.COM Contract Amendment Coming Soon
VeriSign CEO indicates “ICANN process” is moving forward; expect public comment period soon.
Last Thursday, during VeriSign's Q3 2019 quarterly earnings call, CEO Jim Bidzos offered statements that seemed to be carefully calibrated to satisfy Wall Street's curiosity about protracted negotiations with ICANN on a Third Amendment to the .com Registry Agreement while also appearing to distance the company from the soon-to-be forthcoming product of that year-long effort.
As I've written previously, this Third Amendment is necessary because of the First Amendment to the .com Registry Agreement which extends the current agreement's term, including the wholesale registration price cap, until 2024 — a circumstance made inconvenient late last year when the National Telecommunications and Information Administration (NTIA) amended its Cooperative Agreement with VeriSign to remove the 2012 price restriction and granting pre-approval, beginning in 2020, for increases that don't exceed 7% annually in four out of every six years of a .com Registry Agreement term.
Some industry bloggers, such as DomainNameWire's Andrew Alleman and DomainIncite's Kevin Murphy, seemed to hint recently that this Third Amendment may not be the clean pass-through of price increases that VeriSign likely prefers — a possibility that I raised earlier when I suggested that ICANN will replicate the very lucrative innovation that is already incorporated into the .NET registry agreement. In that case, they invented a "special development fund" to which VeriSign annually remits $0.75 for every .NET registration — in addition to the $0.25 per domain name registration that it and every other registry operator already contributes to ICANN's budget. These funds are deposited into ICANN's general treasury, where they are neither sequestered nor audited or otherwise accounted for.
This breakthrough innovation has, so far, generated nearly $200 million in additional and unaccountable slush funds for ICANN's general treasury with no muss, no fuss, and, indeed, nary a peep from the much-vaunted stakeholder community that's been saddled with accountability backstop duty since the U.S. Government's Obama-era abandonment of its historical role as guarantor of the Internet's root.
There is, of course, nothing to stop ICANN from merely reusing what has previously proven to be a successful method of levying tolls that generate increased revenue. After all, the precedent exists, and ICANN has demonstrated time and again that it is remarkably impervious to stakeholder outcry and community attempts at accountability seem to roll off of ICANN just like water from a duck's back.
But, like as not, it's quite possible that ICANN has been hard at work pursuing its own kind of permissionless innovation that pushes the envelope in the name of progress.
What might that look like?
Well, the simplest way to innovate here is to make the tolls "automagically" progressive — meaning that every time VeriSign gives itself a raise, then ICANN also shares in the good fortune. What seems most probable, if this path was taken, would be to determine the toll amount — let's say $0.15 per .com registration per year (this leaves VeriSign $0.40 of its next price increase which, between monopolists, probably seems grudgingly "fair") — and to peg an additional $0.15 to every price increase that VeriSign takes. This way, ICANN's share of recurring toll revenues grows in concert with the profit margin of its largest ratepayer and fellow monopolist collaborator.
This would equate to around $20 million of increased revenue in conjunction with Price Increase #1, another $20 million for Price Increase #2, and so on, so that by 2024, assuming that VeriSign takes all of its allowable price increases (which past behavior suggests that they will), then ICANN will be making an additional $80 million more in revenue — per year — than they are today.
The other virtue of this approach is that, because VeriSign always takes its price increases, ICANN would essentially be able to forecast out its revenue increasing $20 million per year in four out of every six years in perpetuity. This is a staggering sum of inefficiently allocated resources — excuse me, revenue — and it doesn't even account for the massive borrowing power that comes with this type of consistent and predictable revenue growth.
During last week's earnings call, VeriSign's CEO went out of his way to stress that the contract negotiation is an ICANN process and otherwise distanced the company to the point that one could be forgiven for concluding that VeriSign was merely a passive observer to the negotiation for the contract from which more than 90% of its revenue is derived.
But this isn't exactly true when two parties are negotiating a contract, is it? Rather, that's a point that is stressed by a party that has been outmaneuvered by the other and wants to signal to investors and posterity that they did not accede to the terms in the agreement gladly, but that the deal isn't so bad as to necessitate rejecting it.
As the saying goes, success has a million parents, but failure is an orphan. Regardless, it seems laughable that ICANN wouldn't have taken this opportunity to secure its financial future by ensuring that VeriSign's rising tide raises, if not all, then at least ICANN's ship. The question is whether ICANN focused on pecuniary self-interest or whether it also secured public interest concessions — like intellectual property rights protection mechanisms and anti-abuse provisions — similarly as it recently did with .ORG in exchange for agreeing to greater pricing flexibility for the registry operator.
There are likely to be more developments during or shortly after next week's ICANN meeting in Montreal. Stay tuned.
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