation on pricing terms. While NTIA can be expected to take a tough oversight role even if there is a shift in party control of the White House in 2016, NTIA s oversight role is also somewhat in flux because of the pressure that ICANN is under and because of the international communities discomfort with the US s role in telecommunications infrastructure as a result of spying allegations and revelations. Based on interviews with 1.) A former government official familiar with ICANN; 2.) A think tank Internet policy advisor familiar with ICANN and VeriSign; 3.) A senior Internet and technology policy consultant familiar with the ICANN Transition; and 4.) An attorney knowledgeable about the legislative process, in this article we discuss the potential effects that the ICANN Transition and the 2016 presidential election may have on the.com registry agreement renewal. We also explore how the ICANN Transition could offer insight into the relationship between VeriSign and ICANN before the next.com registry agreement negotiations begin. Next Steps to Watch On July 8 th, the Subcommittee on Communications and Technology of the House Commerce Committee will hold a hearing entitled Internet Governance Progress After ICANN 53. The hearing will feature testimony from NTIA Administrator Larry Strickling and ICANN CEO Fadi Chehade. The next ICANN meeting will be held October in Dublin. At this meeting, ICANN will have the opportunity to give final approval to the transition plan for the Internet Assigned Numbers Authority (IANA) functions before forwarding it to the U.S. government for approval. Of note is that Mr. Chehade announced his planned resignation in May. Chehade will remain with ICANN until March 2016 and will continue working on the transition in the meantime. A new CEO may continue Chehade s 1

2 work on influencing the debate over international Internet governance, or may choose to focus more inwardly on ICANN accountability and governance. We will continue to report on developments as the search continues. A Closer Look at Potential Changes to ICANN U.S. government push for accountability and transparency. ICANN has proposed to make changes to its internal organization before the next.com registry agreement renewal. One of the main drivers of this change is the U.S. government, which is handing off key Internet governance functions to ICANN as part of a process to privatize Internet s Domain Name System, which the U.S. government had planned to do since the 1990s. Separate from the.com registry agreement, ICANN currently performs certain Internet functions (known as Internet Assigned Numbers Authority, or IANA, functions) under a contract with NTIA, a federal government agency. In 2014, NTIA announced it is going to give up its oversight of the IANA functions and transition oversight of ICANN s performance under the IANA functions contract to a multi-stakeholder process (a change known commonly as the ICANN transition ). As a condition to this handoff, the U.S. government, through NTIA, is requiring ICANN to become more transparent and accountable before NTIA gives up the role. ICANN s internal operations and processes must therefore change to make the organization more accountable and transparent to Internet stakeholders. Those new procedures will apply to the process ICANN uses to negotiate and approve VeriSign s next.com registry agreement and will likely serve to 1.) Make ICANN s negotiations with VeriSign more transparent, 2.) Subject the renewed.com registry agreement terms to greater public scrutiny, and 3.) Make ICANN more responsive to parties that advocate for consumer-friendly terms. Those forces could further erode VeriSign s lucrative.com registry agreement pricing, which began in Possible ICANN transparency and accountability mechanisms mirror those of corporate shareholders. ICANN has set up a working group (Cross Community Working Group On Enhancing ICANN Accountability, or CWG) to improve ICANN s transparency and accountability. The draft proposal includes recommendations to give certain representatives of the multi-stakeholder community membership in ICANN, with powers similar to those granted to shareholders in corporations. Members of the multi-stakeholder community who gain membership in ICANN would have the ability to remove individual ICANN board members or recall the entire ICANN board. They would also have the ability to approve, veto or propose changes to the ICANN Bylaws, Mission, Commitments, and Core Values, as well as reject decisions on the strategic plan and budget. An independent review committee, with authority to make binding decisions to resolve disputes, was also recommended. Members could then use the independent review mechanism to appeal a decision on the.com registry agreement if it does not adequately incorporate comments from the public. In a recent blog post, NTIA Administrator Larry Strickling encouraged the working group to examine additional accountability procedures for ICANN management, staff and advisory committees. If these governance changes are adopted, the multi-stakeholder community will have significantly more power over ICANN during the next.com registry agreement negotiation, including parties that advocate for consumer friendly terms. Update on transition planning and implementation from ICANN meeting. ICANN met last month in Buenos Aires to further discuss governance and naming policy issues. The process reached a milestone at the meeting, as the CWG (the ICANN working group responsible for transition planning) produced a final proposal for transitioning 2

