    [Senate Hearing 107-1120]
    [From the U.S. Government Publishing Office]

                                                           S. Hrg. 107-1120

                                ICANN GOVERNANCE

    =======================================================================

                                    HEARING

                                   before the

                 SUBCOMMITTEE ON SCIENCE, TECHNOLOGY, AND SPACE

                                     OF THE

                             COMMITTEE ON COMMERCE,
                          SCIENCE, AND TRANSPORTATION
                              UNITED STATES SENATE

                          ONE HUNDRED SEVENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 JUNE 12, 2002

                                   __________

        Printed for the use of the Committee on Commerce, Science, and
                                 Transportation

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           SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                          ONE HUNDRED SEVENTH CONGRESS

                                 SECOND SESSION

                  ERNEST F. HOLLINGS, South Carolina, Chairman
    DANIEL K. INOUYE, Hawaii             JOHN McCAIN, Arizona
    JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska
        Virginia                         CONRAD BURNS, Montana
    JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
    JOHN B. BREAUX, Louisiana            KAY BAILEY HUTCHISON, Texas
    BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
    RON WYDEN, Oregon                    SAM BROWNBACK, Kansas
    MAX CLELAND, Georgia                 GORDON SMITH, Oregon
    BARBARA BOXER, California            PETER G. FITZGERALD, Illinois
    JOHN EDWARDS, North Carolina         JOHN ENSIGN, Nevada
    JEAN CARNAHAN, Missouri              GEORGE ALLEN, Virginia
    BILL NELSON, Florida
                   Kevin D. Kayes, Democratic Staff Director
                      Moses Boyd, Democratic Chief Counsel
          Jeanne Bumpus, Republican Staff Director and General Counsel
                                     ------

                 Subcommittee on Science, Technology, and Space

                          RON WYDEN, Oregon, Chairman
    JOHN D. ROCKEFELLER IV, West         GEORGE ALLEN, Virginia
        Virginia                         TED STEVENS, Alaska
    JOHN F. KERRY, Massachusetts         CONRAD BURNS, Montana
    BYRON L. DORGAN, North Dakota        TRENT LOTT, Mississippi
    MAX CLELAND, Georgia                 KAY BAILEY HUTCHISON, Texas
    JOHN EDWARDS, North Carolina         SAM BROWNBACK, Kansas
    JEAN CARNAHAN, Missouri              PETER G. FITZGERALD, Illinois
    BILL NELSON, Florida

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held June 12, 2002.......................................     1
    Statement of Senator Allen.......................................     2
    Statement of Senator Burns.......................................     3
    Statement of Senator Wyden.......................................     1

                                   Witnesses

    Auerbach, Karl, Member, ICANN Board of Directors.................    70
        Prepared statement...........................................    71
    Cochetti, Roger J., Senior Vice President, Policy and Chief
      Policy Officer, VeriSign, Inc..................................    51
        Prepared statement...........................................    54
    Davidson, Alan B., Associate Director, Center for Democracy and
      Technology.....................................................    60
        Prepared statement...........................................    62
    Guerrero, Peter, Director, Physical Infrastructure Group, General
      Accounting Office..............................................    11
        Prepared statement...........................................    13
    Lynn, M. Stuart, President, Internet Corporation for Assigned
      Names and Numbers..............................................    26
        Prepared statement...........................................    28
    Powell, Cameron, Vice President and General Counsel, SnapNames...    41
        Prepared statement...........................................    43
    Victory, Hon. Nancy J., Assistant Secretary for Communications
      and Information, Department of Commerce........................     5
        Prepared statement...........................................     7

                                    Appendix

    Auerbach, Karl, Member, ICANN Board of Directors, Supplementary
      Statement......................................................    87
    Solares, Sigmund J., CEO, Intercosmos Media Group, Inc., letter
      dated June 13, 2002, to Hon. John B. Breaux....................    85
    The Markle Foundation, prepared statement........................    85
    Wallis, Ben, Coordinator, Trans Atlantic Consumer Dialogue,
      letter dated April 29, 2002, to Members of the Committee.......    88

                                ICANN GOVERNANCE

                                  ----------

                            WEDNESDAY, JUNE 12, 2002

                                           U.S. Senate,
                Subcommittee on Science, Technology, and Space,
             Committee on Commerce, Science and Transportation,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 2:30 p.m. in
    room SR-253, Russell Senate Office Building, Hon. Ron Wyden,
    Chairman of the Subcommittee, presiding.

                 OPENING STATEMENT OF HON. RON WYDEN,
                        U.S. SENATOR FROM OREGON

        Senator Wyden. The Committee will come to order. Over the
    last year the Subcommittee on Science, Technology, and Space
    has focused on a number of important issues relating to the
    Internet. In particular, we have focused on questions of cyber
    security in the context of e-commerce, especially as it relates
    to terrorist threats.
        In fact, just recently the full Committee reported out
    several bills that this Subcommittee zeroed in on: In
    particular, the Net Guard legislation which will mobilize for
    the first time leaders in science and technology to deal with
    the threats that the country faces in the terrorist area and
    also the Cyber Security Research and Development Act, both of
    these bills.
        I particularly want to commend Senator Allen. He and I have
    worked on a bipartisan basis on each of these important bills.
    And I thank him for his efforts and particularly, the focus to
    try to address technology in a bipartisan way.
        Today we are going to take on a different challenge and
    that is to examine issues relating to ICANN, the Internet
    Corporation for Assigned Names and Numbers. It is the non-
    profit corporation that manages the system of Internet domain
    names and addresses.
        Suffice it to say, ICANN is not exactly a household word in
    this country. It would be fair to say most Americans know
    little about what ICANN is or what it does. But virtually all
    Americans want an Internet that functions smoothly, uses easy
    to remember addresses, and enables users to consistently and
    reliably find the websites they need.
        We also want a fair and reasonably priced system for
    registering Internet addresses. In short, management of the
    domain name system may be a technical subject but is crucially
    important to the continued success of the Internet. The
    question of how best to perform this important function is
    still unsolved. The Internet has become such a daily fact of
    life, it is easy to forget just how new it is. It was not that
    long ago that the Internet's addressing system was managed
    largely by a single individual and key decisions could be made
    on a consensus basis by a small handful of interested parties.
        As the Net transcends its academic roots--communications
    both in the United States and worldwide, management of the
    domain name system has become--ICANN, began in 1998, was then
    something of an experiment. And as the recent state of ICANN
    reform proposals suggest, there is a widespread feeling that
    changes are needed.
        I am anxious to hear the views of today's witnesses. But a
    few matters do seem clear. First, I have the view that ICANN
    needs a more clearly defined mission. Second, it is going to
    have to have sufficient resources to carry out that mission.
    Third, it's going to have to have an organizational structure
    that ensures input from a wide range of forces. And finally, it
    has to have processes--fair ones, so as to earn trust and
    confidence for all in the internet community.
        We thank our witnesses. I also especially want to thank
    Senator Burns who has had a continuing concern and interest in
    this issue. He is, of course, one of the most knowledgeable
    voices in Congress on technology and the Internet. We are very
    glad that he is here today.
        I think, given the fact that there is a vote on the floor,
    what we ought to do is recognize first Senator Allen, the
    ranking minority member and then Senator Burns. And I think
    after the opening statements, we will take a quick break. We'll
    have the vote and then proceed with our witnesses' statements
    at that time.
        So, we are happy to have Senator Allen here and we'll
    proceed with your statement.

                    STATEMENT OF HON. GEORGE ALLEN,
                       U.S. SENATOR FROM VIRGINIA

        Senator Allen. Thank you, Mr. Chairman, thanks for your
    leadership and I appreciate our witnesses being here today. I
    will try to abbreviate my statement because I am, once again,
    in agreement with you. I've actually said to some of my fellow
    Republican colleagues that Senator Wyden and I, on areas of
    common interests and shared goals, have worked very well
    together. I appreciate very much your leadership on a variety
    of issues that have to deal with technology and security and as
    things transpire more and more, it seems like we will continue
    to work together--so that's good. That's good for our country.
        Let me just make a few opening remarks on this subject,
    because hearings are to listen and maybe ask some questions to
    determine where we are.
        Obviously, the explosive growth of the Internet, both in
    terms of use and functionality, has permanently embedded its
    application into our way of life, into our consumer way of
    life, as well as our business part of our society. The Internet
    and the dot.com--there is no doubt of our economy's reliance
    and in other respects, its dependency on this medium.
        The Internet has substantially increased, it will continue
    to increase in this country and as more and more countries have
    the ability to access the internet by wire or by wireless
    methods or by satellites, it will become even more important to
    us domestically and internationally. Now, the actual operation
    of the Internet is often taken for granted. It's just one of
    those wonderments. Most people don't pay regular attention to
    it. They click around and it works.
        It is still a very complex technical matter that is built
    upon the protocol, a very important protocol of addresses,
    domain names, and root servers, which are absolutely essential
    to the Internet's successful operation. ICANN is another
    important component to the Internet's successful collaboration.
    It's a private, non-profit corporation responsible for
    coordinating and managing the day-to-day technical functions of
    the Internet.
        I think most of us can agree that ICANN has made successful
    progress at increasing competition in the generic top-level
    domain name logic market. Now, there are some concerns about
    the mission, as were expressed by Chairman Wyden. And some
    progress was made since 1998.
        There has been concerns expressed to me and maybe they will
    be developed and addressed during this hearing this afternoon.
    As a private corporation ICANN is attempting to become the
    Internet's governing body or global regulator. There have been
    concerns expressed about how the selection process of those
    formed in the new generic top-level domains as far as the--
    well, I'm not going to get into all of the details. But,
    nevertheless, there are concerns about the country code top-
    level domains and that some are in and some are out. And that
    has to get negotiated because some become at a competitive
    disadvantage or unlevel playing field if some are in agreement
    with ICANN and some are compelled to be in, but others are not.
        There is also a concern that I hope our panel will address
    about ICANN's increased role as operator of two registries, the
    .arpa and .int, as well as one of the Internet's 13 root
    servers. That should be addressed. I think it will come up
    during this hearing.
        I do want to say this, I understand that the president of
    ICANN will be on the first panel and will discuss proposed
    plans to reform their board Trustees, and standing committees.
    One of the purposes of this hearing is to find out how these
    reform plans will affect ICANN's mission--what that mission
    will be in the future--and last, the overall management of the
    Internet.
        I have some other views, but I know we have to vote and I
    also want to hear from Senator Burns. Thank you, Mr. Chairman.
        Senator Wyden. OK. Senator Burns.

                    STATEMENT OF HON. CONRAD BURNS,
                       U.S. SENATOR FROM MONTANA

        Senator Burns. Well, thank you Mr. Chairman. I want to
    thank you and the full Committee chairman for honoring my
    request to hold this hearing today. Again, we have worked on--
    technology doesn't know politics. It is in its development and
    we have all taken an approach to that and it has been very good
    for me for the issue at hand.
        Congress does have a critical oversight role to play in
    these issues of Internet infrastructure and governance. The
    Internet has become so important to our Nation's well-being
    that we in Congress need to become better informed about its
    operations. It is particularly true in domains such as name
    systems, which is highly technical in nature.
        The critical issue which concerns us at this Committee is
    the deregulation of control over domain name systems from the
    Department of Commerce to ICANN. The formation of ICANN
    originated with so-called Green and White Papers under the
    Clinton administration back in 1998. It proposed the
    privatization of the domain name system. White Paper called for
    the creation of a ``new not-for-profit corporation formed by
    the private sector of Internet stakeholders to administer
    policy for Internet Name and Address System,'' and declared
    that the U.S. Government ``should end its role in the Internet
    Number and Name Address System.''
        Soon thereafter, ICANN was created and the Commerce
    Department began to delegate certain functions of the Internet
    Domain Name system to it. The eyes of many critics, and this
    delegation of authority have happened far too swift. ICANN is
    supposed to function by a consensus of the Internet community,
    its operations have all be controversial and they have been
    shrouded in mystery.
        Nearly a year and a half ago, when I convened a hearing on
    ICANN governance in my former role as Chairman of the
    Communications Subcommittee, we heard from numerous witnesses
    about serious and troubling concerns about the very legitimacy
    of ICANN. However, many of these criticisms were tempered with
    the qualification that ICANN was still an experiment. We are
    now nearly 4 years into the experiment, however, we must make
    some hard judgments right now on where we stand.
        After last year's hearing, given my numerous concerns about
    ICANN, I requested a comprehensive GAO report on the
    organization's legitimacy and also on its performance. I was
    particularly troubled that while ICANN was initially created to
    address purely technical concerns associated with maintaining
    the domain name system, it had transformed into a policymaking
    body. However, it had no due process requirements placed on
    agencies given policymaking power.
        After examining the GAO's testimony, I'm convinced--ICANN
    is an experiment that has to succeed. And if it is to succeed,
    serious structural reform must be undertaken. To accomplish
    this aim, I am seriously considering legislation that will
    condition the extension of the Memorandum of Understanding
    between the Department of Commerce and ICANN on reform efforts.
    For ICANN to function effectively in the future, it must narrow
    its mission to administrative, rather than regulatory matters
    and implement transparency and new policies in its operations.
    The status quo simply is not acceptable. Nor is it sustainable.
    Simply put, ICANN was never meant to be a super national
    regulatory body.
        Now, the issues are complicated, but the stakes are high.
    We tune in and click in to the Internet and it works. We want
    to make sure it continues to do that around the world.
        Thank you, Mr. Chairman. And let's go vote and save the
    nation.
        [Laughter.]
        [Recess.]
        Senator Wyden. The hearing will come to order and our
    apologies to our witnesses and our guests. The first panel will
    be the Honorable Nancy Victory, the Assistant Secretary of
    Commerce for Communications and Information; Peter Guerrero,
    Director of the Physical Infrastructure Group, the General
    Accounting Office; and Mr. Stuart Lynn, President of ICANN. So,
    welcome.
        We would like to ask each of you to make your prepared
    remarks in 5 minutes. We have a long hearing ahead of us and a
    hectic afternoon. We are going to make your prepared statements
    a part of the hearing record in there entirety. I know that
    there is almost a biological compulsion to just read every
    single word that is on the paper in front of you.
        [Laughter.]
        It will be made a formal part of the record and if you
    will, stick to 5 minutes. Let's begin with you, Ms. Victory.

             STATEMENT OF HON. NANCY J. VICTORY, ASSISTANT
             SECRETARY FOR COMMUNICATIONS AND INFORMATION,
                         DEPARTMENT OF COMMERCE

        Ms. Victory. Thank you, Mr. Chairman. I would like to thank
    you and the Members of the Subcommittee for inviting me here
    today to testify on this important issue.
        The Internet and its role in our society has seen
    tremendous growth over the last several years. It has become a
    significant and important means of doing research,
    communicating with each other and conducting business,
    particularly here in the United States.
        Recently released figures indicate that e-commerce sales by
    retail establishments reached $9.8 billion during the first
    quarter of 2002, a 70 percent increase over the first quarter
    of 2000. Given the Internet's importance in the many facets of
    our lives and in the country's general economic well-being, the
    Department of Commerce regards the stability and security of
    the Internet and its underlying domain name management system
    as one of its primary Departmental charges.
        While the Department continues to serve as the steward of
    critical elements of the domain name system during the
    transition to private sector management, ICANN is the private
    sector organization responsible for its day-to-day management.
    Recently, there have been calls for ICANN to review its
    mission, structure, and processes to assess their efficacy and
    appropriateness in light of the needs of today's Internet.
        ICANN, itself, has initiated its own process of reform. The
    Department believes these discussions are healthy and essential
    to ensuring the best path for stable and secure Internet
    management in the future. On behalf of the Department, I am
    pleased to participate today to assist in further discourse on
    this important issue. Additionally, I welcome GAO's report on
    Internet management and appreciate its comments and
    recommendations. I look forward to continuing to work with GAO
    and the Congress in this reform process.
        Since its inception less than 4 years ago, ICANN has
    achieved significant successes--the launch of seven new top-
    level domains, the development of a uniform dispute resolution
    procedure for trademark holders, and a reduction in the average
    price of domain name registrations from $50 to $10 per year.
    These accomplishments have encouraged progress in the
    development of a more competitive Internet environment.
        Yet substantial criticism has also been levied against
    ICANN. Its process for selecting new gTLDs was considered
    controversial and there is growing concern that corporate
    governance issues, including a perceived lack of financial and
    personnel resources, have undermined ICANN's effectiveness and
    legitimacy. Given this, the Department believes that the
    current re-examination of ICANN's structure, process, role, and
    mission is very appropriate.
        But, we also believe such a review is an inevitable
    consequence of this first experiment in private sector
    management of the DNS. It should not be surprising that in
    hindsight, some things should have been done differently. In
    addition, the Internet has changed dramatically in scope and
    usage since ICANN was first conceived. Governance and
    decisionmaking processes that might have made sense several
    years ago may no longer make sense today. Accordingly, the
    Department views the current reform process as a timely and
    necessary step.
        The Department of Commerce, through an informal interagency
    working group, has been closely studying each development in
    the ICANN reform process. The Department has also consulted
    with private sector stakeholders, including trade associations,
    businesses, academics, and public interest groups. The great
    diversity of these stakeholders--and their different vision of
    DNS management--highlights the challenges in ICANN reform.
        Moreover, the Department engaged in discussions with our
    international counterparts through ICANN's Governmental
    Advisory Committee and on a bilateral basis. And, of course, we
    have listened carefully to the views of Congress on this matter
    and have had an opportunity to consult with Congressional
    staff. We've shared our views with ICANN management and look
    forward to working with them on the organization's reform
    effort.
        Based upon these consultations and the Department's own
    independent analysis, the Department continues to support the
    goal of private sector management of the DNS. Indeed, private
    sector management seems to be the preference of virtually all
    of the Internet stakeholders with whom we have consulted. The
    Department strongly believes this approach is a much more
    effective vehicle than having such functions performed by an
    intergovernmental body, such as the International
    Telecommunications Union.
        We believe an intergovernmental body would be less
    responsive in managing an essentially private infrastructure.
    Such intergovernmental management would also be inconsistent
    with U.S. efforts to privatize other global commercially driven
    communication services.
        While some stakeholders have urged abandonment of ICANN in
    favor of a new private sector entity, the Department considers
    this approach premature. ICANN is attempting to reform itself
    and the preliminary efforts of the Committee on Evolution and
    Reform show great promise. Starting over with a new entity
    would likely raise many of the same systemic problems that
    ICANN is currently tackling, as well as some issues that the
    organization may have already successfully addressed.
        If ICANN is going to be effective, it must instill
    confidence and legitimacy in its operations and focus solely on
    the business of DNS management. The September termination date
    of the Memorandum of Understanding between ICANN and the
    Department will be a key time for the Department to determine
    whether ICANN is on track for doing so. We will be looking to
    see whether ICANN is on a path to being professionally run and
    managed, in a stable manner, for the long term. In particular,
    the Department will be looking for progress in the following
    areas:
        First, ICANN's mission and responsibilities must be
    clarified. The Department believes ICANN's efforts should be
    focused on coordination of the core technical functions and
    directly related policy areas detailed in the Department's 1998
    White Paper.
        Second, ICANN's processes must be revised to provide
    greater transparency and accountability for decisionmaking.
        Third, ICANN's processes must be designed to ensure all
    stakeholders have the opportunity to be heard and considered.
        Fourth, ICANN's structure and processes should provide an
    effective advisory and narrowly tailored role for governments
    through an effective Governmental Advisory Committee.
        And fifth, ICANN must have a mechanism for generating
    adequate financial and personnel resources to carry out its
    mission.
        In sum, the Department continues to be supportive of the
    ICANN model. However, the Department is of the view that ICANN
    must make certain reforms to assure the Department and the
    Internet community that it is able to carry out its important
    mission--effectively and in a stable manner--into the future.
        We look forward to working with this Committee, ICANN and
    the Internet community. Thank you and I would be happy to
    answer any questions.
        [The prepared statement of Ms. Victory follows:]

