07.07.2014 0

OPEC for the Internet

ICANNBy Robert Romano

Think OPEC, but for the Internet.

The Internet Corporation for Assigned Names and Numbers (ICANN) has a global monopoly on domain names worldwide, and is currently a $300 million a year in revenue operation. Right now, its domain name fees are defined and limited by the current contract with the U.S. Commerce Department.

According to Section B.2 of the contract: “The Contractor may establish and collect fees from third parties provided the fee levels are approved by the Contracting Officer and are fair and reasonable. If fees are charged, the Contractor shall base any proposed fee structure on the cost of providing the specific service for which the fee is charged and the resources necessary to monitor the fee driven requirements.”

But, when ICANN is out from under Commerce’s rules, it presumably will be able to charge as much as it wants, and put a few zeroes behind that $300 million. For whoever collects those fees, the only thing better than U.S. government control is absolute control for itself.

When the transition was announced in March, it was met with open arms by the tech industry. According to the National Telecommunications and Information Administration (NTIA), the top, immediate backers of the Internet transfer according to a post by Larry Strickling as of March 19 were: “Cisco commended NTIA for outlining a ‘powerful process for the move towards full privatization and globalization of DNS management.’ Microsoft said it ‘relies on the stability, resilience and security of the DNS system to enable our cloud services – and we are confident that now is the right time to complete this transition.’  Other industry giants like AT&T, Verizon, and Google, similarly issued statements in support of our announcement.”

The other major backers of the transfer include the Internet SocietyICANN itself, the Internet Architecture Board, the Internet Engineering Task Force, the World Wide Web Consortium and the Number Resource Organization. These are private foundations, that have their own boards and backers and sponsors, which are extensive, and donors would include many of the aforementioned firms. These are the multistakeholders, and who they are and the companies they represent tell the story of the Internet giveaway.

gTLDs: The digital real estate of the future

But what do the multistakeholders have to gain from the transfer of IANA functions from NTIA to ICANN?

By the time NTIA announced the transfer of the Internet Assigned Names and Numbers (IANA) functions to ICANN in March, ICANN was already two years into the process of apportioning new generic top level domains (gTLDs) to companies all around the world. The process began in 2012.

The companies that operate gTLDs do not directly profit from the fees that ICANN collects on domain name sales, but from the domain name fees that are currently set by ICANN when it enters into registry agreements with the registry operators. For example, Verisign may collect no more than $7.85 for every .com it sells in its joint agreement with ICANN and Commerce, although Commerce approval is now antiquated. For the new gTLDs, ICANN has sole discretion in setting these fees when entering into the registry agreements with the companies — and once free of Commerce control that will always be true.

Ultimately, the fees that domain name purchasers pay to registry operators, and the fees ICANN collects from those operators for the domain name sales will be at ICANN’s discretion. It’s the global Internet tax we already pay.

Thus, the companies acting as registry operators and their influence at ICANN and the other Internet boards should be examined. Consider ICANN’s plan to expand top-level domains. One can search applications for new gTLD applications at https://gtldresult.icann.org/ .

For example, Amazon wants .book (so does Google). Google wants .docs (so does Microsoft). Right off the bat, it appears that some of the biggest backers at ICANN and the other Internet foundations are the ones poised to gain the prime real estate on the global Internet landscape of the future.

One reason they might have supported ICANN being on its own is because those backers will become an exclusive cartel in dealing that real estate. If you’re one of these companies, ICANN is something down the road you want to control or at least have a lot of influence and pull in.

There are mega bucks to be made here, selling letters of the alphabet. For the companies and ICANN forming the cartel, what emerges is a mutually beneficial relationship.

And since the aforementioned companies already had pending applications in front of ICANN when the transfer of IANA functions was announced, they naturally supported the transition, since billions of dollars in future revenue may depend on favorable rulings from ICANN down the road.

Besides, if the transition is going to happen anyway, it is easy to see why companies who stand to benefit would figure it best to get on the train before it leaves the station.

ICANN forms courts to resolve gTLD disputes, and then the gTLDs go to the highest bidder

When ICANN created the application process for new gTLDs, it needed a means of resolving disputes between applicants, and also for addressing objections raised by the public at large and institutions. To that end, it invited three so-called “Dispute Resolution Service Providers” to adjudicate these claims, as defined in the applicant guidebook: “(a) String Confusion Objections shall be administered by the International Centre for Dispute Resolution; (b) Existing Legal Rights Objections shall be administered by the Arbitration and Mediation Center of the World Intellectual Property Organization; (c) Limited Public Interest Objections shall be administered by the International Centre for Expertise of the International Chamber of Commerce; (d) Community Objections shall be administered by the International Centre for Expertise of the International Chamber of Commerce.”

Of these three courts, the Arbitration and Mediation Center of the World Intellectual Property Organization is based in Geneva, Switzerland and in Singapore, the International Chamber of Commerce is based in Paris, France, and the International Centre for Dispute Resolution is based in New York, New York.

Of the 1,930 gLTD applications that have been filed, only 204 have had objections raised that these tribunals have handled, but that is not the final stage of approval. After objections are heard out, the process moves forward.

So far, as of July 3, 325 of the gTLDs have been delegated (approved), 75 are in transition to delegation, and 682 are in the contracting process prior to transition. 534 are still in contention, and of those, 328 have entered into an auction process. Auctions that are set for unlimited bidding will go to the highest bidder.

To get the unlimited bidding process, an applicant needs $2 million on deposit per gTLD application in auction, creating an extremely high hurdle for entry into the market.

This differs markedly from how cellular phone blocks were apportioned in 1984 and 1986 by the Federal Communications Commission (FCC). Then, many of the blocks were parceled out via lottery, allowing new entrants into the marketplace.

Google: A case study

Of the 1,930 applications that have been filed, 101, or more than 5 percent of them were filed by a single company, a Google, Inc. subsidiary called Charleston Road Registry, Inc.

So far, for Google, the process is going fairly well. 3 gTLDs have already been approved, 18 are in transition to delegation, and 16 are in contracting. Assuming all of those are ultimately approved, that’s a success rate so far of 36.6 percent. However, 59 of their applications are in contention with other bidders, and of those, 42 are in auction. Only 2 have been rejected. 3 were withdrawn.

Along the way, Google had 16 objections raised against it that went before the various tribunals for decisions, and won 15 of the cases. They lost .med over a community objection raised by a French professor, with the Paris-based International Chamber of Commerce finding in favor of the professor.

In one notable case, the U.S. Postal Service (USPS) raised an objection to Google’s application for the .mail gTLD. The court found in Google’s favor.

The tougher battle for Google ahead will be in the auctions. It’s trying to outbid Amazon on .book, and Microsoft on .docs.  Other potentially valuable names it is bidding on include .talk, .show, .lol, .film, .play, .map, .mail, .earth, .movie, and .search.

Overall, with a market cap of nearly $400 billion, one presumes Google can prevail in many or most of its 42 auctions for gTLDs. Such is the current state of the Internet names and numbers system administered by ICANN. The companies with the biggest pocket books will come out the winners and own the prime real estate on the digital landscape of the future.

A monopoly in the making

Thus, ICANN, which already has monopoly power over the domain name system (DNS), is parceling out its unlimited real estate to favored companies, who in return are supporting the organization’s bid for independence from U.S. Commerce Department oversight.

Then, with the monopoly secured, the cartel — both ICANN and the owners of the gTLDs with the most influence at ICANN — will be able to set prices and regulate this industry at will. It’s quite a racket.

Robert Romano is the senior editor of Americans for Limited Government.

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