3 IANA functions away from the United States. However, it is likely that the transition will be delayed beyond the projected September 30 deadline, as the transition remains a hotly discussed issue at ICANN. ICANN-VeriSign relationship after the ICANN transition may provide window into next.com registry agreement negotiation. For purposes of providing insight into the 2018 renewal of VeriSign s next.com registry agreement, whether ICANN includes VeriSign as part of the post-transition ecosystem offers perhaps the best view into VeriSign and ICANN s relationship before.com registry agreement renewal negotiations start. In addition to the.com registry agreement, and in addition to the ICANN-NTIA IANA functions contract, VeriSign also has a separate contract with the government to implement changes to the IANA functions database. So after the government stops overseeing IANA functions, ICANN has three options: perform VeriSign s root server duties under that contract itself, continue using VeriSign to perform the root server services, or retain a third party to perform VeriSign s current root server duties. If ICANN includes VeriSign in the IANA functions process after the ICANN Transition (i.e., after the government no longer polices IANA functions), that would signal a good working relationship and the ability for ICANN and VeriSign to negotiate a win-win agreement. Such a relationship would be a continuation of the close relationship that resulted in the 2012.com agreement, where ICANN and VeriSign reached mutually beneficial.com agreement terms well before the deadline to submit the agreement to the government (although the price term was later upended by the U.S. government). Alternatively, if ICANN excludes VeriSign from the IANA functions after the ICANN Transition, it may signal ICANN s reduced enthusiasm about its relationship with VeriSign and increased sensitivity to multi-stakeholder oversight of ICANN s relationship with VeriSign. Pending legislation would require more ICANN accountability and transparency before NTIA gives up oversight of ICANN s IANA functions contract; appropriations conflict likely to be resolved. Due to national security concerns, the U.S. Congress wanted to assure more ICANN accountability before the U.S. gives up its oversight over the IANA functions. The House passed proposed legislation on June 23 called the Domain Openness Through Continued Oversight Matters Act of 2015, or DOTCOM Act. The DOTCOM Act would accomplish the same transparency and accountability goals that NTIA is recommending for ICANN, with the added condition of Congressional approval of the transition plan. The Senate introduced a similar bill on June 11, and it was marked up and passed without significant change by the Committee on Commerce, Science and Transportation, on June 25. The bill is widely reported to have bipartisan and industry support. Even if the bill does not become law, however, our Internet consultant source said it reflects the Congressional view that the U.S. should not give up oversight of ICANN until ICANN has policies and procedures that make it more accountable and transparent. In a different piece of legislation, the House version of NTIA s appropriations bill contained language that prohibits NTIA from spending any money to work on the ICANN Transition. The House passed that bill on June 3 and referred it to the Senate. The Senate amended the bill to delete the prohibition. The bill is on the Senate calendar waiting for approval. After the Senate acts, the House and Senate will conference to resolve any differences between the two versions of the bill. Since the DOTCOM Act already reflects the House Energy and Commerce Committee members compromise on the ICANN Transition that would allow the transition to move forward, it is likely that the Conference Committee will adopt the Senate version and both chambers will pass the final bill. In the unlikely event that the conference 3

4 version includes the prohibition, NTIA will not be able to work on the ICANN Transition until Congress can pass an appropriations bill free of the funding prohibition. A Closer Look at Potential Changes to NTIA Oversight of ICANN Changes at NTIA will bring new staff and political outlook to process and terms. Two different forces will influence NTIA s ultimate role, and how tough it plays that role, in the.com registry agreement renewal. NTIA coordinated with DOJ to perform a tough review of contract terms at the previous renewal; while a new set of political appointees will be at the head of NTIA after the 2016 election, it is likely the agency will take this approach again so long as it keeps its oversight role. The second force is the political and legal pressure on NTIA to relinquish oversight of the.com registry agreement, the same way it is working on relinquishing control over the IANA functions contract. In the past, NTIA, through its oversight role, was the