     Prepared Statement of Hon. Nancy J. Victory, Assistant Secretary for
             Communications and Information, Department of Commerce

        Thank you, Mr. Chairman. I would like to thank you and the Members
    of the Subcommittee for inviting me here today to testify on this
    important issue. I am Nancy J. Victory, Assistant Secretary for
    Communications and Information and Administrator of the National
    Telecommunications and Information Administration.
        There is no question that the Internet has seen tremendous growth
    over the last several years. What started as a small-scale system of
    links among U.S. academic institutions is now a gigantic global network
    connecting any American with a computer hook-up to individuals,
    companies and institutions around the world. The Internet has not
    merely grown in size. Its role in society has also expanded
    exponentially, particularly here in America. The Internet has become a
    significant and important means of doing research, communicating with
    each other, and conducting business. In fact, e-commerce sales by
    retail establishments reached $9.8 billion during the first quarter of
    2002--a 70 percent increase over first quarter 2000. Given the
    Internet's importance in all of these facets of daily life and the
    country's general economic well-being, it is essential that the
    Internet--and its underlying domain name management system--remain
    stable and secure. This is the primary concern of the Department of
    Commerce.
        While the Department continues to serve as the steward of critical
    elements of the domain name system during the transition to private
    sector management, the Internet Corporation of Assigned Names and
    Numbers (ICANN) is the private sector organization responsible for its
    day-to-day management. Recently, there have been calls for ICANN to
    review its mission, structure and processes for their efficacy and
    appropriateness in light of the needs of today's Internet. ICANN itself
    has initiated its own process of reform. The Department believes these
    discussions are healthy and essential to ensuring the best path for
    stable and secure Internet management in the future. On behalf of the
    Department, I am pleased to participate here today to assist in further
    discourse on this important issue.
        In my testimony today, I would like to briefly outline the
    Department's relationship with ICANN, the Department's activities
    during this reform effort, and the Department's views on the priority
    areas for ICANN reform.

    The Department's Relationship with ICANN
        ICANN was created out of an effort to bring more coordination and
    sustainability to the domain name management process, as the Internet
    grew into a large-scale global network. In June 1998, the Department
    issued the Statement of Policy on the Privatization of the Internet
    Domain Name System (DNS), known as the DNS White Paper. This document
    articulated four primary functions for global DNS coordination and
    management:

            1) To set policy for and direct the allocation of IP number
            blocks;

            2) To oversee the operation of the Internet root server system;

            3)  To oversee policy for determining the circumstances under
            which new top level domains (TLDs) would be added to the root
            server system; and

            4)  To coordinate the assignment of other technical protocol
            parameters as needed to maintain universal connectivity on the
            Internet.

        The White Paper concluded that these functions were relevant to the
    state of the DNS and should be primarily performed through private
    sector management. To this end, the Department stated that it was
    prepared to enter into agreement with a new not-for-profit corporation
    formed by private sector Internet stakeholders to administer policy for
    the Internet name and address system. ICANN was formed by private
    sector interests for this purpose, and, in the fall of 1998, the
    Department of Commerce entered into a memorandum of understanding (MOU)
    with ICANN to carry out these functions.
        The MOU did not simply turn over management of the domain name
    system to ICANN. Rather, the purpose of this agreement was to give
    ICANN certain responsibilities during a transition period to allow the
    Department to ensure that ICANN possessed the capabilities to assume
    technical management of the DNS before it was transferred from the
    Federal government. Under the MOU, the domain name system management
    functions to be undertaken by ICANN included:

            1)  establishment of policy for and direction of the allocation
            of Internet Protocol number blocks;

            2) oversight of the operation of the authoritative root server
            system;

            3)  oversight of the policy for determining the circumstances
            under which new top-level domains would be added to the root
            system;

            4)  coordination of the assignment of other Internet technical
            parameters as needed to maintain universal connectivity on the
            Internet; and

            5)  other activities necessary to coordinate the specified DNS
            management functions, as agreed by the parties.

        The relationship between the Department and ICANN is defined by
    legal agreements, and is not one of regulator and regulated. The
    Department plays no role in the internal governance or day-to-day
    operations of the organization. However, under the terms of the MOU,
    the Department may provide oversight to ensure that ICANN performs the
    MOU tasks and may offer expertise and advice on certain discrete
    issues, such as private sector functions related to technical
    management of the DNS and processes for making the management of the
    root server system more robust and secure. The Department's real
    ability to influence ICANN's activities is tied to renewal of the MOU.
    The MOU is set to expire on September 30, 2002, at which time the
    Department will have to decide whether to extend the agreement, modify
    the agreement, or allow it to expire.

    Re-Examination of ICANN Is Appropriate
        Since its inception less than four years ago, ICANN has had some
    significant successes and made progress in the development of a more
    competitive Internet environment. For example:

            1)  Since ICANN's inception, the average price of domain name
            registrations to consumers has decreased from $50 per year to
            $10 per year.

            2)  ICANN has increased competition in the generic top level
            domain market by successfully selecting and implementing seven
            new gTLDs--.pro, .aero, .museum, .biz, .info, .coop, and .name.

            3)  Further, ICANN launched its Uniform Dispute Resolution
            Procedure (UDRP), which introduced a process for the quick, low
            cost resolution of disputes involving trademark
            ``cybersquatting.'' The UDRP has dampened interest in this
            formerly lucrative Internet activity.

        Yet, there has also been substantial criticism of some of ICANN's
    decisions or lack thereof. For example:

            1)  Many have considered the selection of new gTLDs arbitrary
            and the roll-out of new gTLDs too slow.

            2)  There has been a growing concern in the community of ICANN
            stakeholders that its structure, processes, and inability to
            make progress on other key DNS issues has undermined its
            effectiveness and legitimacy.

            3)  Further, ICANN is perceived by many to lack the financial
            and personnel resources to carry-out its mission--a limited
            role from which many believe ICANN has departed.

        Yet, separate and apart from these important stakeholder concerns,
    the Department believes that the current re-examination of ICANN's
    structure, process, role and mission is not only appropriate, but also
    inevitable. After all, ICANN is really the first experiment with having
    a private sector entity manage a huge, complex resource with multi-
    national implications. There was no precedent or model for ICANN to
    follow. It should not be surprising, then, that in hindsight some
    things should have been done differently. Moreover, the Internet has
    changed dramatically in scope and usage since ICANN was first
    conceived. Governance and decision-making processes that might have
    made sense several years ago may no longer make sense today.
    Accordingly, the Department views the current reform process as a
    timely and necessary step.
        Reforming ICANN, however, will not be easy. One of the great
    strengths of the Internet--its diversity of stakeholders--is also one
    of ICANN's challenges. These stakeholders run the gamut from commercial
    carriers and businesses to public interest organizations and private
    citizens, not to mention technocrats, governments and assorted others.
    These different constituencies have different interests and
    priorities--and very different visions of DNS management. It will be
    difficult, if not impossible, for any reform effort to satisfy all of
    these different parties. Yet, while they may have different
    perspectives, these stakeholders should all share a common goal in
    maintaining a safe and stable Internet. The task before ICANN is to
    ensure that these interests stay focused on their common goal so that
    they all can benefit together.

    DOC/NTIA Role in Exploring ICANN Reform
        As I mentioned earlier, the Department believes that an examination
    of the ICANN experiment is a particularly appropriate undertaking at
    this time. Given the gravity of the Department's charge to ensure the
    stable and sound management of the Internet domain name system, we were
    especially heartened by ICANN's own call for reform and self-
    examination. Recently, Stuart Lynn, the Chief Executive Officer of
    ICANN, published a paper outlining his views on the organization's
    problems, as well as steps for reform. The ICANN board responded to Mr.
    Lynn's call for reform by establishing a Committee on Evolution and
    Reform, charged with constructing a plan to address these problems. In
    accomplishing this task, the Committee invited public participation and
    considered reform proposals from the ICANN community.
        As part of the reform efforts, NTIA and other Departmental agencies
    engaged other U.S. Government agencies including, the Department of
    State, the Federal Trade Commission, the Federal Communications
    Commission, and other Commerce agencies including the Technology
    Administration, the International Trade Administration, and the U.S.
    Patent and Trademark Office to develop an interagency consensus on
    acceptable parameters for the ICANN reform process.
        The Department further consulted private sector stakeholders
    including trade associations, businesses, academia, and public interest
    groups to gather a wide range of views on ICANN reform issues.
    Recognizing the global nature of the DNS, the Department also consulted
    international counterparts through ICANN's Governmental Advisory
    Committee and on a bilateral basis. And of course we have listened
    carefully to the views of Congress on this matter and have had the
    opportunity to consult with Congressional staff on the topic several
    times both prior to and during the ICANN reform process. We have shared
    these views with ICANN management and look forward to working with them
    on the organization's reform effort.

    Summary of DOC/NTIA's Views Regarding Reform
        As a result of these consultations and the Department's own
    independent analysis, the Department continues to support the goal of
    private sector management of the DNS. Indeed, private sector management
    seems to be the preference of virtually all of the Internet
    stakeholders with whom we have consulted. The Department strongly
    believes this approach is a much more effective vehicle than having
    such functions performed by an intergovernmental body, such as the
    International Telecommunications Union (ITU). We believe an
    intergovernmental body would be less responsive in managing an
    essentially private infrastructure. Further, such intergovernmental
    management would be inconsistent with U.S. efforts to privatize other
    global commercially driven communication services, such as Intelsat.
    Governmental input into ICANN is more appropriately provided through an
    effective Government Advisory Committee.
        While generally supportive of private sector management, some
    stakeholders have urged abandonment of ICANN in favor of a new private
    sector entity. At this time, the Department considers this approach
    premature. ICANN is attempting to reform itself and the preliminary
    efforts of the Committee on Evolution and Reform show some promise.
    Starting over with a new entity would likely raise many of the same
    systemic problems that ICANN is currently in the process of tackling,
    as well as some issues ICANN may already have successfully addressed.
    Accordingly, the Department believes allowing time for the ICANN reform
    process is warranted.
        Nevertheless, it is critical for ICANN reform to take place in a
    timely manner. If it is going to be effective, ICANN must instill
    confidence and legitimacy in its operations and focus solely on the
    business of DNS management. The September termination date of the MOU
    will be a key time for the Department to determine whether ICANN is on
    track for doing so. What will we be looking for in making this
    analysis? In general, we need to see that ICANN is on track to be
    professionally run and managed, in a stable manner, for the long term.
    In particular, the Department feels that progress needs to be made in
    several areas:

            1)  Clarifying its mission and responsibilities. First, ICANN's
            mission and responsibilities need to be clarified.
            Understanding its core functions, and formulating its structure
            and process accordingly, is key to any organization's success.
            Further, especially for a new, experimental organization, a
            limited, rather than an expansive, view of its functions is
            prudent. The Department believes ICANN's efforts should be
            focused around coordination of the core technical and directly
            related policy areas initially set forth in the Department's
            1998 Statement of Policy. We agree with the majority of
            stakeholders that ICANN's mission must ``stay narrow.'' ICANN
            is not, and should not become, the ``government of the
            Internet.''

            2)  Ensuring transparency and accountability. Second, ICANN's
            processes must be revised to provide transparency and
            accountability for decisionmaking. As an entity charged with
            managing a global resource, ICANN's operating procedures need
            to be open and transparent to all interested parties. At a
            minimum, ICANN should establish clearly written policy
            development procedures, with reasonable time frames for the
            development of recommendations, the posting and public
            consideration of those recommendations, and allotted time for
            revision of proposed policies.

            3)  Responding to Internet stakeholders. Third, ICANN's
            processes must be designed to ensure all Internet stakeholders
            have the opportunity to get a fair hearing. As I highlighted
            earlier, the Internet community consists of a variety of
            interests. It is critical that ICANN develop mechanisms that
            allow for the opinions of all stakeholders to be heard and
            considered. It is highly unlikely that ICANN, or any similar
            organization, will be able to completely satisfy all interested
            parties, but every effort should be made to meaningfully
            consider constituency concerns.

            4)  Developing an effective advisory role for governments.
            Fourth, ICANN's structure and processes should provide an
            effective advisory role for governments through an effective
            Governmental Advisory Committee. Given the multi-national
            nature of the Internet and the international ramifications of
            ICANN's decisions, it is appropriate to provide a mechanism for
            meaningful government input into ICANN. Since ICANN is a
            private sector entity, the governmental role, while important,
            must be advisory and narrowly tailored.

            5)  Ensuring adequate financial and personnel resources. Fifth,
            ICANN must have a mechanism for generating adequate financial
            and personnel resources to carry out its mission. As part of
            the reform process, ICANN must ensure that it has enough
            staffing to execute effectively its decision making processes
            and its operational responsibilities, including facilitating
            policy development by its supporting organizations, management
            of the technical functions, and support for the work of the
            Root Server System Advisory Committee. ICANN, and its
            stakeholders, must place priority effort on securing a stable
            funding base for the organization's operations.

        In sum, the Department continues to be supportive of the ICANN
    model. However, the Department does believe that ICANN needs to make
    certain reforms to assure the Department and the Internet community
    that it is able to carry out its important missions--effectively and in
    a stable manner--into the future. I have outlined above the types of
    reforms the Department will be looking for in making a determination in
    September as to whether to renew, extend or modify the MOU with ICANN.
    We look forward to working with this Committee, ICANN and the Internet
    community to see that these reforms are achieved.
        Thank you and I would be happy to answer any questions that you may
    have.

        Senator Wyden. Thank you, Ms. Victory. Mr. Guerrero.

    STATEMENT OF PETER GUERRERO, DIRECTOR, PHYSICAL INFRASTRUCTURE
                    GROUP, GENERAL ACCOUNTING OFFICE

        Mr. Guerrero. Thank you, Mr. Chairman. With me today is
    James Sweetman, our Analyst-in-charge for this assignment.
        We appreciate the opportunity to testify on the progress
    being made on privatizing the management of the Internet domain
    name system. As you know, in 1997 the Department of Commerce
    was charged by the President with transitioning the
    responsibility for the management of this domain system to the
    private sector. The Department subsequently issued a policy
    statement that defined four guiding principles for this effort:
        First, The U.S. Government should end its role in a manner
    that ensures the stability of the Internet.
        Second, market mechanisms that support competition should
    drive the management of the Internet.
        Third, the private sector structure for managing the domain
    system should reflect the functional and geographic diversity
    of the Internet and its users.
        And finally, where coordinated management is needed,
    responsible private-sector action is preferable to government
    control.
        After reviewing several proposals from private sector
    organizations, in 1998 the Department chose ICANN to carry out
    this transition. As stated in the transition process, the
    Department is responsible for gaining assurance that ICANN has
    the capacity and resources to manage the domain name system. To
    do this, the Department and ICANN entered into an agreement in
    the form of a Memorandum of Understanding, or MOU, that defined
    a set of transition tasks.
        It was originally expected these tasks would be completed
    by September of 2000. However, this timeframe was not met and
    the MOU is now currently scheduled to expire in September of
    this year. During this period ICANN has made some important
    progress as you have heard. Progress has been slow in other key
    areas, however.
        One of the transition tasks involved enhancing the
    stability and security of the domain name system servers. The
    root servers, 13 computers that are at the heart of this
    system, now operate on a volunteer basis by government, non-
    profit, and for-profit entities here and abroad. In June 1999,
    ICANN and the Department entered into a cooperative research
    and development agreement to guide this effort. The final
    report was expected by September of 2000. Although this
    deadline was later extended to December of last year, the
    report has not yet been issued.
        ICANN is also having difficulty formalizing the
    traditionally informal relationships among the parties involved
    in running the domain name system. Perhaps most notably,
    progress has been slow in creating a process within ICANN to
    represent the functional and geographic diversity of the
    Internet, and to make effective use of private, bottom-up
    coordination. ICANN struggled with this task, especially in
    establishing a policymaking Board of Directors that balances
    the interests of various Internet constituencies, such as
    Internet service providers, domain name managers, technical
    bodies, and Internet users.
        ICANN developed a plan for moving from its initial board
    composed of the president and 9 appointed members to a 19
    member board. Nine of the members of this larger board were to
    be selected by ICANN supporting organizations and nine were to
    be selected by the general Internet community through global
    on-line elections. This plan was never fully implemented and
    the issue of the board structure and selection process remains
    unresolved today.
        For all of these reasons, Mr. Chairman, GAO has concluded
    that the timing and outcome of the transition remains highly
    uncertain. Earlier this year, ICANN's president also concluded
    that ICANN was on the wrong track and could not achieve its
    mission without a new and reformed structured. He noted that
    ICANN is still not fully organized and was not yet capable of
    carrying out the global management and coordination of the
    domain name system.
        As you know, ICANN is currently engaged in a process of
    identifying what reforms are needed. Both the timing and
    outcome of this reform effort are uncertain at this time,
    although some suggest the reforms are to be discussed later
    this month at the ICANN meeting in Bucharest, Romania.
        I would like to return now to the role of the Department of
    Commerce which is responsible for gaining assurance that ICANN
    has the resources and capability to manage the domain name
    system. However, the Department does not regulate ICANN or
    involve itself in ICANN's internal governance or day-to-day
    operations. Its relationship with ICANN is limited to
    determining whether ICANN is carrying out the terms of its
    agreements with the Department, such as the MOU.
        The Department's public assessment of the progress being
    made on this transition has been limited. Department officials
    tell us that they carry out their oversight of ICANN's MOU-
    related transition tasks mainly through on-going informal
    discussions, of which there is no formal record. The Department
    has chosen only once to provide ICANN with a formal written
    assessment of the corporation's progress on the transition.
    This occurred in June 1999 and was made publicly available by
    ICANN. When we asked a Department official to characterize
    ICANN's overall progress this past February, shortly before
    ICANN's president concluded that the organization would come to
    a halt without reform, they replied that substantial progress
    had been made on the project. But, they would not speculate
    ICANN's ability to complete its task by September of this year.
        Instead of overall progress assessments, the Department has
    chosen to evaluate ICANN's progress on individual transition
    tasks. Yet, this approach is not always provide a clear
    understanding of why certain tasks are considered complete and
    others incomplete. For example, tasks involving representation
    were removed from the MOU when it was amended 2 years ago, even
    though ICANN has not tested and implemented its plan to
    represent the various interests of the stakeholders on its
    Board of Directors. Although no explanation for this decision
    was provided at the time, Department officials told us that
    they agreed to remove these tasks because ICANN had a process
    in place to complete them. As I mentioned earlier, however,
    this plan was never fully implemented and representation as an
    issue remains unresolved and highly contentious today.
        Mr. Chairman, in view of the Department's important role as
    the responsible steward for this transition, as well as the
    current unsettled state of the transition, we are recommending
    the Secretary of Commerce issue a status report detailing the
    Department's assessment of the progress that has been made on
    the tasks, the work that remains to be done, and estimated
    timeframe for completing this transition. In addition, the
    status report should discuss any changes to the transition
    tasks or the Department's relationship with ICANN that may
    result from the ongoing reform initiatives. Subsequent status
    reports may also be required.
        This concludes my statement, Mr. Chairman. Thank you.
        [The prepared statement of Mr. Guerrero follows:]

