The Relief Report ®


A newsletter covering regulatory reform efforts in Washington and across America, published by The National Center for Public Policy Research

501 Capitol Court, N.E.
Washington, D.C. 20002
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Issue #90 * February 2, 2001 * David A. Ridenour, Editor

SPECIAL INTERNET ISSUE

Contents:

Congressional Intervention in the Internet Domain Name Process Could Threaten Independence of the Internet

 

Congressional Intervention in the Internet Domain Name Process Could Threaten Independence of the Internet

Congress is being pressured by a handful of companies to intervene in the process that determines new
Internet domain names. Such a move would threaten the integrity of the Internet by opening it up to
government intervention and regulation. The process to introduce new Internet domain names was carefully
planned and executed over a two-year period, in which the public and Internet experts were permitted to
comment and provide guidance. The introduction of new domain names was to be done in a measured and
responsible manner with only a limited number of new domain names being permitted at first. Any action on
the part of Congress at the present time would undermine this procedure.

The Internet Corporation for Assigned Names and Numbers (ICANN) is a non-profit, private corporation,
responsible for coordinating Domain Name System functions for the benefit of the Internet. One of its core
tasks is to oversee policy for determining the circumstances under which new top-level domains (TLDs) are
added to the root system.

Since before ICANN's inception, the Internet communities involved in ICANN had seriously considered the
possibility of introducing new generic TLDs into the Internet's Domain Name System (DNS). This is because
a single provider, Network Solutions Inc., has for years enjoyed a government-granted monopoly over new
domain name registrations and renewals.

The National Science Foundation originally was responsible for the registration of nonmilitary domain names.
In 1993, an agreement was entered into whereby Network Solutions Inc. became the sole Internet domain
name registry, registering the only generic TLDs such as .com, .net and .org.

Registration fees were imposed in 1995. With them came criticism of Network Solutions Inc.'s monopoly
position as sole registry of the generic TLDs. An International Ad Hoc Committee proposed that seven new
generic TLDs be created. The federal government assessed the proposal and the Department of Commerce
released a paper calling for a private, non-profit corporation to manage the Domain Name System and Internet
Protocol addresses. One of the government's stated goals for privatizing the Internet was to introduce
competition to the domain name market space while maintaining stability of the Internet.

As a response to the Department of Commerce's proposal, ICANN was created to administer and manage the
DNS functions. In addition, multiple registrars were permitted to provide registration services within the .com,
.net and .org generic TLDs. Network Solutions Inc., however, remained the only registry of those TLDs.

On July 16, 2000, ICANN's Board of Directors announced a policy for the introduction of new Internet
top-level domains. The policy called for submission of proposals to sponsor or operate new TLDs by
interested persons and organizations during the period from September 5, 2000 to October 2, 2000. To apply
to sponsor or operate a TLD, applicants would have to submit a detailed, multi-part proposal accompanied by
extensive supporting documentation. In addition, the proposal would have to be based on a thoroughly
formulated plan for the establishment and viable long-term operation of the TLD. The application would have
to clearly describe the plan, show that the necessary resources have been arranged to implement the plan and
demonstrate that the proposal would be superior to others in promoting the goals of the new-TLD policy. In
addition, each applicant would be required to pay a $50,000 application fee. After a period for public comment,
the applications would then be evaluated by a team consisting of ICANN staff and technical,
business/financial, and legal advisors. The Board of Directors would choose a handful of the best applications
for negotiations between ICANN and the TLD sponsors and operators.

On September 5, 2000, the application process that previously had been laid out by the ICANN Board of
Directors began. A total of 47 applications were submitted to ICANN - two of those applications were
returned to the applicants for failure to pay the application fee, and one was withdrawn by the applicant
because the applicant and the ICANN staff were unable to reach agreement on the applicant's request for
confidential treatment of its application. On November 16, 2000, after public comment and staff evaluation, the
Board of Directors announced its selection of seven new top-level domains: .aero, .biz, .coop, .info, .museum,
.name and .pro. Due to the fact that ICANN is government-backed and its activities are overseen by the
Department of Commerce, the new TLD selections are subject to final approval by the Commerce Department.
It is likely, however, that at least some of the newly selected TLDs could become operational during the second
half of 2001.

Eight unsuccessful applicants for TLDs applied for a second review of their application under ICANN's
reconsideration policy. Although all of these applicants sought for ICANN to reconsider its decision in regard
to their specific proposal, only two of these applicants requested a stay of ICANN's decisions. Thus, the
majority of applicants who requested reconsideration did not seek to have ICANN forbid the successful
applicants from going forward with the process.

Since ICANN arrived at its decision in November, Congress has been pressured by a handful of companies to
intervene in the process which determined the new TLDs. This pressure has included a couple of the
unsuccessful applicants lobbying Members of Congress for hearings into whether ICANN's process was fair.
Both the House Committee on Energy and Commerce and the House Judiciary Committee have announced
that they will hold hearings in February on ICANN's decision to adopt just seven out of 44 final proposals for
new top-level domains. House Energy and Commerce Committee Chairman W.J. "Billy" Tauzin (R-LA) has
stated that the Committee wants to ensure that the process is open, fair and fosters competition.

It is clear beyond reproach that the ICANN process was open, well-reasoned and fair. The policy for choosing
new TLDs was deliberated for over two years with numerous chances for comment and public participation.
Because there was no recent experience in introducing new TLDs, ICANN's Board of Directors decided that a
limited number of new TLDs would be introduced initially and that the future introduction of additional TLDs
be done only after careful evaluation of the initial introduction. In fact, in the ICANN New TLD Application
Instructions, applicants were specifically notified that ICANN's intention was to only permit a limited number
of TLDs to be established in this round of applications, and that it was likely only applications with very high
qualifications would be accepted.