biggest obstacle to VeriSign retaining lucrative pricing terms in the.com registry agreement. If the next administration is unready to continue transitioning Internet governance to the international community by transitioning.com contract oversight as it did with the IANA functions, NTIA will continue to play this role. If the next administration thinks oversight of the.com registry agreement should be turned over to the international community, NTIA may give up oversight of the.com registry agreement completely. Background: the current administration played an active role in reducing prices in the.com registry agreement in In 2012, ICANN and VeriSign agreed to a six-year contract with four automatic price increases. When the U.S. government reviewed the agreement during the previous renewal negotiations, at the last minute DOJ removed the automatic price increases and inserted a requirement that VeriSign justify and get prior approval for any price increases. The Capitol Forum spoke with a former government official, who said that DOJ s Antitrust Division is the expert on pricing in exclusive contract situations. The source thought that as long as NTIA continues to review the.com registry agreement, it would be very likely to get DOJ s opinion before approving it. The source thought that such input would occur regardless of which party wins the 2016 election because DOJ approval gives NTIA political cover when they testify before Congress. A source who is an internet policy consultant said that if the introduction of new top level domain names make the market more competitive, the new administration may be less willing to actively change the pricing term of the.com registry agreement. A key dynamic to track before the 2018 renewal will thus be to what extent the introduction of those new domain names has impacted top-level domain name prices. Elimination of U.S. government oversight of the.com contract possible; may draw private antitrust enforcement. In 2014, the Obama Administration announced that it was giving up oversight of ICANN s IANA functions contract. The purpose of the ICANN Transition to the multi-stakeholder process discussed above is to reduce U.S. oversight over the Internet. Our former government official source pointed out that if NTIA no longer exercises oversight over ICANN s IANA functions contract, it would be inconsistent for NTIA to retain authority to approve the.com registry agreement. An Internet consultant source confirmed that NTIA could recommend that it relinquish oversight of the.com agreement, much like the Obama Administration did with the IANA functions in Our former government official source noted that, to date, U.S. government approval of the.com registry agreement has provided a defense to claims of antitrust law violations, and if the U.S. government gave up review of the.com registry agreement, private parties could raise antitrust claims against ICANN and VeriSign that were not previously available. 4

5 Outlook: Stakeholders Likely to Underestimate Increased Risk to VeriSign s Contract Pricing in Renewal Reasons for Less Favorable Price Most Compelling Narrative VeriSign faces increased risk to the generally favorable pricing it gained in 2012: transparency and a voice for public interest advocates will make the negotiation with ICANN more difficult, in contrast with the close relationship the parties shared previously. This is in addition to DOJ and NTIA s antitrust review, which will likely take place barring a major shift in Internet policy by the next administration. Reasons for Same or More Favorable Price Most Compelling Narrative VeriSign will face largely the same process and players that it did when it obtained favorable pricing in Changes in government oversight of internet governance coupled with increased competition in the domain name market may result in a more lax U.S. antitrust review, or none at all. Analysis of Legal and Market Factors -ICANN is likely to have sufficient time to approve and implement its governance reforms, and the multi-stakeholder process will make contract negotiations tougher. -Despite the availability of new top-level domains,.com will remain the best known and most prestigious, resulting in the same antitrust scrutiny from the U.S. government as in Political and Other Factors -Pressure from the international business community has swayed Republicans who want to remain business-friendly, and Congress will support NTIA in implementing the ICANN transition. Analysis of Legal and Market Factors -Given the slow and contested nature of the ICANN decision-making progress, ICANN process reforms may not be fully implemented by the time of contract renewal. -With many more top-level domains coming online by 2018, DOJ and NTIA may have concluded that the market for domain names is competitive, which would cause them to allow the more favorable pricing that the agencies blocked in the 2012 renewal. Political and Other Factors -Support from Congress is not guaranteed, and lawmakers had included a measure prohibiting NTIA from implementing the ICANN transition until this year. If security concerns or other functions change the sentiment of Republicans in Congress, lawmakers could use the budget to impede the transition again. 5