    Prepared Statement of Peter Guerrero, Director, Physical Infrastructure
                        Group, General Accounting Office

        Mr. Chairman and Members of the Subcommittee:
        We appreciate the opportunity to provide testimony today on the
    important issue of privatizing the management of the Internet domain
    name system. This system is a vital aspect of the Internet that works
    like an automated telephone directory, allowing users to reach Web
    sites using easy-to-understand domain names like www.senate.gov,
    instead of the string of numbers that computers use when communicating
    with each other. As you know, the U.S. government supported the
    development of the domain name system and, in 1997, the President
    charged the Department of Commerce with transitioning it to private
    management. The Department subsequently issued a policy statement,
    called the ``White Paper,'' that defined the following four guiding
    principles for the privatization effort:

       Stability: The U.S. government should end its role in the
            domain name system in a manner that ensures the stability of
            the Internet. During the transition, the stability of the
            Internet should be the first priority and a comprehensive
            security strategy should be developed.

       Competition: Where possible, market mechanisms that support
            competition and consumer choice should drive the management of
            the Internet because they will lower costs, promote innovation,
            encourage diversity, and enhance user choice and satisfaction.

       Representation: The development of sound, fair, and widely
            accepted policies for the management of the domain name system
            will depend on input from the broad and growing community of
            Internet users. Management structures should reflect the
            functional and geographic diversity of the Internet and its
            users.

       Private, bottom-up coordination: Where coordinated
            management is needed, responsible private-sector action is
            preferable to government control. The private process should,
            as far as possible, reflect the bottomup governance that has
            characterized development of the Internet to date.

        After reviewing several proposals from private sector
    organizations, the Department chose the Internet Corporation for
    Assigned Names and Numbers (ICANN), a not-for-profit corporation, to
    carry out the transition. In November 1998, the Department entered into
    an agreement with ICANN in the form of a Memorandum of Understanding
    (MOU) under which the two parties agreed to collaborate on a joint
    transition project. The Department emphasized that the MOU was an
    essential means for the Department to ensure the continuity and
    stability of the domain name management functions that were then being
    performed by, or on the behalf of, the U.S. government. The MOU states
    that before making a transition to private sector management, the
    Department requires assurances that the private sector has the
    capability and resources to manage the domain name system. To gain
    these assurances, the Department and ICANN agreed in the MOU to
    complete a set of transition tasks. The Department's tasks mainly
    relate to providing advice, coordination with foreign governments, and
    general oversight of the transition. ICANN agreed to undertake tasks
    that call for it to design, develop, and test procedures that could be
    used to manage the domain name system. Collectively, ICANN's tasks
    address all four of the transition's guiding principles.
        Progress on and completion of each task is assessed by the
    Department on a case-by-case basis, with input from ICANN. Any
    amendments to the MOU, such as removing tasks, must be approved by both
    parties. However, the Department retains responsibility for determining
    when management of the domain name system will be transitioned to
    ICANN, using the procedures tested during the transition. The original
    MOU was scheduled to expire on September 2000. Because work on the
    transition was not completed within the original transition time frame,
    the MOU was amended several times, and its time frame extended twice.
    The amended MOU is currently due to expire in September 2002.
        My testimony today responds to Senator Burns' request that we
    review (1) ICANN's progress in carrying out the transition, and (2) the
    Department's assessment of the transition. To address these issues, we
    spoke with officials from the Department of Commerce and ICANN, as well
    as members of ICANN's Board of Directors and outside experts. We also
    reviewed relevant documents and attended public meetings of ICANN. We
    conducted our work from June 2001 through May 2002 in accordance with
    generally accepted government auditing standards.
        In summary, we found that the timing and eventual outcome of the
    transition remains highly uncertain. ICANN has made significant
    progress in carrying out MOU tasks related to one of the guiding
    principles of the transition effort--increasing competition--but
    progress has been much slower in the areas of increasing the stability
    and security of the Internet; ensuring representation of the Internet
    community in domain name policymaking; and using private, bottom-up
    coordination. For example, despite years of debate, ICANN has not yet
    decided on a way to represent the globally and functionally diverse
    group of Internet stakeholders within its decision-making processes.
    Earlier this year, ICANN's president concluded that ICANN faced serious
    problems in accomplishing the transition and would not succeed in
    accomplishing its assigned mission without fundamental reform. Several
    of his proposed reforms were directed at increasing participation in
    ICANN by national governments, business interests, and other Internet
    stakeholders; revamping the composition of ICANN's Board and the
    process for selecting Board members; and establishing broader funding
    for ICANN's operations. In response, ICANN's Board established an
    internal committee to recommend options for reform. The Committee's May
    31, 2002, report built on several of the president's proposals and made
    recommendations involving, among other things, changes to ICANN's
    organizational structure. The Board plans to discuss the Committee's
    recommendations at ICANN's upcoming meeting in Bucharest in late June
    2002.
        Although the transition is well behind schedule, the Department's
    public assessment of the progress being made on the transition has been
    limited for several reasons. First, the Department carries out its
    oversight of ICANN's MOU-related activities mainly through informal
    discussions with ICANN officials. As a result, little information is
    made publicly available. Second, although the transition is past its
    original September 2000 completion date, the Department has not
    provided a written assessment of ICANN's progress since mid-1999. The
    MOU required only a final joint project report. Just prior to the ICANN
    president's announcement of ICANN's serious problems, Department
    officials told us that substantial progress had been made on the
    project, though they would not speculate on ICANN's ability to complete
    the transition tasks before September 2002, when the current MOU is set
    to expire. Third, although the Department stated that it welcomed the
    call for the reform of ICANN, they have not yet taken a public position
    on reforms being proposed. They noted that the Department is following
    ICANN's reform effort closely, and is consulting with U.S. business and
    public interest groups and foreign governments to gather their views on
    this effort. Because the Department is responsible for gaining
    assurance, as the steward of the transition process, that ICANN has the
    resources and capability to manage the domain name system, we are
    recommending that the Secretary of Commerce issue a status report
    assessing the transition's progress, the work that remains to be done,
    and the estimated timeframe for completing it. In addition, the report
    should discuss any changes to the transition tasks or the Department's
    relationship with ICANN that result from ICANN's reform initiative.
        We discussed our characterization of ICANN's progress and the
    Department's assessment of the transition with officials from the
    Department, who stated that they generally agree with GAO's
    characterization of the Department's relationship with ICANN and
    indicated that it would take our recommendation with respect to an
    interim report under consideration.

    Background
        From its origins as a research project sponsored by the U.S.
    government, the Internet has grown increasingly important to American
    businesses and consumers, serving as the host for hundreds of billions
    of dollars of commerce each year. \1\ It is also a critical resource
    supporting vital services, such as power distribution, health care, law
    enforcement, and national defense. Similar growth has taken place in
    other parts of the world.
    ---------------------------------------------------------------------------
        \1\ For example, a March 2001 report by the Census Bureau estimated
    that online business accounted for $485 billion in shipments for
    manufacturers and $134 billion in sales for wholesalers in the United
    States in 1999. The Census data include transactions conducted over the
    Internet and private data networks. For more details, see http://
    www.census.gov/estats/.
    ---------------------------------------------------------------------------
        The Internet relies upon a set of functions, called the domain name
    system, to ensure the uniqueness of each e-mail and Web site address.
    The rules that govern the domain name system determine which top-level
    domains (the string of text following the right-most period, such as
    .gov) are recognized by most computers connected to the Internet. The
    heart of this system is a set of 13 computers called ``root servers,''
    which are responsible for coordinating the translation of domain names
    into Internet addresses. Appendix I provides more background on how
    this system works.
        The U.S. government supported the implementation of the domain name
    system for nearly a decade, largely through a Department of Defense
    contract. Following a 1997 presidential directive, the Department of
    Commerce began a process for transitioning the technical responsibility
    for the domain name system to the private sector. After requesting and
    reviewing public comments on how to implement this goal, in June 1998
    the Department issued a general statement of policy, known as the
    ``White Paper.'' In this document, the Department stated that because
    the Internet was rapidly becoming an international medium for commerce,
    education, and communication, the traditional means of managing its
    technical functions needed to evolve as well. Moreover, the White Paper
    stated the U.S. government was committed to a transition that would
    allow the private sector to take leadership for the management of the
    domain name system. Accordingly the Department stated that the U.S.
    government was prepared to enter into an agreement to transition the
    Internet's name and number process to a new not-for-profit
    organization. At the same time, the White Paper said that it would be
    irresponsible for the U.S. government to withdraw from its existing
    management role without taking steps to ensure the stability of the
    Internet during the transition. According to Department officials, the
    Department sees its role as the responsible steward of the transition
    process. Subsequently, the Department entered into an MOU with ICANN to
    guide the transition.

    ICANN Has Increased Competition, But Progress Has Been Much Slower on
            Other Key Issues
        ICANN has made significant progress in carrying out MOU tasks
    related to one of the guiding principles of the transition effort--
    increasing competition. However, progress has been much slower on
    activities designed to address the other guiding principles: increasing
    the stability and security of the Internet; ensuring representation of
    the Internet community in domain name policy-making; and using private,
    bottom-up coordination. Earlier this year, ICANN's president concluded
    that ICANN faced serious problems in accomplishing the transition and
    needed fundamental reform. In response, ICANN's Board established an
    internal committee to recommend options for reform.

    ICANN Has Increased Domain Name Competition
        ICANN made important progress on several of its assigned tasks
    related to promoting competition. At the time the transition began,
    only one company, Network Solutions, was authorized to register names
    under the three publicly available top-level domains (.com, .net, and
    .org). In response to an MOU task calling for increased competition,
    ICANN successfully developed and implemented procedures under which
    other companies, known as registrars, could carry out this function. As
    a result, by early 2001, more than 180 registrars were certified by
    ICANN. The cost of securing these names has now dropped from $50 to $10
    or less per year. Another MOU task called on ICANN to expand the pool
    of available domain names through the selection of new top-level
    domains. To test the feasibility of this idea, ICANN's Board selected
    seven new top-level domains from 44 applications; by March 2002, it had
    approved agreements with all seven of the organizations chosen to
    manage the new domains. At a February 2001 hearing before a
    Subcommittee of the U.S. House of Representatives, witnesses presented
    differing views on whether the selection process was transparent and
    based on clear criteria. \2\ ICANN's internal evaluation of this test
    was still ongoing when we finished our audit work in May 2002.
    ---------------------------------------------------------------------------
        \2\ The hearing took place before the House Committee on Energy and
    Commerce, Subcommittee on Telecommunications and the Internet, on
    February 8, 2001.
    ---------------------------------------------------------------------------
    Efforts to Improve Stability and Security Are Behind Schedule
        Several efforts to address the White Paper's guiding principle for
    improving the security and stability of the Internet are behind
    schedule. These include developing operational requirements and
    security policies to enhance the stability and security of the domain
    name system root servers, and formalizing relationships with other
    entities involved in running the domain name system.
        Recent reports by federally sponsored organizations have
    highlighted the importance of the domain name system to the stability
    and security of the entire Internet. A presidential advisory committee
    reported in 1999 that the domain name system is the only aspect of the
    Internet where a single vulnerability could be exploited to disrupt the
    entire Internet. \3\ More recently, the federal National Infrastructure
    Protection Center issued several warnings in 2001 stating that multiple
    vulnerabilities in commonly used domain name software present a serious
    threat to the Internet infrastructure. In recognition of the critical
    role that the domain name system plays for the Internet, the White
    Paper designated the stability and security of the Internet as the top
    priority of the transition.
    ---------------------------------------------------------------------------
        \3\ President's National Security Telecommunications Advisory
    Committee, Network Group Internet Report: An Examination of the NS/EP
    Implications of Internet Technologies, (Washington, D.C.: June 1999).
    ---------------------------------------------------------------------------
        The MOU tasked ICANN and the Department with developing operational
    requirements and security policies to enhance the stability and
    security of the root servers--the computers at the heart of the domain
    name system. In June 1999, ICANN and the Department entered into a
    cooperative research and development agreement to guide the development
    of these enhancements, with a final report expected by September 2000.
    This deadline was subsequently extended to December 2001 and the MOU
    between ICANN and the Department was amended to require the development
    of a proposed enhanced architecture (or system design) for root server
    security, as well as a transition plan, procedures, and implementation
    schedule. An ICANN advisory committee, made up of the operators of the
    13 root servers and representatives of the Department, is coordinating
    research on this topic. Although the chairman of the committee stated
    at ICANN's November 2001 meeting that it would finish its report by
    February or March 2002, it had not completed the report as of May 2002.
        To further enhance the stability of the Internet, the White Paper
    identified the need to formalize the traditionally informal
    relationships among the parties involved in running the domain name
    system. The White Paper pointed out that many commercial interests,
    staking their future on the successful growth of the Internet, were
    calling for a more formal and robust management structure. In response,
    the MOU and its amendments included several tasks that called on ICANN
    to enter into formal agreements with the parties that traditionally
    supported the domain name system through voluntary efforts. However, as
    of May 2002, few such agreements had been signed. ICANN's Board has
    approved a model agreement to formalize the relationship between the
    root server operators and ICANN, but no agreements had been reached
    with any of the operators as of May 2002. Similarly, there are roughly
    240 country-code domains (2-letter top-level domains reserved mainly
    for national governments), such as .us for the United States. As with
    the root servers, responsibility for these domains was originally given
    by the Internet's developers to individuals who served as volunteers.
    Although the amended MOU tasked ICANN with reaching contractual
    agreements with these operators, it has reached agreements with only 2
    domain operators as of May 2002. \4\ Finally, the amended MOU tasked
    ICANN with reaching formal agreements with the Regional Internet
    Registries, each of which is responsible for allocating Internet
    protocol numbers to users in one of three regions of the world. \5\ The
    registries reported that progress was being made on these agreements,
    though none had been reached as of May 2002.
    ---------------------------------------------------------------------------
        \4\ ICANN signed agreements with the operators responsible for the
    .au (Australia) and .jp (Japan) country-code domains and their
    respective governments.
        \5\ The areas of responsibility for the three Regional Internet
    Address Registries are: the Western Hemisphere and southern Africa,
    Europe and northern Africa, and Asia.
    ---------------------------------------------------------------------------
    Slow Progress for Creating Processes to Ensure Representation and
            Bottom-up Coordination
        Progress has also been slow regarding the other two guiding
    principles outlined in the White Paper, which call for the creation of
    processes to represent the functional and geographic diversity of the
    Internet, and for the use of private, bottom-up coordination in
    preference to government control. In order for the private sector
    organization to derive legitimacy from the participation of key
    Internet stakeholders, the White Paper suggested the idea of a board of
    directors that would balance the interests of various Internet
    constituencies, such as Internet service providers, domain name
    managers, technical bodies, and individual Internet users. The White
    Paper also suggested the use of councils to develop, recommend, and
    review policies related to their areas of expertise, but added that the
    board should have the final authority for making policy decisions. The
    Department reinforced the importance of a representative board in a
    1998 letter responding to ICANN's initial proposal. The Department's
    letter cited public comments suggesting that without an open membership
    structure, ICANN would be unlikely to fulfill its goals of private,
    bottom-up coordination and representation. ICANN's Board responded to
    the Department by amending its bylaws to make it clear that the Board
    has an ``unconditional mandate'' to create a membership structure that
    would elect at-large directors on the basis of nominations from
    Internet users and other participants.
        To implement these White Paper principles, the MOU between ICANN
    and the Department includes two tasks: one relating to developing
    mechanisms that ensure representation of the global and functional
    diversity of the Internet and its users, and one relating to allowing
    affected parties to participate in the formation of ICANN's policies
    and procedures through a bottom-up coordination process. In response to
    these two tasks, ICANN adopted the overall structure suggested by the
    White Paper. First, ICANN created a policy-making Board of Directors.
    The initial Board consisted of ICANN's president and 9 at-large members
    who were appointed at ICANN's creation. ICANN planned to replace the
    appointed at-large Board members with 9 members elected by an open
    membership to reflect the diverse, worldwide Internet community.
    Second, ICANN organized a set of three supporting organizations to
    advise its Board on policies related to their areas of expertise. One
    supporting organization was created to address Internet numbering
    issues, one was created to address protocol development issues, and one
    was created to address domain name issues. \6\ Together these three
    supporting organizations selected 9 additional members of ICANN's
    Board-3 from each organization. Thus, ICANN's Board was initially
    designed to reflect the balance of interests described in the White
    Paper. Figure 1 illustrates the relationships among ICANN's supporting
    organizations and its Board of Directors, as well as several advisory
    committees ICANN also created to provide input without formal
    representation on its Board.
    ---------------------------------------------------------------------------
        \6\ In the context of ICANN's responsibilities, protocols are the
    technical rules that allow communications among networks.