Applicants were given ample opportunity to address concerns and given guidelines to prepare effective
proposals. Prior to applications being accepted, ICANN published a list of criteria that it would utilize in
assessing the TLD applications. The factors included: 1) the need to maintain the Internet's stability; 2) the
extent to which selection of the proposal would lead to an effective "proof of concept" concerning the
introduction of TLDs in the future; 3) the enhancement of competition for registration services; 4) the
enhancement of the utility of the domain name system; 5) the extent to which the proposal would meet
previously unmet types of needs; 6) the extent to which the proposal would enhance the diversity of the DNS
and of registration services generally; 7) the evaluation of delegation of policy-formulation functions for
special-purpose TLDs to appropriate organizations; 8) the appropriate protections of rights of others in
connection with the operation of the TLD and 9) the completeness of the proposals submitted and the extent to
which they demonstrate realistic business, financial, technical and operations plans and sound analysis of
market needs.

The seven TLDs selected by ICANN met the above-mentioned criteria. Each of the chosen applicants had the
requisite stability, financial backing and technical know-how to operate and manage the new TLDs.

The complaining entities that were not awarded a TLD by ICANN argue that the goals of increasing
competition and diversity in the Domain Name System were not met because small companies were not given
the chance to operate a new TLD registry. This is false.

ICANN's awards of new TLDs to certain registries do not preclude other companies and organizations from
becoming registries in the future. The recent addition of the seven new
TLDs was designed to provide a solid "proof of concept" test-bed for the development of new TLDs
generally.

ICANN chose solid players with demonstrated experience, financial resources and technical capabilities to
ensure that the first addition of new generic TLDs to the Internet would be successful. The stability of the
Internet is the first priority of ICANN and the rest of the Internet community. The success of this first group
of new generic TLDs is critical if the development process is to continue. If a registry operator proves unable
to live up to its obligations, any person or entity that has registered a name with that operator will be harmed
when the operator shuts down the registry. Therefore, ICANN is going through a slow and deliberate
procedure now (rather than approving all 47 applications) so that more generic TLDs can be introduced in the
future and applicants that were not selected by ICANN at this early stage will have the opportunity to become
registries later.

The Internet is an international medium for commerce, education and communication. Because of its growing
importance in our society, there has been a widespread dissatisfaction over the lack of competition in the
registration of domain names. To jump-start a thriving competitive Internet marketplace, the U.S. government
decided years ago to transfer a large portion of the Internet's management to the private sector. The addition of
new TLDs is just the next step in creating a decentralized system.

If the new TLD awards are delayed, it will prolong Network Solutions Inc.'s monopoly position as registry of
the only generic TLDs. The demand for domain names will continue to soar while the supply of domain
names will decrease, leaving consumers with no recourse if the registrars and registries increase their prices.
The pressure of competition is the most effective means of discouraging registries from acting
monopolistically.

If the awards are stayed, the prices paid by the registrars, and ultimately the consumers, remain fixed.
Consumers pay the registrars a certain amount of money to register domain names. The registrars then pay the
registry (here, Network Solutions Inc.) $6.00 per domain name per year. Registrars compete in their
packaging and, to a lesser extent, in their pricing; however, the price paid to Network Solutions Inc. for generic
TLDs is set because there are no other registries with whom Network Solutions Inc. competes. Demand for
new domain names is great, and the sooner the new generic TLDs and their corresponding registries are in
operation, the sooner the prices paid to the registries can be subject to competitive effects.

Also, with no competition, there is nothing to promote innovation in the regulation of domain names and
registrars and consumers have no user-choice in registries. Because there is currently no competition in the
Internet registry market, Network Solutions Inc. is not motivated to create more efficient ways to register
domain names. The process becomes stagnant and the consumer is hurt in the long run.

While a Congressional oversight hearing of ICANN's process is, of course, acceptable, any true intervention
by Congress or any attempt to legislate in this area would be objectionable. Government interference in the
Internet domain name process threatens the integrity of the Internet by opening it up to intervention and
regulation. The thought has always been, and should remain, that Congressional assurances of no Internet
regulation will help promote the development and deployment of advanced telecommunication services
nationwide.

The U.S. government's role should be limited during the period of adding new generic TLDs. The federal
government decided years ago to privatize the Internet and it should not withdraw from that decision now.

Government intervention in a nascent industry stalls innovation and minimizes individual freedoms. It would
be a giant step backward if the federal government became involved at this stage of the process. It is clear from
the government's documents, including its 1998 White Paper, and the comments thereto, that it believed the
Internet should be driven by market mechanisms that support competition and consumer choice. An Internet
managed in the private-sector will lower costs, promote innovation, encourage diversity and enhance user
choice and satisfaction. Government intervention now would send the Internet's development back three years
(to before ICANN was created) and would erase the work already completed to create a competitive
environment for its use.

The government should step back and allow the registries of the new TLDs to begin operation. Once the first
seven registries prove successful, ICANN will issue more generic TLDs to more applicants. This slow and
deliberate process will create a competitive atmosphere while maintaining the stability of the Internet.

by Amy Ridenour



Editorial correspondence to The Relief Report should be directed to: The National Center for Public Policy Research * 501 Capitol Court, N.E. * Washington, D.C. 20002 * (202) 543-4110 * Fax (202) 543-5975 * E-mail [email protected] * Web http://www.nationalcenter.org. Copyright 2001, The National Center for Public Policy Research. Coverage of meetings, activities or statements in the Relief Report does not imply endorsement by The National Center for Public Policy Research. Reprints of material in the Relief Report permitted provided source is credited. To receive all National Center newsletters free by e-mail, visit http://www.nationalcenter.org or send an e-mail to: mailing [email protected].


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