        Despite considerable debate, ICANN has not resolved the question of
    how to fully implement this structure, especially the at-large Board
    members. Specifically, in March 2000, ICANN's Board noted that
    extensive discussions had not produced a consensus regarding the
    appropriate method to select at-large representatives. The Board
    therefore approved a compromise under which 5 at-large members would be
    elected through regional, online elections. In October 2000, roughly
    34,000 Internet users around the world voted in the at-large election.
    The 5 successful candidates joined ICANN's Board in November 2000,
    replacing interim Board members. Four of the appointed interim Board
    members first nominated in ICANN's initial proposal continue to serve
    on the Board.
        Parallel with the elections, the Board also initiated an internal
    study to evaluate options for selecting at-large Board members. In its
    November 2001 report, the committee formed to conduct this study
    recommended the creation of a new at-large supporting organization,
    which would select 6 Board members through regional elections. Overall,
    the number of atlarge seats would be reduced from 9 to 6, and the seats
    designated for other supporting organizations would increase from 9 to
    12. \7\ A competing, outside study by a committee made up of academic
    and nonprofit interests recommended continuing the initial policy of
    directly electing at-large Board members equal to the number selected
    by the supporting organizations. This Committee also recommended
    strengthening the atlarge participation mechanisms through staff
    support and a membership council similar to those used by the existing
    supporting organizations. \8\ Because of ongoing disagreement among
    Internet stakeholders about how individuals should participate in
    ICANN's efforts, ICANN's Board referred the question to a new Committee
    on ICANN Evolution and Reform. Under the current bylaws, the 9 current
    at-large Board seats will cease to exist after ICANN's 2002 annual
    meeting, to be held later this year.
    ---------------------------------------------------------------------------
        \7\ See http://www.atlargestudy.org/final--report.shtml
        \8\ See http://www.naisproject.org/report/final/
    ---------------------------------------------------------------------------
        Although the MOU calls on ICANN to design, develop, and test its
    procedures, the two tasks involving the adoption of the at-large
    membership process were removed from the MOU when it was amended in
    August 2000. However, as we have noted, this process was not fully
    implemented at the time of the amendment because the election did not
    take place until October 2000, and the evaluation committee did not
    release its final report until November 2001. When we discussed this
    amendment with Department officials, they said that they agreed to the
    removal of the tasks in August 2000 because ICANN had a process in
    place to complete them. Nearly 2 years later, however, the issue of how
    to structure ICANN's Board to achieve broad representation continues to
    be unresolved and has been a highly contentious issue at ICANN's recent
    public meetings.
        In addition, the amended MOU tasked ICANN with developing and
    testing an independent review process to address claims by members of
    the Internet community who were adversely affected by ICANN Board
    decisions that conflicted with ICANN's bylaws. However, ICANN was
    unable to find qualified individuals to serve on a committee charged
    with implementing this policy. In March 2002, ICANN's Board referred
    this unresolved matter to the Committee on ICANN Evolution and Reform
    for further consideration.

    ICANN's President Calls for Major Reform of the Corporation
        In the summer of 2001, ICANN's current president was generally
    optimistic about the corporation's prospects for successfully
    completing the remaining transition tasks. However, in the face of
    continued slow progress on key aspects of the transition, such as
    reaching formal agreements with the root server and country-code domain
    operators, his assessment changed. In February 2002, he reported to
    ICANN's Board that the corporation could not accomplish its assigned
    mission on its present course and needed a new and reformed structure.
    The president's proposal for reform, which was presented to ICANN's
    Board in February, focused on problems he perceived in three areas: (1)
    too little participation in ICANN by critical entities, such as
    national governments, business interests, and entities that share
    responsibility for the operation of the domain name system (such as
    root server operators and countrycode domain operators); (2) too much
    focus on process and representation and not enough focus on achieving
    ICANN's core mission; and (3) too little funding for ICANN to hire
    adequate staff and cover other expenditures. He added that in his
    opinion, there was little time left to make necessary reforms before
    the ICANN experiment came to ``a grinding halt.''
        Several of his proposed reforms challenged some of the basic
    approaches for carrying out the transition. For example, the president
    concluded that a totally private sector management model had proved to
    be unworkable. He proposed instead a ``well-balanced public-private
    partnership'' that involved an increased role for national governments
    in ICANN, including having several voting members of ICANN's Board
    selected by national governments. The president also proposed changes
    that would eliminate global elections of at-large Board members by the
    Internet community, reduce the number of Board members selected by
    ICANN's supporting organizations, and have about a third of the board
    members selected through a nominating committee composed of Board
    members and others selected by the Board. He also proposed that ICANN's
    funding sources be broadened to include national governments, as well
    as entities that had agreements with ICANN or received services from
    ICANN.
        In response, ICANN's Board instructed an internal Committee on
    ICANN Evolution and Reform (made up of four ICANN Board members) to
    consider the president's proposals, along with reactions and
    suggestions from the Internet community, and develop recommendations
    for the Board's consideration on how ICANN could be reformed. The
    Committee reported back on May 31, 2002, with recommendations
    reflecting their views on how the reform should be implemented. For
    example, the committee built on the ICANN president's earlier proposal
    to change the composition of the Board and have some members be
    selected through a nominating committee process, and to create an
    ombudsman to review complaints and criticisms about ICANN and report
    the results of these reviews to the Board. In other cases, the
    committee agreed with conclusions reached by the president (such as the
    need for increasing the involvement of national governments in ICANN
    and improving its funding), but did not offer specific recommendations
    for addressing these areas. The committee's report, which is posted on
    ICANN's public Web site, invited further comment on the issues and
    recommendations raised in preparation for ICANN's June 2002 meeting in
    Bucharest, Romania. The committee recommended that the Board act in
    Bucharest to adopt a reform plan that would establish the broad outline
    of a reformed ICANN, so that the focus could be shifted to the details
    of implementation. The committee believed that this outline should be
    then be filled in as much as possible between the Bucharest meeting and
    ICANN's meeting in Shanghai in late October 2002.

    The Department's Public Assessment of the Transition's Progress Has
            Been Limited
        As mentioned previously, the Department is responsible for general
    oversight of work done under the MOU, as well as the responsibility for
    determining when ICANN, the private sector entity chosen by the
    Department to carry out the transition, has demonstrated that it has
    the resources and capability to manage the domain name system. However,
    the Department's public assessment of the status of the transition
    process has been limited in that its oversight of ICANN has been
    informal, it has not issued status reports, and it has not publicly
    commented on specific reform proposals being considered by ICANN.
        According to Department officials, the Department's relationship
    with ICANN is limited to its agreements with the corporation, and its
    oversight is limited to determining whether the terms of these
    agreements are being met. \9\ They added that the Department does not
    involve itself in the internal governance of ICANN, is not involved in
    ICANN's day-to-day operations, and would not intervene in ICANN's
    activities unless the corporation's actions were inconsistent with the
    terms of its agreements with the Department. Department officials
    emphasized that because the MOU defines a joint project, decisions
    regarding changes to the MOU are reached by mutual agreement between
    the Department and ICANN. In the event of a serious disagreement with
    ICANN, the Department would have recourse under the MOU to terminate
    the agreement. \10\ Department officials characterized its limited
    involvement in ICANN's activities as being appropriate and consistent
    with the purpose of the project: to test ICANN's ability to develop the
    resources and capability to manage the domain name system with minimal
    involvement of the U.S. government.
    ---------------------------------------------------------------------------
        \9\ In a July 2000 report prepared in response to a congressional
    mandate, we reviewed questions and issues related to the legal basis
    and authority for the Department's relationship with ICANN. U.S.
    General Accounting Office, Department of Commerce: Relationship with
    the Internet Corporation for Assigned Names and Numbers, GAO/OCG-00-33R
    (Washington, D.C.: July 7, 2000). This report discusses the development
    of the MOU, as well as other agreements related to the ongoing
    technical operation of the domain name system. We list the various
    agreements between ICANN and the Department in appendix II, which also
    lists significant events in the history of the domain name system.
        \10\ If the Department withdraws its recognition of ICANN by
    terminating the MOU, ICANN has agreed to assign to the Department any
    rights that ICANN has in all existing contracts with registrars and
    registries.
    ---------------------------------------------------------------------------
        Department officials said that they carry out their oversight of
    ICANN's MOU-related activities mainly through ongoing informal
    discussions with ICANN officials. They told us that there is no formal
    record of these discussions. The Department has also retained authority
    to approve certain activities under its agreements with ICANN, such as
    reviewing and approving certain documents related to root server
    operations. This would include, for example, agreements between ICANN
    and the root server operators. In addition, the Department retains
    policy control over the root zone file, the ``master file'' of top-
    level domains shared among the 13 root servers. Changes to this file,
    such as implementing a new top-level domain, must first be authorized
    by the Department.
        In addition, the Department sends officials to attend ICANN's
    public forums and open Board of Directors meetings, as do other
    countries and Internet interest groups. According to the Department, it
    does not participate in ICANN decision-making at these meetings but
    merely acts as an observer. The Department also represents the United
    States on ICANN's Governmental Advisory Committee, which is made up of
    representatives of about 70 national governments and intergovernmental
    bodies, such as treaty organizations. The Committee's purpose is to
    provide ICANN with nonbinding advice on ICANN activities that may
    relate to concerns of governments, particularly where there may be an
    interaction between ICANN's policies and national laws or international
    agreements.
        The Department made a considerable effort at the beginning of the
    transition to create an open process that solicited and incorporated
    input from the public in formulating the guiding principles of the 1998
    White Paper. However, since the original MOU, the Department's public
    comments on the progress of the transition have been general in nature
    and infrequent, even though the transition is taking much longer than
    anticipated. The only report specifically called for under the MOU is a
    final joint project report to document the outcome of ICANN's test of
    the policies and procedures designed and developed under the MOU. This
    approach was established at a time when it was expected that the
    project would be completed by September 2000.
        So far, there has been only one instance when the Department
    provided ICANN with a formal written assessment of the corporation's
    progress on specific transition tasks. This occurred in June 1999,
    after ICANN took the initiative to provide the Department and the
    general public with a status report characterizing its progress on MOU
    activities. In a letter to ICANN, the Department stated that while
    ICANN had made progress, there was still important work to be done.
    For, example, the Department stated that ICANN's ``top priority'' must
    be to complete the work necessary to put in place an elected Board of
    Directors on a timely basis, adding that the process of electing at-
    large directors should be complete by June 2000. ICANN made the
    Department's letter, as well as its positive response, available to the
    Internet community on its public Web site.
        Although ICANN issued additional status reports in the summers of
    2000 and 2001, the Department stated that it did not provide written
    views and recommendations regarding them, as it did in July 1999,
    because it agreed with ICANN's belief that additional time was needed
    to complete the MOU tasks. Department officials added that they have
    been reluctant to comment on ICANN's progress due to sensitivity to
    international concerns that the United States might be seen as
    directing ICANN's actions. The officials stated that they did not plan
    to issue a status report at this time even though the transition is
    well behind schedule, but will revisit this decision as the September
    2002 termination date for the MOU approaches.
        When we met with Department officials in February 2002, they told
    us that substantial progress had been made on the project, but they
    would not speculate on ICANN's ability to complete its tasks by
    September 2002. The following week, ICANN's president released his
    report stating that ICANN could not succeed without fundamental reform.
    In response, Department officials said that they welcomed the call for
    the reform of ICANN and would follow ICANN's reform activities and
    process closely. When we asked for their views on the reform effort,
    Department officials stated that they did not wish to comment on
    specifics that could change as the reform process proceeds. To develop
    the Department's position on the effort, they said that they are
    gathering the views of U.S. business and public interest groups, as
    well as other executive branch agencies, such as the Department of
    State; the Office of Management and Budget; the Federal Communications
    Commission; and components of the Department of Commerce, such as the
    Patent and Trademark Office. They also said that they have consulted
    other members of ICANN's Governmental Advisory Committee to discuss
    with other governments how best to support the reform process. They
    noted that the Department is free to adjust its relationship with ICANN
    in view of any new mission statement or restructuring that might result
    from the reform effort. Department officials said that they would
    assess the necessity for such adjustments, or for any legislative or
    executive action, depending on the results of the reform process.

    Conclusion
        In conclusion, Mr. Chairman, the effort to privatize the domain
    name system has reached a critical juncture, as evidenced by slow
    progress on key tasks and ICANN's current initiative to reevaluate its
    mission and consider options for reforming its structure and
    operations. Until these issues are resolved, the timing and eventual
    outcome of the transition effort remain highly uncertain, and ICANN's
    legitimacy and effectiveness as the private sector manager of the
    domain name system remain in question. In September 2002, the current
    MOU between the Department and ICANN will expire. The Department will
    be faced with deciding whether the MOU should be extended for a third
    time, and if so, what amendments to the MOU are needed, or whether some
    new arrangement with ICANN or some other organization is necessary. The
    Department sees itself as the responsible steward of the transition,
    and is responsible for gaining assurance that ICANN has the resources
    and capability to assume technical management of the Internet domain
    name system. Given the limited progress made so far and the unsettled
    state of ICANN, Internet stakeholders have a need to understand the
    Department's position on the transition and the prospects for a
    successful outcome.

    Recommendation
        In view of the critical importance of a stable and secure Internet
    domain name system to governments, business, and other interests, we
    recommend that the Secretary of Commerce issue a status report
    detailing the Department's assessment of the progress that has been
    made on transition tasks, the work that remains to be done on the joint
    project, and the estimated timeframe for completing the transition. In
    addition, the status report should discuss any changes to the
    transition tasks or the Department's relationship with ICANN that
    result from ICANN's reform initiative. Subsequent status reports should
    be issued periodically by the Department until the transition is
    completed and the final project report is issued.
        This concludes my statement, Mr. Chairman. I will be pleased to
    answer any questions that you and other Members of the Subcommittee may
    have.

                 Appendix I: Overview of the Domain Name System

        Although the U.S. government supported the development of the
    Internet, no single entity controls the entire Internet. In fact, the
    Internet is not a single network at all. Rather, it is a collection of
    networks located around the world that communicate via standardized
    rules called protocols. These rules can be considered voluntary because
    there is no formal institutional or governmental mechanism for
    enforcing them. However, if any computer deviates from accepted
    standards, it risks losing the ability to communicate with other
    computers that follow the standards. Thus, the rules are essentially
    self-enforcing.
        One critical set of rules, collectively known as the domain name
    system, links names like www.senate.gov with the underlying numerical
    addresses that computers use to communicate with each other. Among
    other things, the rules describe what can appear at the end of a domain
    name. The letters that appear at the far right of a domain name are
    called top-level domains (TLDs) and include a small number of generic
    names such as .com and .gov, as well as country-codes such as .us and
    .jp (for Japan). The next string of text to the left (``senate'' in the
    www.senate.gov example) is called a second-level domain and is a subset
    of the top-level domain. Each top-level domain has a designated
    administrator, called a registry, which is the entity responsible for
    managing and setting policy for that domain. Figure 2 illustrates the
    hierarchical organization of domain names with examples, including a
    number of the original top-level domains and the country-code domain
    for the United States.

        The domain name system translates names into addresses and back
    again in a process transparent to the end user. This process relies on
    a system of servers, called domain name servers, which store data
    linking names with numbers. Each domain name server stores a limited
    set of names and numbers. They are linked by a series of 13 root
    servers, which coordinate the data and allow users to find the server
    that identifies the site they want to reach. They are referred to as
    root servers because they operate at the root level (also called the
    root zone), as depicted in figure 2. Domain name servers are organized
    into a hierarchy that parallels the organization of the domain names.
    For example, when someone wants to reach the Web site at
    www.senate.gov, his or her computer will ask one of the root servers
    for help. \11\ The root server will direct the query to a server that
    knows the location of names ending in the .gov top-level domain. If the
    address includes a sub-domain, the second server refers the query to a
    third server--in this case, one that knows the address for all names
    ending in senate.gov. This server will then respond to the request with
    an numerical address, which the original requester uses to establish a
    direct connection with the www.senate.gov site. Figure 3 illustrates
    this example.
    ---------------------------------------------------------------------------
        \11\ This example assumes that the required domain name information
    is not available on the user's local network.

        Within the root zone, one of the servers is designated the
    authoritative root (or the ``A root'' server). The authoritative root
    server maintains the master copy of the file that identifies all top-
    level domains, called the ``root zone file,'' and redistributes it to
    the other 12 servers. Currently, the authoritative root server is
    located in Herndon, Virginia. In total, 10 of the 13 root servers are
    located in the United States, including 3 operated by agencies of the
    U.S. government. ICANN does not fund the operation of the root servers.
    Instead, they are supported by the efforts of individual administrators
    and their sponsoring organizations. Table 1 lists the operator and
    location of each root server.

        Table 1. Operators and Locations of the 13 Internet Root Servers
    ------------------------------------------------------------------------
      Affiliation of volunteer root server operator     Location of server
    ------------------------------------------------------------------------
    VeriSign (designated authoritative root server)   Herndon, VA
    Information Sciences Institute, University of     Marina del Rey, CA
     Southern California
    PSI net                                           Herndon, VA
    University of Maryland                            College Park, MD
    National Air and Space Administration             Mountain View, CA
    Internet Software Consortium                      Palo Alto, CA
    Defense Information Systems Agency, U.S.          Vienna, VA
     Department of Defense
    Army Research Laboratory, U.S. Department of      Aberdeen, MD
     Defense
    NORDUnet                                          Stockholm, Sweden
    VeriSign                                          Herndon, VA
    RIPE (the Regional Internet Registry for Europe   London, UK
     and North Africa)
    ICANN                                             Marina del Rey, CA
    WIDE (an Internet research consortium)            Tokyo, Japan
    ------------------------------------------------------------------------
    Source: ICANN's Root Server System Advisory Committee.

        Because much of the early research on internetworking was funded by
    the Department of Defense (DOD), many of the rules for connecting
    networks were developed and implemented under DOD sponsorship. For
    example, DOD funding supported the efforts of the late Dr. Jon Postel,
    an Internet pioneer working at the University of Southern California,
    to develop and coordinate the domain name system. Dr. Postel originally
    tracked the names and numbers assigned to each computer. He also
    oversaw the operation of the root servers, and edited and published the
    documents that tracked changes in Internet protocols. Collectively,
    these functions became known as the Internet Assigned Numbers
    Authority, commonly referred to as IANA. Federal support for the
    development of the Internet was also provided through the National
    Science Foundation, which funded a network designed for academic
    institutions.
        Two developments helped the Internet evolve from a small, text-
    based research network into the interactive medium we know today.
    First, in 1990, the development of the World Wide Web and associated
    programs called browsers made it easier to view text and graphics
    together, sparking interest of users outside of academia. Then, in
    1992, the Congress enacted legislation for the National Science
    Foundation to allow commercial traffic on its network. Following these
    developments, the number of computers connected to the Internet grew
    dramatically. In response to the growth of commercial sites on the
    Internet, the National Science Foundation entered into a 5-year
    cooperative agreement in January 1993 with Network Solutions, Inc., to
    take over the jobs of registering new, nonmilitary domain names,
    including those ending in .com, .net, and .org, and running the
    authoritative root server. \12\ At first, the Foundation provided the
    funding to support these functions. As demand for domain names grew,
    the Foundation allowed Network Solutions to charge an annual fee of $50
    for each name registered. Controversy surrounding this fee was one of
    the reasons the United States government began its efforts to privatize
    the management of the domain name system.
    ---------------------------------------------------------------------------
        \12\ Network Solutions later merged with VeriSign. The new company
    currently uses the VeriSign name. Under its original agreement with the
    National Science Foundation, Network Solutions was also responsible for
    registering second-level domain names in the restricted .gov and .edu
    top-level domains.
    ---------------------------------------------------------------------------
     Appendix II: Important Events in the History of the Domain Name System
        Nov. 1983     Working under funding provided by the Department of
    Defense, a group led by Drs. Paul Mockapetris and Jon Postel creates
    the domain name system for locating networked computers by name instead
    of by number.

        Oct. 1984     Dr. Postel publishes specifications for the first six
    generic top-level domains (.com, .org, .edu, .mil, .gov, and .arpa). By
    July 1985, the .net domain was added.

        Nov. 1992     President Bush signs into law an act requiring the
    National Science Foundation to allow commercial activity on the network
    that became the Internet.

        Jan. 1993     Network Solutions, Inc., signs a 5-year cooperative
    agreement with the National Science Foundation to manage public
    registration of new, nonmilitary domain names, including those ending
    in .com, .net, or .org.

        July 1997     President Clinton issues a presidential directive on
    electronic commerce, making the Department of Commerce the agency
    responsible for managing the U.S. government's role in the domain name
    system.

        Jan. 1998     The Department of Commerce issues the ``Green
    Paper,'' which is a proposal to improve technical management of
    Internet names and addresses through privatization. Specifically, the
    Green Paper proposes a variety of issues for discussion, including the
    creation of a new nonprofit corporation to manage the domain name
    system.

        June 1998     In response to comments on the Green Paper, the
    Department of Commerce issues a policy statement known as the ``White
    Paper,'' which states that the U.S. government is prepared to
    transition domain name system management to a private, nonprofit
    corporation. The paper includes the four guiding principles of
    privatization: stability; competition; representation; and private,
    bottom-up coordination.

        Nov. 1998     The Internet Corporation for Assigned Names and
    Numbers (ICANN) incorporates in California. ICANN's by-laws call for a
    19-member Board with 9 members elected ``at-large.''

        Nov. 1998     The Department of Commerce and ICANN enter into an
    MOU that states the parties will jointly design, develop, and test the
    methods and procedures necessary to transfer domain name system
    management to ICANN. The MOU is set to expire in September 2000.

        June 1999     ICANN issues its first status report, which lists
    ICANN's progress to date and states that there are important issues
    that still must be addressed.

        June 1999     ICANN and the Department of Commerce enter into a
    cooperative research and development agreement to study root server
    stability and security. The study is intended to result in a final
    report by September 2000.

        Nov. 1999     ICANN and the Department of Commerce approve MOU
    amendment 1 to reflect the roles of ICANN and Network Solutions, Inc.

        Feb. 2000     The Department of Commerce contracts with ICANN to
    perform certain technical management functions related to the domain
    name system, such as address allocation and root zone coordination.

        Mar. 2000     At a meeting in Cairo, Egypt, ICANN adopts a process
    for external review of its decisions that utilizes outside experts, who
    will be selected at an unspecified later date. ICANN also approves a
    compromise whereby 5 atlarge Board members will be chosen in regional
    online elections.

        June 2000     ICANN issues its second Status Report, which states
    that several of the tasks have been completed, but work on other tasks
    was still under way.

        July 2000     At a meeting in Yokahama, Japan, ICANN's Board
    approves a policy for the introduction of new top-level domains.

        Aug. 2000     The Department of Commerce and ICANN approve MOU
    amendment 2, which deleted tasks related to membership mechanisms,
    public information, and registry competition and extended the MOU until
    September 2001. They also agree to extend the cooperative research and
    development agreement on root server stability and security through
    September 2001.

        Oct. 2000     ICANN holds worldwide elections to replace 5 of the 9
    interim Board members appointed at ICANN's creation.

        Nov. 2000     At a meeting in California, ICANN selects 7 new top-
    level domain names: .biz (for use by businesses), .info (for general
    use), .pro (for use by professionals), .name (for use by individuals),
    .aero (for use by the air transport industry), .coop (for use by
    cooperatives), and .museum (for use by museums).

        Mar. 2001     The Department of Commerce enters into a second
    contract with ICANN regarding technical functions of the domain name
    system.

        May 2001     ICANN and the Department of Commerce approve MOU
    amendment 3, which conforms the MOU with the Department's new agreement
    with VeriSign (formerly Network Solutions.)

        July 2001     ICANN issues its third Status Report, which states
    that most of the tasks in the MOU are either complete or well on their
    way to completion.

        Aug. 2001     ICANN's At-Large Membership Study Committee issues a
    preliminary report that recommends creating a new at-large supporting
    organization. The new organization would be open to anyone with a
    domain name and would elect 6 members of ICANN's Board of Directors.

        Sep. 2001     The Department of Commerce and ICANN agree to extend
    the MOU through September 2002 and the cooperative research and
    development agreement through June 2002 (amendment 4).

        Nov. 2001     Following the September 11 terrorist attacks, ICANN
    devotes the bulk of its annual meeting to security issues. The At-large
    Membership Study Committee releases its final report, which retains the
    Board reorganization first proposed in August 2001.

        Feb. 2002     ICANN president Dr. M. Stuart Lynn releases a
    proposal for the reform of ICANN.

        Mar. 2002     At a Board meeting in Ghana, ICANN's Board refers Dr.
    Lynn's proposal and questions about at-large representation and outside
    review to an internal Committee on ICANN Evolution and Reform.

        Apr. 2002     The Department of Commerce exercises an option in its
    contract with ICANN regarding the technical functions of the domain
    name system, extending it through September 2002.

        May 2002     ICANN's Committee on Evolution and Reform reports its
    recommendations to ICANN's Board.

        June 2002     ICANN's Board is scheduled to meet in Bucharest,
    Romania.

        Oct. 2002     ICANN's Board is scheduled to meet in Shanghai, China

        Senator Wyden. Thank you. Mr. Lynn.

     STATEMENT OF M. STUART LYNN, PRESIDENT, INTERNET CORPORATION
                     FOR ASSIGNED NAMES AND NUMBERS

        Mr. Lynn. Thank you, Mr. Chairman, and Members of the
    Subcommittee. I appreciate the opportunity to appear here today
    to discuss the ongoing process of reform and restructuring of
    what really is a household name, ICANN----
        [Laughter.]
        --which I have served as President and Chief Executive
    Officer since March of last year. ICANN was launched in 1998.
    It was a new venture as we pointed out. It had not been tried
    before, global coordination of a significant Internet resource,
    namely the Internet's naming and address allocation systems.
        What was really new at that time, was that ICANN was and is
    private, a private not for profit corporation. Private, but
    acting in a global public interest. Now, when you think about
    where it started, I would suggest that ICANN has, in fact, made
    remarkable progress. At its birth, ICANN had no funding, no
    agreements, no staff, no organization, nothing. What it did
    have was broad support from the United States and other
    governments around the world and from significant sectors of
    the global Internet community. Along with that support, it has
    enjoyed the dedication of countless volunteers and the tireless
    efforts of the small staff that now numbers 17.
        Following its mandate from the Department of Commerce and
    the community, ICANN has achieved many of those accomplishments
    that the previous witnesses have mentioned. It stands as a
    functioning organization. It is open, transparent and
    participatory. It introduced competition in a market for
    dot.com and other domain name services, where before there were
    none. It initiated competition at the registry level with the
    launch of several new global top-level domains over this past
    year. It successfully introduced the global Domain Name Dispute
    Resolution Policy, reshaped our approach to security, and above
    all, of that which we are most proud, has maintained the
    stability of the critical Internet functions that ICANN
    coordinates,. And it has done this without one dollar of
    government funding.
        Now, is everything perfect? Of course not. That is why a
    couple of months ago I strongly advocated a fundamental reform
    effort, including a review of ICANN's vision in my report to
    the ICANN Board of Directors this past February. ICANN's
    achievements have been significant, but I pointed out that
    ICANN must change if it is to accomplish its mission and to
    become the fully effective and accountable organization that
    ICANN needs to be.
        Now, I'm pleased to tell you that these reform efforts
    alone--the board will consider a blueprint for reform at its
    meeting in 2 weeks. The basic form of this blueprint has
    already been placed before the community for comment. And I
    have been pleased as I think the Board of Directors has, to see
    so much engagement by so many stakeholders in this reform
    effort.
        ICANN's mission is narrow and is well-defined. ICANN
    ensures that central technical tests are effectively performed.
    But, ICANN's charge from the United State's Government requires
    it to undertake those policy tasks and only those policy tasks
    that are necessary to the execution of its technical
    responsibilities. One cannot, for example, add a new top-level
    domain without asking what name; who operates it; for how long;
    under what conditions, and so forth. Someone has to address
    those policy questions and if not ICANN, then who?
        Now, what the typical view of ICANN is--is it half full or
    half empty. Whether you choose to emphasize ICANN's many
    accomplishments or emphasize what it has not done. Now, I am
    afraid to say, I am an unabashed, half-full optimist. But, I
    recognize it is easy to focus on the half-empty. No
    organization can lay claim to perfection. There is no doubt
    that ICANN has serious problems to address. It would be truly
    amazing had the founders of ICANN got everything right in 1998.
    As ICANN works through its reforms, we welcome your advice and
    your suggestions and we welcome the continued oversight of the
    Department of Commerce which throughout ICANN's history has
    been a constructive and understanding, yet demanding and
    forthright department. I was not there at the beginning of
    ICANN, and I will retire next March. But before I move on, I am
    committed to leaving behind a restructured and reformed ICANN.
    An ICANN that is well-poised to take on the challenges and
    opportunities of the future, an ICANN that deserves our core
    values of transparency, openness and accountability, yet and
    ICANN that is effective and efficient in fulfilling the mission
    that has been placed before it.
        Thank you very much for allowing me to make these remarks,
    and I, of course, would welcome any questions from the
    Senators.
        [The prepared statement of Mr. Lynn follows:]

     Prepared Statement of M. Stuart Lynn, President, Internet Corporation
                         for Assigned Names and Numbers

        Mr. Chairman and Members of the Subcommittee, I appreciate the
    opportunity to appear here today to discuss the ongoing process of
    reform and restructuring of the Internet Corporation for Assigned Names
    and Numbers (ICANN), which I have served as President and Chief
    Executive Officer since March of last year.
        The timing of this hearing is opportune, because reform and
    restructuring are front and center of ICANN's agenda at its next round
    of meetings in late June, and thus I welcome input from you and other
    interested legislators. If ICANN is to succeed as a private-sector
    coordinating body, its structure and operation must deserve the strong
    support not only of the Administration, but of the U.S. Congress as
    well. I welcome today's hearing as a significant step in that dialogue.

    The Debate Over ICANN
        ICANN embodies a complex idea: an open and participatory non-
    governmental entity that seeks to balance widely diverse interests.
    Thus, ICANN is intended to be a lightning rod for loud and noisy
    debates, and considerable contention. In fact, in a very real sense
    that is a principal reason ICANN was created--to establish a single
    forum in which all these varied interests, from around the globe, could
    come together and, where possible, arrive at consensus solutions to
    complex technical and policy issues essential to the continued stable
    operation of the Internet.
        An observer in the Wall Street Journal recently noted that, to the
    uninitiated outsider, the intensity and obscurity of ICANN debates
    evoke the image of die-hard Star Trek fans arguing whether Captain Kirk
    could defeat Captain Picard. There is more than a grain of truth to
    that. But this fact--that ICANN is intended to be a forum for
    discussion and debate, sometimes quite vigorous--does not mean that
    ICANN should not or cannot operate effectively. ICANN's core values are
    fundamental to its character and legitimacy--core values such as open
    participation (ensuring that all interested parties have their say) and
    consensus (seeking wherever possible to arrive at commonly-agreed
    solutions). Taken to extremes, however, these can result--and, in my
    view, have too often resulted--in near-paralysis on important issues.
        A central theme for my testimony today is the need for fundamental
    reform of ICANN's processes and procedures. A bottom-up policy
    development process like ICANN's must be fair, open, and transparent,
    but the procedures themselves cannot be allowed to prevent reaching
    decisions when consensus proves elusive or impossible. It is an
    unfortunate fact of life that consensus-based procedures can be abused
    to prevent effective and timely action by ICANN. To carry out its
    mission, ICANN must not become prisoner to the lowest common
    denominator of special interests but must seek out the technical or
    policy solution that best serves the global Internet community.
        Finding the correct balance between these sometimes conflicting
    objectives is what the current reform and evolution process is all
    about. The debate was begun by the publication of my report to the
    ICANN Board in February of this year. That report, entitled ``ICANN--
    The Case For Reform,'' is attached to this testimony, and was the
    result of my evaluation of ICANN, its operations and processes during
    the first year of my tenure. It concluded that, despite considerable
    accomplishments to date, ICANN must continue to evolve in both
    structure and operation if it is to meet the more complex tasks facing
    it in the foreseeable future. I believe that deep, meaningful reforms
    are needed if ICANN is to continue to be as successful in the future as
    it has been to date.
        I am very pleased that the call for a public debate on these issues
    has been embraced by virtually all ICANN participants, including the
    United States and other governments. Over the past few months we have
    seen a very productive dialogue develop in the ICANN community on
    exactly how best to address the problems that I identified (and which
    almost all the community agreed were indeed the key problems of ICANN).
    That dialogue is still ongoing, but it is beginning to coalesce around
    some essential concepts that I will discuss later in this testimony.
        As is to be expected in a community of very different and opposing
    perspectives and interests, when presented with the opportunity for
    reform, some segments of the community retreat to the periphery to
    defend or advance their unique interests, offering appealing (but
    generally misguided) sound-bite arguments to water their own turf. You
    have heard or undoubtedly will hear many of these arguments, and will
    judge them appropriately.
        But ICANN's job is to seek a common higher ground that melds these
    private interests with the greater interests of the global (including
    the United States) Internet community as a whole. I am proud that so
    many of our constituent bodies recognize this need. With your and their
    support, I am quite sure ICANN will evolve to where it can act
    effectively to further the stability and security of the Internet's
    naming and address allocation systems, while reflecting the patchwork
    quilt of so many participants in the process.

    ICANN's Mission--Technical and Policy
        Much of the debate has centered around ICANN's mission. What
    exactly is ICANN supposed to achieve? Simply put, it is ICANN's role to
    ensure that certain essential technical tasks are effectively performed
    for the benefit of the global Internet. But these technical functions
    cannot be performed in a policy vacuum. As was discussed in a recent
    working paper on ``ICANN Mission and Core Values'' (posted on the ICANN
    website and attached to this testimony), it is impossible to enter a
    new top level domain (TLD) into the root without answering serious
    policy questions: what name, who gets to operate it, for how long,
    under what conditions, and so forth. And how to reflect public interest
    concerns such as fair competition, privacy, intellectual property, and
    diversity? The answers to these questions have serious consequences.
    Simple ``first come, first served'' formulas are not solutions.
    Instead, what is needed is thoughtful, reasoned human judgment, bounded
    by clear, predictable and transparent rules, and informed by broad
    public consultation and input.
        In short, ICANN must, as it was always intended to do and has done
    from its creation, address a limited set of policy issues directly
    related to its core mission--because they are inextricably intertwined
    with the technical tasks required by that mission. Indeed, everyone
    interested in this debate should ask themselves, ``If not ICANN--rooted
    in community consensus as that term can best be defined--then who would
    perform these policy functions?'' The policy issues will not go away;
    they will not disappear simply because they are not ``technical'' by
    someone's definition. And policy issues that affect a global resource
    are not easily managed by any one national government.
        Global interoperability requires global cooperation; this is not a
    luxury but a necessity. The fact that the Internet is a global resource
    is what drove the creation of ICANN in the first place. Tellingly,
    those who object to ICANN's policy role have offered little in the way
    of credible alternatives to deal with these inevitable policy issues,
    other than (1) the bureaucratic international treaty organization
    alternative rejected in favor of the private sector model that became
    ICANN, or (2) alternatives that essentially lead to chaotic free-for-
    alls and the eventual destruction of globally unique naming.
        To be blunt about it, some want ICANN to perform only those policy
    functions that hamstring their competitors but free them to do as they
    wish. It's understandable, but misguided. In a similar vein, you may
    hear words like ``thick'' and ``thin'' bandied around without real
    definition to describe various versions of ICANN. I do not find those
    terms particularly useful--you will generally find that a given
    interest wants ICANN to be ``thin'' where it wishes to avoid any
    oversight of its actions, and ``thick'' where it wants ICANN to enforce
    rules against someone else. In my view, ICANN should be as thin as
    possible, but thick enough to do its job.

    ICANN: Private in the Public Interest
        ICANN is, by deliberate choice of the United States and other world
    governments, and of the vast majority of private entities who expressed
    views on this subject, a private sector organization. The United States
    government, reflecting the very strong views of virtually everyone who
    participated in the debate that generated ICANN in 1998, concluded that
    the Internet's naming and addressing functions must be managed on a
    global basis, but quite consciously decided that handing this task over
    to an existing or new multinational governmental bureaucracy was not
    the right solution. And so it called for the creation of what became
    ICANN. In the view of most stakeholders, this decision was clearly
    correct; ICANN's growing pains pale beside the likely difficulties
    generated by giving some global multi-governmental organization the
    responsibility for management of such a dynamic resource.
        ICANN is an organization rooted in the private sector and, in the
    view of most stakeholders, must remain that way. But the Internet has
    become too critical to the economies and social progress of the
    community of nations to ignore the important role that governments must
    play in ensuring that ICANN acts in the public interest as it addresses
    unavoidable but often divisive policy issues. That, indeed, is why you
    are holding these hearings today. You are rightly concerned about the
    public interests of the United States and its citizens, and the
    relationship of those public interests to those of the rest of the
    world community. Some may wish to ignore governments' role in
    furthering the public interest, bury it under six feet of bureaucratic
    jargon, or replace the vital role of governments with some kind of
    unworkable global ``democracy'' elected by and captive to a tiny
    minority of Internet users. I prefer that the key role of governments
    is fully seen in the light of day, and that we collectively and openly
    determine what kind of public/private partnership can ensure that a
    private ICANN executes its core mission while respecting governmental
    concerns for the public interest.
        During my tenure and before, ICANN has had a particularly
    constructive working relationship with the U.S. Department of Commerce.
    That agency has been sensitive to its unique role in this area, and we
    continue to work closely with the DOC and other representatives of
    national governments as we move forward toward an improved public/
    private partnership.
        This notion of an improved public/private partnership was a
    critical part of my original ``Case for Reform'' document, and I
    proposed one possible way to accomplish this goal. But, as is often the
    case with ICANN, much better ways are being suggested as the dialogue
    progresses and the broader outlines of a restructured ICANN are taking
    shape.

    ICANN's Reform on Track
        Under these circumstances, this hearing is particularly timely. I
    came out of retirement to take on this responsibility, and agreed to do
    so for a two-year term that expires in March of 2003. I view the
    completion of the development of ICANN as my primary remaining task
    before I retire for the second time. I am committed to seeing this
    evolution essentially completed by the time my term ends, so that my
    successor can focus on the basic mission of ICANN. I believe this is
    well within our grasp. Reaching global consensus on this, like most
    other issues, requires patience and serious discussion, but we are well
    on our way to a satisfactory result.
        I will not spell out in great detail the ongoing reform debate and
    the various proposals that are arising from it, since it is a work in
    process--much of which, like making sausage, is not always pretty. I am
    attaching three working papers that detail ideas published for
    community comment by the ICANN Committee on Evolution and Reform,
    appointed by the ICANN Board of Directors to coordinate the reform
    process, along with a useful introduction to ICANN's actual day-to-day
    responsibilities, called ``What ICANN Does.''. The important point is
    that the work is moving forward on a fast track, in full public view
    and with detailed input from the broad Internet community, including
    governments, non-governmental organizations, those directly and
    actively involved in ICANN, and the general public. We expect that the
    Board will adopt a blueprint for reform at its meeting at the end of
    June that will chart the main outlines of ICANN restructuring.
        What will that blueprint look like? The Evolution and Reform
    Committee's most recent documents, ``ICANN Mission and Core Values''
    and ``Recommendations for the Evolution and Reform of ICANN,'' capture
    much of the best thinking from the community. In broad terms, it would
    retain the bottom-up consensus development model that has been a core
    value of ICANN from the beginning. It would retain the fair, open and
    transparent character of ICANN processes. It would retain the
    geographic, functional and cultural diversity that has been a hallmark
    of ICANN since its creation. And it would retain the private sector
    model that sets ICANN apart from any other entity responsible for
    oversight of a critical global resource. But to enhance the
    effectiveness of ICANN, it would:

       fundamentally restructure the ICANN Board and supporting
            organizations to make them more effective and responsive;

       create more structured decision paths and better defined
            procedures that ensure open opportunities for input, and firm
            and predictable deadlines;

       create a system for continuing to populate the ICANN Board
            and our supporting organizations with people who can lead with
            credibility, effectively represent the broad public interest,
            and take proper account of the multiple interests of both
            providers and users of the Internet

       better integrate representatives of national governments
            into the ICANN policy development process as an important voice
            of the public interest; and

       strengthening confidence in the fairness of ICANN decision-
            making through (a) creating a workable mechanism for speedy
            independent review of ICANN Board actions by experienced
            arbitrators; (b) establishing an ombudsman function accountable
            directly to the Board; and (c) creating a full-time manager of
            public participation with the charge to ensure that those
            interested in providing input to ICANN's policy development
            process have the necessary information and mechanisms to
            provide that input.

        While ICANN's structure and procedures are obviously important, two
    other major issues must also be addressed. ICANN must have a proper
    framework of agreements with all the key participants in the DNS
    infrastructure--those who operate the name root servers, those who
    allocate IP addresses, and the operators of the more than 250 TLD
    registries, including those who are responsible for the so-called
    ``country code'' or ``ccTLD'' registries. And ICANN must, of course,
    have a funding structure that is adequate to support its mission. As we
    come closer to consensus on ICANN structure and process, we must not
    lose sight of these critical building blocks to a successful ICANN.

    ICANN Has Been Successful
        I have devoted full time over the last year to learning what ICANN
    did well and where it needed to improve, talking and listening to
    understand the wide range of perspectives on these issues. And we
    should be clear: before my tenure (I emphasize this to be clear about
    my objectivity), ICANN has had some truly important accomplishments.
        It successfully introduced competition into the name registration
    market; the result is more choice, better service, and lower prices--
    much lower prices--for consumers. Of course, opening a market to
    competition also opens it to sharp marketing practices, potential
    fraud, and all the other warts of a free marketplace. With adequate
    resources, ICANN can certainly do a better job of policing its
    agreements with accredited registrars, but for consumers who can now
    get for $10 or less in all sorts of varied packages something that used
    to have a single price ( $70) for a single product (a two year
    registration), registrar competition--warts and all--looks pretty good.
        ICANN successfully introduced the first global dispute resolution
    system for domain names (the Uniform Dispute Resolution Policy), which
    has demonstrated the value of innovative global solutions for this
    global medium. Imagine, if you will, the difficulty of pursuing and
    prosecuting cybersquatters in every nation on the planet, and compare
    that to a UDRP proceeding that costs very little, takes little time,
    and can provide a globally effective resolution. Of course, like any
    such system, an individual UDRP panelist will occasionally produce a
    decision that seems to make little sense, and this lack of perfection
    has caused some to criticize the entire system. But no system manned by
    imperfect human beings will ever be flawless. Indeed, no more than a
    handful of UDRP decisions have provoked sustained criticism, which is
    remarkable given that over 4,000 decisions have been rendered. The UDRP
    can surely be improved, but it stands as a truly major accomplishment
    for which ICANN deserves great credit.
        Another major accomplishment for ICANN has been the introduction of
    the first new global Top Level Domains since the creation of the DNS.
    Seven new TLDs have now become operational over this past year: .biz,
    .info, .name, .pro, .museum, .coop, and .aero. This was a major
    undertaking. When ICANN was created, there was, for all intents and
    purposes, a monopoly provider of domain names to the public. In most of
    the world, including the United States, the .com top level domain or
    TLD (and, for some, .net and .org, operated by the same registry) was
    the only perceived domain name option. And there was something less
    than consensus about how, and how fast, and even whether to change this
    situation.
        ICANN served as the forum for debating these issues, pulling
    together those who wanted to allow anyone to operate as many TLDs as
    they desired (paying little attention to the many technical or other
    potential difficulties) and those who saw the addition of any new TLDs
    as unnecessary and undesirable, not serving any true public purpose and
    simply creating more burdens on business and risks of various kinds.
    The ICANN process eventually introduced these seven new and highly
    varied TLDs as a ``proof of concept,'' with the notion that after
    evaluating the results the community would turn to the issue of whether
    and how and how many other new TLDs should be introduced. That process
    took longer than hoped, and the subsequent evaluation has been slowed
    by ICANN's ever-present resource limitations, but it is already obvious
    that any consideration of the introduction of more new TLDs will need
    to carefully address an number of issues, ranging from the proper role
    of ICANN to the realistic business prospects of new TLD registries.
    Still, these questions should not obscure the very real accomplishment
    of ICANN in producing for the public the first real global alternatives
    to the .com monopoly.
        ICANN has had other accomplishments as well. There is no doubt that
    not all has been perfect, but it should hardly be a surprise that a new
    idea like this, staffed largely by volunteers--supported by a very
    small full-time staff--from around the globe with different
    perspectives, cultures and operating styles, would have some growing
    pains. ICANN is still an infant, not yet an adolescent, and certainly
    not an adult, and it still has some growing to do. The ongoing reform
    effort will speed ICANN's maturation.

    Conclusion
        This blend of accomplishment and unfinished development is what
    makes my job so interesting, and is why so many people of good will are
    still committed to making ICANN succeed. I came to this job with no
    baggage; I was not present at ICANN's creation, or even involved at
    all. I had no prior conceptions, and no need to defend the status quo.
    I will leave this job next March, so I have no ambition to build an
    empire. In other words, I am a free agent, able to offer ideas and
    thoughts based on their merit and the practical realities of what is
    needed to run an entity like ICANN.
        But this freedom brings with it a real responsibility. I do not
    plan to end my short tenure at ICANN having failed to position ICANN so
    that it can move forward with confidence and stability into the future.
    I am committed to seeing this evolution through to a successful
    conclusion. I thank the members of the Subcommittee for your time and
    interest in ICANN. Your input and support will help us achieve an
    effective private sector ICANN that truly serves the interests of the
    global Internet community.

        Attachments *:
    ---------------------------------------------------------------------------
        * The information referred to has been retained in Committee files.

        APPENDIX A--President's Report: ICANN--The Case for Reform

        APPENDIX B--What ICANN Does

        APPENDIX C--Working Paper: ICANN Mission and Core Values

        APPENDIX D--Recommendations for the Evolution and Reform of ICANN

        Senator Wyden. Very good. I thank all of you for being
    brief. We will make your statements a part of the record. Each
    of us will take 5 minutes and see how much progress we can make
    on the first round panel.
        To begin with, I would like each one of you to describe
    what you think the essential tasks are that ICANN should
    perform, and what are the tasks that they really ought to set
    aside, that they should get out of? Let's see if we can begin
    that. Why don't we begin with you, Ms. Victory. What are the
    things you want ICANN to do? Stay away from your mission
    statements and more general stuff, but get into tasks they
    ought to be doing and things they ought to be out of.
        Ms. Victory. Just to clarify, do you want tasks or the
    overall reform process or just overall tasks that they should
    be doing.
        Senator Wyden. Yes, that this organization ought to be
    doing. What should they be doing? What should they not be
    doing?
        Ms. Victory. Well, I think that the statement of policy,
    the White Paper, sets out four areas. Those are the four areas
    that they should be concentrating on, and those four areas are:
    to set policy for and direct the allocation of IP number
    blocks, to oversee the operation of the Internet root server
    system, to oversee policy for determining the circumstances
    under which new top-level domains should be added to the root
    server system, and to coordinate the assignment of other
    technical protocol parameters as needed to maintain universal
    connectivity on the Internet.
        Senator Wyden. You are comfortable in White Paper, in terms
    of what they ought to be doing?
        Ms. Victory. At this point, yes. We've not done a broad
    inquiry into whether not the White Paper should be revised.
        Senator Wyden. Are there areas that they ought to be out
    of, or do you think that is not anything we need to be looking
    at right now?
        Ms. Victory. We think that they should be sticking to these
    four missions in terms of what they should be doing, because at
    this point, ICANN has a limited amount of resources. They
    should apply those resources to these four functions and focus
    in.
        Senator Wyden. Mr. Guerrero, what should they be doing
    there? What should they be getting out of?
        Mr. Guerrero. Mr. Chairman, I generally agree with the
    answer you just heard. I would add to that that one of the
    important roles of ICANN was to increase competition, and as
    you have heard from all of us up here in our prepared
    statements, they have done that. That is, in fact, acknowledged
    as one of the more successful efforts.
        The core mission and the core responsibilities for ICANN do
    stem from the White Paper--ensuring stability and security of
    the domain system, the root servers. It's keeping track of the
    assigned numbers. It seems to be--and testing top-level domain
    names and increasing competition and the registration of domain
    names. And I think that's probably the essence of it.
        Senator Wyden. So, you are comfortable with the White Paper
    as well, both in terms of what they ought to be doing and as of
    now, that there is nothing that they should be getting out of?
        Mr. Guerrero. I would observe that there is a growing
    consensus that ICANN needs to refocus its efforts here, and it
    needs to work with the stakeholder community to make sure that
    its mission statement, as it currently being defined here,
    satisfies its key stakeholders that that is, indeed, its
    important role. That's specifically the operational functions
    of ICANN. So, it's hard for us to say what should be in and
    what should be out. So, I think we can give you some general
    sense of that.
        Senator Wyden. Well, I'll ask about that in the second area
    I'm going to touch on before I recognize my colleagues. I think
    it's fair to say, it certainly seems to me, that the
    organization needs to do a better job of listening to all of
    the voices out there and expertise in this area, and that is
    the asserted position. I'll ask about that in a second.
        Mr. Lynn, your views on the essential tasks in your
    organization and anything that you think, maybe, you can live
    without doing?
        Mr. Lynn. I think that what's being said is absolutely
    right. The White Paper spells it out. And that's what we've
    been working under, the White Paper and what's been spelled out
    in the memorandum of understanding with the Department at
    Commerce.
        I would only add that besides promoting competition, it is
    maintaining competition. And the danger is that we make sure
    that we don't overstep our bounds in that area, but on the
    other hand, that we fulfill what's been asked of us to do.
        As for other things that we should get out of,
    unfortunately, the global answer is everything else, because
    there is a whole world of things out there that certainly
    people wanted us to do, such as regulating content and also
    getting into issues of consumer protection, which was simply
    not chartered and we don't have the resources to do.
        Senator Wyden. This is for the whole panel starting with
    Mr. Guerrero. What else can be done to ensure that ICANN does a
    better job of listening to all of those who are interested and
    use the Internet? What role national governments should play?
    What changes would you support here, Ms. Victory?
        Ms. Victory. Well, I think one of the things that we
    suggested to ICANN, looking at this process, and I think they
    probably have heard from some of the stakeholders, is they need
    some written policy development procedures. That's for policies
    that are directly related to the types of technical
    administration that they are doing. And not only that, but an
    opportunity then to get stakeholder views, such as the posting
    and public consideration of what the proposal is and adequate
    time to receive comments from the stakeholder community. We
    think that is very necessary.
        I think one of the criticisms that came out of the
    selection of the seven new top-level domains--and there was one
    criticism that it was too small a sampling that was chosen, but
    there was also criticism that people didn't understand why the
    ones that were chosen were the ones chosen. And I think some
    sort of a written statement as to why a decision is made would
    also be very, very helpful.
        Senator Wyden. Mr. Guerrero and then Mr. Lynn.
        Mr. Guerrero. Yes. I want to start first with an
    observation, then a specific suggestion. The observation in
    answering the first question, which is what should be in and
    what should be out of ICANN, is very much related to the second
    question of how should ICANN be governed, because, to some
    extent, that issue, the first question, is resolved if ICANN's
    governing structure is widely recognized as legitimate. If it
    is and the key stakeholders agree that this is the right
    organizational structure and the right people represented in
    the right structured way, then ICANN is legitimate. If they
    don't, as is the case today, then ICANN--it doesn't matter what
    they do. There will be questions raised about the legitimacy of
    ICANN.
        Specifically, I would actually on this point suggest that
    the Department of Commerce consider doing something that has
    been done overseas. Here the Department of Commerce told us
    that in helping them respond to ICANN's reform initiatives,
    they have informally consulted with stakeholders, government
    agencies, business and so forth, the standard setting
    organizations et cetera. In the UK for example, also in
    Australia, the government has decided to put on-line a
    questionnaire for anyone who has a stake or interest here to
    answer some very basic questions about ICANN governance,
    organization, representation, mission, scope and so forth. I
    think that would be a useful exercise to consider doing here.
        Senator Wyden. Mr. Lynn.
        Mr. Lynn. Yes, I think we can always improve. I think it is
    important to point out that there is a balancing act that goes
    on here. We are a small private corporation, and yet we behave
    in a way like very large government organizations do in many
    ways. We are criticized for not being fast enough in what we
    do. And yet we are criticized for not having enough process
    along the way in order to get it done. It's a very difficult
    balancing act, particularly when you are working with such
    limited resources.
        My idea would be to allow a much greater participation. I
    think the work that is being done by the Committee on evolution
    reform, in developing better processes, in developing better
    procedures, in opening up the process, we have also to support
    organizations like--and so forth will help that immeasurably.
    But, I think we have to recognize there is a great difficulty
    in maintaining appropriate balance.
        Senator Wyden. I think that's always correct. I just want
    to convey the depth of frustration out there in the Internet
    community on this point. People really don't feel that they are
    being listened to. They want to be heard. I think they
    understand this question of balance. Certainly, broad policy
    questions ought to be looked at different than very narrow,
    technical kinds of questions.
        I will just say as one member of the U.S. Senate, I think
    you need to recognize the level of unhappiness on this point.
    There are a lot of people, typical Internet users, who get no
    chance to really be heard on these kinds of questions, and
    that's what I hope your work will change.
        Senator Allen.
        Senator Allen. Thank you, Mr. Chairman. My question
    somewhat follows up with yours as to what ICANN ought to be
    doing or not doing and I would like to address it to Mr. Lynn.
    You have a very difficult job. You are trying to make a lot of
    progress and it is good to be optimistic and positive in
    sticking to the mission statement. I addressed it very briefly
    in my opening statement, and that has to do with a fact about
    ICANN--and then again, you can address it, you can refute it.
    You don't have to agree with my statement.
        I just want to understand how your mission seems to be
    beyond being a coordinator and manager of the Internet and when
    you see the fact--and I'll ask you to comment on or describe to
    me the history of why or how ICANN operates the .arpa and the
    .int, so you don't think that's--dot a-r-p-a and dot i-n-t
    registries, as well as the J Root server. It seems to me that
    my initial reaction to this is that's outside of your mission.
    Why can't that be done by some other profit organization?
        Mr. Lynn. Senator, we agree. We don't feel it's within our
    mission either. However, there are--evolving away from that, we
    inherited those activities. We didn't claim them. Evolving away
    from that is----
        Senator Allen. Inherited them from who?
        Mr. Lynn. From the previous operation as to when ICANN
    started.
        Senator Allen. From Network Solutions?
        Mr. Lynn. No, not from Network Solutions, but I believe--
    this goes before my history with ICANN--that they were operated
    by ISI and John Postell when he was doing this work.
        Senator Allen. OK.
        Mr. Lynn. Transitioning is more complex, however. A root
    server has hard-coded Internet addresses. It is spread all over
    the network. Changing that takes a long time and is not easy.
    We haven't focused on it because it hasn't become a priority
    because of the limited resources. But, it isn't just a question
    of switching it off and switching it on. It's more complex.
        We also agree about .int and .arpa and as soon as we can,
    we want to transition away from them; .int, however for legacy
    reasons is not purely dealing with international treaty
    organizations. It also deals with a lot of technical support
    functions for the INTA. As soon as we work those out, we are
    anxious to transition them.
        So, the short answer is, we agree. We don't think they are
    in our mission and we have no reason to hold on to them
    whatsoever.
        Senator Allen. Well, with your staff of so few, of 17, it
    would seem to me that that does divert you from your core
    mission. The J root server, you may have an argument that it is
    beyond my capabilities of understanding some of that. But so
    far as the .int and the .arpa, it would seem to me that fairly
    quickly, you all could be moving to have that handled by
    VeriSign or Neustar or whomever wants to bid to do that work.
        I assume that you would be making that transition there.
        Mr. Lynn. You are talking about the .arpa and the .int?
        Senator Allen. Yes----
        Mr. Lynn.--we are right now in the process of trying to
    address the issue of transition of the .org registry. That
    stated, that is consuming all of the resources that we can
    consider in that kind of transition function, right now. As
    soon as that is over, I expect we will be paying greater
    attention to .int and .arpa.
        Senator Allen. Do you have a scenario or a timetable? I'm
    not saying that you have got to be done on October 31. But is
    it 6 months away? A year?
        Mr. Lynn. Well, I think it's more than that. We are talking
    about a matter of a year or two, not a matter of months.
        Senator Allen. Before you start?
        Mr. Lynn. No, before we see it happening. The root server
    is a very complex transition at this point----
        Senator Allen. Understood. One other issue of concern to
    this Committee, the Chairman, and myself is the security of the
    Internet. The Federal National Infrastructure Protection Center
    has issued several warnings in 2001 of multiple vulnerabilities
    and commonly identified domain name software as a serious
    threat to the Internet. What steps has ICANN taken to ensure
    the domain name system is secure?
        Mr. Lynn. I think there are a few points I'd like to make
    here. The first is understanding the ICANN role is a
    coordinating role. It is not an operational role. It is,
    therefore, very limited.
        Second, given that we take security very, very seriously,
    it is nothing new in the Internet. Security has been built in
    from its very inception. Indeed, it is part of every standard
    set.
        The IETF--what ICANN has done is this. We devoted a whole a
    major conference to security in November to bring together all
    of the components of the community so we could understand work
    done in the community and about what the vulnerabilities were.
    Since then, we have appointed a very high level security
    committee, composed of individuals who are very knowledgeable
    in these areas and they are working to really understand what
    the vulnerabilities are and to coordinate with the communities
    to understand what should be done.
        There is no such thing as 100 percent secure system. The
    Internet community involved with domain name systems takes
    security very seriously and is always willing to improve. I
    think you will see that will happen as time moves forward.
        Senator Allen. Thank you, Mr. Lynn. My time is up and Mr.
    Guerrero and Ms. Victory can live in this--they were up here
    yesterday, so----
        [Laughter.]
        Senator Wyden. Senator Burns.
        Senator Burns. Thank you very much and I want to thank the
    witnesses for coming today. And as we work our way through
    this, there is a lot of areas.
        You spoke of a report, Mr. Lynn, that was supposed to have
    been done by the board and submitted to the Department of
    Commerce. I think the first report was due on 2001. Then you
    wanted a report by February or March of 2002. And those reports
    are not forthcoming. Could you tell us what the status of those
    reports are and what we can expect?
        Mr. Lynn. Thank you, Senator Burns. This has been one of
    those difficult things for ICANN to address. It's been of
    concern to us.
        The problem that we have relates to a deeper problem that
    the GAO has pointed out in their report, is that we don't have
    agreements, in this case, with the group server operators that
    allow us to say then that this is a condition that they have
    fulfill. We have been trying to cooperate with them for the use
    of necessary information. These are volunteers. There are many
    who feel that that is an unfortunate--and many who feel that
    that's right. I don't want to comment on that so much as to
    say, that makes it difficult for us to produce that report.
        Senator Burns. Since the MOU expires September the 30th of
    this year, in your opinion, should that MOU be renewed? That's
    for all three of you.
        Ms. Victory. We will be making that determination over the
    next couple of months, as I indicated in my testimony. We feel
    that by that date we do need to make a decision as to whether
    or not ICANN is on the right path to a successful transition.
    So, these next couple of months will be crucial. At this point,
    I can't prejudge whether we will renew, modify, or terminate
    the MOU.
        Senator Burns. Mr. Guerrero.
        Mr. Guerrero. Yes. In actual response to Senator Allen, I
    hope I won't be taking up residence here.
        [Laughter.]
        Senator Allen. Senator Burns, you can vote now.
        [Laughter.]
        Mr. Guerrero. I think it is actually premature at this
    point, given the reform issue that is underway to suggest it
    should or should not be extended, but it's precisely because we
    feel the Department hasn't been as forthcoming as they need to
    publicly in terms of describing the status of the project and
    what's happening, and what needs to be done, and when it needs
    to be done. And that's a really important step, and were the
    Department to issue that type of progress report, I think we
    would have a better sense of the timeframes for making that
    kind of decision.
        Senator Burns. Mr. Lynn.
        Mr. Lynn. We have to defer, of course, to the Department of
    Commerce and the U.S. Government on this. We believe that we
    have a good story to tell and that we will be able to prove
    that as we move through the reform process. We would also be
    interested, from our own perspective, as to whether the MOU,
    itself, needs to be modified to better reflect what we think we
    should and can do.
        Mr. Burns. Well, I'd be interested in that dialog, by the
    way and what you want to see done. I think, again, Congress
    does have a role to play in oversight. I would--I guess what
    concerns most of us that follow the workings of the Internet,
    and especially ICANN, is that they have the inability to
    organize their own board and get them sort of pulling in the
    same direction. In other words, committees, assigned
    committees, areas of jurisdiction, or areas of interest, I
    should put rather than jurisdiction.
        Under the current form, who do you represent? How do you
    answer that questions when people ask you who do you represent?
    How do you respond to that?
        Mr. Lynn. Senator, that is certainly one of the questions
    that I've raised in my report on reform. I think it's a
    question that has to be addressed. I think in terms--to the
    Board, they could say less we represent interest X and interest
    Y, as so much as a Board that is a whole, could say it
    represents the public interest in a domain name system. So,
    it's representative of the community as a whole.
        Now, that's a very broad statement, and doing that in
    detail is the hard work that is going on in the reform
    committee right. now.
        Senator Burns. Are we choosing the wrong vehicle or the
    wrong method of selecting the board?
        Mr. Lynn. What is being proposed is a different kind of
    vehicle, which is the use of a nominating committee which,
    itself, is representative, but when it is selecting members of
    the Board, pays attention to the characteristics, diversity,
    expertise, functional understanding, community, public interest
    and so forth to try and avoid a Board which cannot make
    decisions because it is too representative, 20 different, if
    you look, political parties, that is a Board that can act in a
    more effective, stable, and mature manner.
        Now, I want to say one thing. I think we have had a very
    effective and very good Board over the years. And I don't want
    to pretend that what's being proposed by the Committee and
    myself in moving forward, I don't want to detract from that in
    anyway. But, moving forward as we look to the future, I think
    above all, we need a Board that is going to be supported by the
    community, is stable, effective, credible, and makes mature and
    reasonable judgments and decisions.
        Senator Burns. Well, I just think that this may be the
    basis of some of the problems that you are experiencing. And,
    we would like to hear what you have, maybe we can do that in a
    private conversation. Maybe that's the best place to do this.
    But, it just seems to me that the process in which the
    selection is made for Board members might have to be looked at
    in order to give you an effective board that understands the
    challenges of the day. The electoral process in which ICANN has
    in filling the five seats on this Board of Directors--is it
    effective or is it ineffective?
        I think we have to ask us that question. I might ask you
    that question now. Is it effective or should we dive into
    another direction?
        Mr. Lynn. Well, I think as it stands now, we would be happy
    to brief you on our feeling--on the recommendations of the
    Committee at your disposal. The Board concluded in its
    meeting--and this is no reflection on the particular directors,
    themselves. The modality used to select them, trying to do
    global on-line elections, was--beyond the reach of ICANN to
    solve all the problems that--and I should mention that of those
    five directors elected that way, only one voted against that
    particular motion. Three of the others voted in favor of it and
    one abstained. So they, themselves, are not recognizing there
    are flaws in the process.
        The Board thinks the public interest needs to be
    represented and reflected. It doesn't feel that at this time
    that is the way to do it.
        Senator Burns. Well, I've got another thing here. We never
    get enough time anyway. I would certainly like to sit down with
    you and some of your Board members and kind of walk our way
    through this and I'd like to devote a little more time than
    what we would have here.
        My feelings right now are that the MOU should be extended,
    maybe with a discussion between your Board and the Department
    of Commerce. Ms. Victory has done an excellent job in trying to
    bring us up to date and trying to gear up the Department
    because I think there has been some discussion--it just didn't
    make it on anybody's radar screen. And when it does, everybody
    gets all excited and probably make statements that they
    shouldn't make, I being one of those. But I think there are
    just some things that we have to iron out as far as Board
    selection--who you represent, and what you represent. Again,
    maybe reiterate the mission statement of your working paper,
    which you have noted in your statement today. I think that can
    be accomplished.
        And so our mission is--as this thing grows, the mission
    becomes more difficult. It's just like it was wonderful. I just
    got home a couple of weeks ago from Korea and Japan, by the way
    we talked about this issue just lightly, but we were mostly
    there in agriculture and other telecommunications issues. I get
    back and I e-mail all the folks that had--and thank all of the
    folks that had been so kind to us and their hospitality. It was
    almost immediate because of the response from them. That's how
    important that this method of communicating has become. And I
    think our mission is very, very important and should not be
    taken lightly, because I would certainly hate to see this thing
    crash.
        The recommendations that the GAO has made, we are going to
    have come together and the Chairman of this Subcommittee and
    the full Chairman of the Committee have given their support
    that something has to be done. We want to do the right thing
    for you and the Internet and what's right for this country. I
    thank you very much for coming today.
        Senator Wyden. I thank my colleagues and I just have a
    couple of followup questions. I think on the extension of the
    MOU, Ms. Victory, what has concerned people is that it has been
    extended twice now. I think the first time was a modification.
    But, I think what people really want to know is first, the
    Commerce Department thinks it is a big issue. That's important.
    I think that may be one of the reasons people are frustrated,
    and I think people want to know what are the specific factors
    that are going into your decision that is coming up in
    September, rather than just, ``its being extended again.'' What
    are the factors that are going into making this decision?
        Ms. Victory. Well, clearly, the Department does consider
    this an important issue, given the importance of the Internet
    to our economy. In terms of the factors that are going to go
    into our decision, in my testimony I outlined a number of areas
    where we need to see reforms by ICANN. But what they really add
    up to is that we need to see that ICANN is a stable and
    professionally run organization into the future, that its Board
    selection process and decisionmaking process are designed to be
    stable, and that it is designed to receive recognition and
    respect so that this organization can operate stably.
        Now, we don't expect that in the next 3 months.--between
    now and the end of September, that all of that is going to be
    achieved. But we have hopes that, out of this reform process,
    there will be a path outlined as to how we get to that point.
    And those will be the things coming into our decision. We
    appreciate GAO's suggestion about a public statement of what we
    are concerned about, where we think things stand, and what goes
    into our decision. That is certainly something that we will
    make sure that the public is very much aware of--how we have
    made our decision and why we have made our decision.
        Senator Wyden. One last question for you, Mr. Lynn. It
    deals with a security issue. What is being done now to secure
    the root servers? Senator Burns asked about the report and
    certainly that's significant, but tell me now, consistent with
    not giving up something that could threaten the security of the
    system, what is being down now to secure the root servers?
        Mr. Lynn. Senator Wyden, as you correctly--we would be
    pleased to brief you and any of the other senators who wish a
    private briefing on exactly what is being done from the people
    who are experts in this area. Broadly speaking, the biggest
    security factor of the root service is its distribution and
    redundancy, 13 copies of the same data distributed to 13 root
    servers--10 in the United States and 3 outside of the United
    States. If 9 of those were attacked and somehow physically
    destroyed, you wouldn't even notice on the Internet. That
    redundancy is an extremely important factor.
        Now, I don't say that about our security, because no system
    is 100 percent secure. I mention that only to say that
    continuing attention, improvements are being made. Many of
    those were demonstrated at the meeting we held last November to
    improve the security of our root service system. With all due
    respect, sir, I would prefer to arrange for a private briefing
    if that would be acceptable.
        Senator Wyden. It's very important that you note that.
    We'll wrap up with Senator Allen and Senator Burns.
        Senator Allen. Mr. Guerrero, let me ask you a question. In
    your prepared remarks, you pointed out the issue of
    international sensitivity--a great oversight of the ICANN
    process. You asked the government is there a way to improve
    U.S. Government oversight of ICANN while still being sensitive
    to foreign concerns.
        Mr. Guerrero. Yes, and I think it's increasing the
    transparency of the role the Department of Commerce is playing
    here. I believe that it's premature, specifically, to talk
    about the structure of the organization until this reform issue
    plays itself out. And we agree with Commerce in that regard.
    But, what we have recommended to Commerce is that they need to
    more clearly articulate what progress has been made, what needs
    to be done, and over what timeframe. So, that's the role for
    the U.S. Government at this point and I think it's a wider
    role, and that's one of providing greater transparency and
    information to each community to each stakeholder as to what is
    going on. And what exactly will this include--what will be the
    criteria basis for making a decision that these issues have
    been resolved to everyone's satisfaction.
        Senator Allen. Thank you. I have nothing further.
        Senator Wyden. Senator Burns.
        Senator Burns. I have no further questions.
        Senator Wyden. All right. We thank you all. We'll be
    working closely with you in the days ahead. The next panel,
    Karl Auerbach, Member of the ICANN Board, San Jose, California;
    Mr. Roger Cochetti, Senior Vice President of VeriSign in
    Washington D.C., Mr. Alan Davidson, Associate Director, Center
    for Democracy and Technology, in Washington DC.; and Mr.
    Cameron Powell, Vice President and General Counsel of SnapNames
    in Portland, Oregon.
        All right. We thank all of your for your patience and
    because the floor schedule is hectic today, we are going to
    have to hold everybody to 5 minutes for prepared remarks. We
    appreciate everybody coming and we always appreciate having
    witnesses from Portland, Oregon and I think as a result, we'll
    begin with you, Mr. Powell. Everybody keep to 5 minutes and
    time for questions.

        STATEMENT OF CAMERON POWELL, VICE PRESIDENT AND GENERAL
                           COUNSEL, SnapNames

        Mr. Powell. Thank you. I want to thank the Chairman,
    Senator Allen, and Senator Burns for inviting SnapNames to
    testify today. ICANN and its consensus process has been a
    unique experiment in global resource management. We have no
    position on whether reform of ICANN should continue to invite
    community consensus on certain narrow matters of technical
    policy.
        But today I do want to discuss SnapNames' firsthand
    experiences with the use and abuse of ICANN's consensus process
    in the market place, what constituencies of unaccountable and
    unrepresentative entities can inappropriately slow innovations
    and can substitute their own judgment for Congress' and courts'
    in the market, and where our own competitors are actually
    empowered to decide whether we will innovate and reach
    consumers. I also make a few recommendations on ICANN reform.
        Our company was founded by successful entrepreneurs who saw
    a critical need to help normal individuals and businesses
    fairly compete to register domain names. Why? Because today
    97.6 percent of all valuable domain names are registered
    through means not practically available to the general public
    for whom the Internet was created. 97.6 percent of domain names
    and related e-mail addresses go to domain professionals,
    speculators, cyber-squatters.
        We've spent significant time and resources to come up with
    the technology to fix part of this broken system. We filed a
    patent on it. We secured a licensing agreement with VeriSign
    Registry to distribute domain resources in a way that is fair,
    equal, open to all, and transparent. We perhaps naively relied
    on the principle that the best consumer product, like the best
    free speech, will triumph in a free market. We hired dozens of
    new employees in one of the worst unemployment environments in
    the country. We've been ready to go to the market for months.
    But our technology has been hijacked by the equivalent of a
    prior restraint on free speech, a technological gag order.
        Our technology still has not been launched. We have lost
    unrecoverable revenue. And nine million domain names have been
    deleted without real consumers having access to them. And not
    because the consumers don't want it. Consumers here haven't
    even been given a chance to vote with their wallets as the free
    market demands.
        Instead, since September 9th, 2001, our technology has been
    subjected to endless only nominally public discussions among
    our competitors, the uninformed, and everyone but the consumers
    voting through the market. The World Trade Centers have fallen
    and the site has been cleaned up since our competitors began
    abusing the consensus process to oppose and delay our superior
    technology.
        This is not part of either the White or the Green Papers,
    Senator Wyden, or even the MOU. And even if it were, we think
    it would be legally unsupportable. The deficiencies of trying
    to apply a consensus to a marketplace are almost too numerous
    to count.
        First, ICANN's consensus process is not even defined. So,
    it lacks any semblance of due process. A consensus is only
    required to oppose a change of the sort that we are proposing
    here, not to introduce one. ICANN, though, has turned this
    around in a presumption against change and innovation, rather
    than a presumption for it.
        Second, consensus is not market driven and it is political.
    So, it's captive to misinformation. It's what Mr. Lynn called
    subject to capture and fraud and to politics unrelated to the
    public interest or consumer demand.
        All you need in this industry to block a market innovation
    or reform is an opinion. There is no requirement that the
    opinion have any merit. There is no requirement that it be
    tested by the law or the market, the courts or the consumers.
        Third, consensus can lead to paralysis. Those who wish to
    block reform or innovation that is in the public interest may
    do so merely by refusing to give their consent. Top-level
    domains like .com and .net can only fall behind the less
    intrusively regulated competitors like the 243 registries of
    country codes.
        Fourth, consensus improperly empowers entrenched
    competitors against new market entrants and competitors.
    Consensus is, therefore, custom-built for collusion and
    antitrust. It is an open invitation to tortious interference
    with contract--contracts with our partners, like VeriSign
    Registry.
        Finally, ICANN's consensus participants are attempting to
    speak on matters of policy and law where Congress has already
    spoken, and to decide what consumers want instead of letting
    the market do so.
        So, here is my question for those concerned with ICANN
    reform. Why have our competitors been handed the power to veto
    our superior technology or, at least, to not let the consumers
    decide if it's superior? With ICANN having just conceded that
    VeriSign's years as the only monopoly registry are behind them,
    why is such a misconceived consensus process still substituting
    its judgment for the market's? Why is ICANN even considering
    legal and policy arguments, such as our competitors' antitrust
    claims on our licensee, VeriSign, as a basis for a decision on
    our technology, or whether it will or will not launch in the
    next few weeks?
        Congress has already spoken on antitrust policy. We have
    existing laws, and courts to interpret them. Bodies like ICANN
    are meant to make sure that all the railroad tracks use the
    same width and gauge and the trains run on time. They are not
    there to make legal and economic policy, certainly not in your
    place.
        Like most complex industries, the domain industry does need
    some oversight of its free market, whether by a body like
    ICANN, or a body of laws or a body of enforcement contracts
    directly between the over 250 registries and the hundreds or
    thousands of their registered retailers. But it should stay out
    of matters already handled and best-handled by the preexisting
    laws and the market, except possibly when compelling need
    requires involvement in technical matters, and it should stay
    out of any futile attempt to represent the public interest
    itself. The market will do that. Existing laws will do that.
        And selected policies that are in the public interest, like
    WhoIs matters, should be located in entities that do have the
    incentive and accountability--whether it's economic
    accountability, elective or otherwise--and have the funds to
    act as enforcers.
        Finally, regardless of the role given businesses or
    individuals in technical policy matters in consensus making,
    consensus should be silent when market forces and policy bodies
    can speak for themselves. I elaborate further on some of these
    matters in my written testimony. I want to thank the
    Subcommittee.
        [The prepared statement of Mr. Powell follows:]

       Prepared Statement of Cameron Powell, Vice President and General
                               Counsel, SnapNames

        I want to thank the Chairman, Senator Allen, and Members of the
    Subcommittee for inviting our testimony on ICANN governance. Because my
    company constantly strives to provide innovative solutions for the
    domain industry, we've seen first-hand how the domain industry--driven
    by politics rather than the market--is currently structured less to
    foster innovation than to thwart it.
        Let me start by saying that we are not a disinterested party. We
    have interests at stake in this industry. On the other hand, because
    our business model is most successful when the greatest good is given
    to the greatest number, and because we are focused on the long-term
    rather than on short-term gain, I would submit that our bias is also
    your bias.
        Our company was founded by successful entrepreneurs who saw a
    critical need to help real individuals and businesses fairly compete to
    register domain names against domain name professionals. Today, 97.6
    percent of all valuable domain names are registered through means not
    practically available to the general public.
        We expended massive time and resources to come up with a technology
    to fix part of this broken system. We filed a patent on it. We secured
    a licensing agreement with VeriSign Registry to distribute our superior
    service to the public.
        In reliance on the principle that the best consumer product, like
    the best free speech, will triumph in a free market, we hired dozens of
    new employees in the worst unemployment environment in the country. In
    any other industry, we would have already launched our technology long
    ago. In this industry, our superior technological innovation has been
    hijacked by the equivalent of a prior restraint on free speech, a
    technological gag order. In a form of economic censorship without
    parallel in any other industry, ICANN's misguided consensus process has
    enabled both the uninformed and our competitors to replace the market's
    judgment with their own, to block our superior technology, and to force
    the lay-off of 20 percent of our employees.
        Although this delay has been frustrating, SnapNames remains
    conditionally supportive of ICANN restructuring and recognizes that but
    for the introduction of competition into the domain name market place
    our business would not exist.
        So there are three issues I want to discuss:

       The shortcomings of a bureaucratic consensus process in a
            marketplace requiring innovation;

       SnapNames' first-hand experiences with the anti-competitive
            consequences;

       Some recommendations on ICANN reform.

    I. Current Structure and Process: ICANN and its Supporting
            Organizations Collectively are Neither a Meritocracy, a
            Democracy, or a Marketplace, Nor a Real Deliberative Body
        ICANN was a unique experiment in global resource management that
    was conceived in the so-called Green and White Papers and put into
    practice in the Fall of 1998. Although ICANN was able to achieve some
    success shortly after its conception, with the introduction of
    competition at the registrar level and the Uniform Dispute Resolution
    Procedure (UDRP), the consensus process has since paralyzed it over the
    last two years and left it unable to build upon its early successes.
        ICANN is composed of three main supporting organizations: the
    Address Supporting Organization (ASO); the Protocol Supporting
    Organization (PSO); and the Domain Name Supporting Organization (DNSO).
    The supporting organization with which we are most familiar and which
    has proven to be the most contentious since ICANN's formation is the
    DNSO. The DNSO is composed of seven constituencies representing the
    following interest groups: registrars, generic top-level domain name
    registries (such as VeriSign, Neulevel); country code registries (such
    as operators of .TV or .DE); businesses, intellectual property; non-
    commercial interests, and Internet service providers. Each of these
    constituencies has three representatives that serve on the so-called
    ``Names Council.''
        In theory, each of the seven constituencies is designed to
    represent the collective views of each interest group. However, in
    reality most constituencies represent only a fraction of their intended
    constituents, and some of even these limited representational groups
    are effectively run by one or two individuals. Those who attempt to
    apply to a constituency may be denied membership without explanation of
    the membership criteria, which are apparently a moving target. For
    example, we are a business; we applied to the Business Constituency;
    our application has been permanently shelved without explanation. There
    are no membership qualifications to be on ICANN's DNSO committees: no
    background or qualifications, no credibility or familiarity with
    policy, no argument or even logic, no need to consider the public
    interest or to effect it even if considered, and no accountability to
    anyone, whether the voters or the market. These shortcomings lead to
    potential capture of those organizations that are so critical in
    ICANN's bottom-up consensus process. In fact, it is this potential for
    capture that has shadowed the debate about direct elections in ICANN.
        In other words, in today's ICANN DNSO, the public interest is not
    addressed by any of the traditional safeguards. Today, the domain name
    industry is a bureaucracy run by committees of disparate and even
    conflicting interests, none of which is representative or accountable.
    The committees have no rules or procedure, though they do, perversely,
    have a lot of process of a sort best definable by what they block and
    fail to accomplish. Although the DNSO is supposed to be governed by
    rules and policies, the reality is that rules are often changed as the
    process moves along.
    II. Unintended Process Consequences of the Consensus ``Process''
        Consensus Does Not Consider Public or Consumer Interest. In ICANN's
    consensus process, the self-interested, often trade associations, vote
    on their own interests, their own regulations, and even on their own
    competitors' ability to launch new products--all without any need to
    consider the public interest or market demand. As one member put it in
    a recent conference call, ``Our revenue streams come first, consumers'
    interests are second.''
        Consensus Dampens Market Innovation and Consumer Value in the U.S.
    Another unintended consequence of relevance to this Senate Subcommittee
    is that ICANN's unrepresentative and unaccountable subcommittee
    members--from inside and outside the United States--have an effective
    veto power over the business of American businesses, and can delay or
    prevent use and reform of Internet resources needed by Americans and
    their businesses.
        Consensus also dampens market innovation. It has never worked in a
    marketplace. It is sometimes appropriate for small groups like town
    meetings. It is an inappropriate substitute for decisions by the market
    because it is slow, inefficient, unresponsive, bureaucratic, and of
    course not driven by customer demand. To sit in on any futile meeting
    or conference call of ICANN's subcommittees (with the possible
    exception of the Intellectual Property Constituency, which understands
    procedure) is to feel deeply why communitarian processes were finally
    and unequivocally defeated by the innovation and speed and alignment of
    incentives that is capitalism.
        Consensus: Equal Resources to All Businesses Means Windfall
    Subsidies to the Less Accomplished. For example, in an inexplicable
    breach of principles of market demand, the stalemate of consensus has
    often meant that registry resources are allocated equally to each
    registrar, regardless of the volume or legitimacy of their customer
    demand. The result is that registrars with few customers at all may use
    this windfall of resources to treat only a handful of customers to
    their services, which means exclusion and disadvantaging of mainstream
    customers. Thus, a market-driven system is blocked by a consensus
    process in which those who receive a windfall of resources may block
    reform intended to correct it.
        Consensus is Captive to Misinformation and Politics Unrelated to
    the Market or Public Interest. Because the consensus process is not
    market-driven, it is also political, so that anyone who has a vague
    armchair misunderstanding of consumer demand, antitrust principles, or
    trademark or copyright law can not only avoid any testing of their
    opinions by the law or market but can also prevent reform or
    innovation. All you need in this industry to block an innovation or
    reform is an opinion. There is no requirement that the opinion have any
    merit. There is no requirement that it be based on any evidence. There
    is no requirement that the public interest be considered. Finally,
    because it is consensus rather than the market that drives decisions,
    there is no requirement that any opinion be tested by the most
    objective normative tests we have in our society, the law or the
    market.
        Here's who is NOT involved in the consensus policy: consumers. The
    Non-Commercial Constituency has been drowned out by the other
    constituencies, and is now in the not-surprising crisis of being unable
    to pay its dues. In any event, the current structure lets the regulated
    participants vote on behalf of the consumers, and consumers are unable
    to vote with their wallets. In other words, ICANN's consensus is the
    exact opposite of either a democracy or a market, which both provide
    mechanisms to ensure the public good. Instead, ICANN's consensus policy
    combines all the wonders of the committees behind the former Soviet
    Union's failed Five-Year Plans.
        The best representative of the consumer is not an unrepresentative
    and unaccountable group of intermediaries; in fact, that is one of the
    worst. The best representative of the consumer is a properly regulated
    market.

    III. Substantive Consequences of Anti-Market Consensus

    A. No New Policy, Bad Old Policy
        The domain name industry is left to police itself through a
    paralyzing so-called consensus process. Small wonder that no reform or
    policy of any kind has yet made it through the black hole that is
    ICANN's consensus process. Even the word ``process'' in ``consensus
    process'' is a misnomer. ``Process'' implies movement. The futility of
    consensus self-regulation in what should be an innovative, capitalist
    industry is illustrated in the fact that ICANN's consensus process has,
    so far, and by ICANN's own statement, arrived at no innovation, no
    reform, not even a policy. Here is a partial list of the problems
    consensus has failed to resolve in several years' time, and which are
    in dire need of more than ineffectual discussion by subcommittees:

       Whois Accuracy--a problem since the inception of ICANN.
            Despite ICANN's contractual mandates on registrars to keep
            accurate registration data, the whois database remains
            inaccurate. (The whois database has all the elements of a title
            report, a telephone directory, a driver's license (a privilege,
            not a right) and a trademark file.) Without accurate data,
            private and public law enforcement cannot properly do their
            jobs.

       Whois escrow--a problem since the inception of ICANN.
            Despite ICANN's contractual mandates on registrars to escrow
            registration data against catastrophic loss--which would take
            down the websites of every constituent in your states--the
            whois database and associated e-commerce websites remain
            vulnerable.

       Transfers between registrars--a problem for over a year.
            There has been no resolution.

       Blatant preferential treatment of speculators and
            cybersquatters--a problem since the beginning of the registry,
            but one that has returned and even grown worse in the exclusion
            of mainstream customers from access to the 800,000 newly
            available names each month.

    B. Distrust, Illegitimacy
        The consequences of today's consensus process are familiar to
    everyone in the industry. First and foremost, the industry has lost the
    trust of the consumers. It has very little legitimacy in their eyes and
    very little credibility, and customers are often very confused.
        ICANN's parties to consensus trade votes behind closed doors
    without transparency or accountability. Whether secret processes in
    business are in the public interest can often be checked and tested by
    the market; in a regulatory body secret processes are disaster. The
    public rightly has no trust in this system. Our customer support line
    reports rampant mistrust of the entire industry, of virtually all the
    companies in it, and of ICANN, and we hear of terrible confusion and
    disgust.
        Too few in the industry appear to realize that the following
    comment from an attorney is increasingly typical:

             I have clients who spend thousands of dollars--still--having
            to track down crooks and thieves and honestly, I tell them that
            the current system is set up to encourage thieves to spend $20
            registering a domain name that they can not own and forcing
            companies to spend thousands on lawyers going after them while
            registrars hide the ball. Why is the internet going the wrong
            way? Why are many big companies cutting way back?

             It's not because the internet is too heavily regulated, it's
            because of the crooks and thieves--clients question how much
            effort is it worth to and do I really need much of a presence.
            That's a shame but the internet community has done it to
            themselves . . .

             The answer is, ok, you're right, it's not a viable commercial
            vehicle, it's a place for crooks and those selling porno.

        The industry has more Tragedies of the Commons than one can count--
    those resources or policies that require cooperation for them to have
    any meaning are in the saddest shape of all. We have Races to the
    Bottom not seen since the pre-environmental law days. This is partly
    because the industry is under-regulated by either a governing body or a
    transparent market. And it is partly because an industry that
    implements insufficient consumer safeguards can avoid having to charge
    for them, so that the industry's services are under-priced; the result
    is that the lowest denominator of quality and service prevails.
        Worse, given that the main participants in the consensus process do
    not (and could not be expected to) consider the public interest,
    consensus is akin to putting foxes in charge of agreeing to security
    policies for the public interest henhouse.

    IV. Case Study: How an Innovative Attempt to Answer Market Demand from
            Mainstream Consumers is Being Thwarted Not By Superior
            Competition or Technology but by Special Interests and Petty
            Politics
        Here is a real-life example of how politics, concerted action of
    dubious legality by trade associations, and unsupported opinion can
    actually stifle innovation that would prevail under actual market
    conditions. I alluded above to the fact that all of your constituents
    have no reasonable access to the nearly one million newly available
    names each month. We developed a superior solution and applied for a
    patent on our innovative and complex technology. In setting forth
    criteria for a decision on our Wait-Listing Service, or WLS, ICANN's
    General Counsel, Louis Touton, accurately pointed out to the ICANN
    Board of Directors that:

             [R]equiring a consensus-development process for every new
            registry service could stifle innovation. Registry operators
            should be encouraged to introduce new services to the
            marketplace where no legitimate interests of others are being
            materially harmed. \1\
    ---------------------------------------------------------------------------
        \1\ http://www.icann.org/bucharest/wls-topic.htm
    ---------------------------------------------------------------------------
        Why is the innovation of a wait-listing service necessary and of
    benefit to consumers?

    A. Background of a Market Innovation Now Subject to Prior Restraint:
            The Unacceptable Status Quo of a Totally Unregulated Market
        When the domain name system was set up, it was designed to create
    an initial registration of a domain name. Very little thought was given
    to what should happen when a registration expired, and the registrar
    deleted the domain name from the registrar's records, and the registry
    honored the deletion by making the name available for re-registration.
    Accordingly, while the various ICANN and VeriSign Registry agreements
    discuss the timing of delete commands and the like, nothing ensures
    that customers' access to the re-registration of the name will be as
    fair, equal, transparent, and reasonable as their access to initial
    registration services.
        However, neither do the agreements appear to prohibit registrars
    from providing access that is not fairly distributed, or equal, or
    access that is far from transparent or reasonably understandable. The
    ensuing loophole has allowed many registrars to rent out their
    resources for re-registrations to one or a few customers each, and to
    dub the resulting sweetheart deals their ``business models.''
        And that has led to what one commentator recently referred to as
    ``today's registration-loophole carnival of horrors.''
        Thus, due to a lack of planning by the domain name industry, we
    have a more fractured system to re-register valuable deleting names
    than to do initial registrations. Like the service for initial
    registrations, which is centralized at the registry level, the re-
    registration service should also be centralized. If the market were
    allowed to speak in its own inimitable voice, the service would have
    been available to real people in January.
        Instead, today's patchwork system for re-registering the most
    valuable domain names--the 800,000 per month that expire and are
    deleted by VeriSign Registry--is confusing, uncertain, complex, and,
    most critically, even harms and excludes all mainstream customers. What
    this Subcommittee probably does not know is that its constituents are
    harmed every day by a re-registration system custom-built for and often
    by speculators and cybersquatters.
        Many registrars' so-called ``services'' arm only a few customers in
    this battle to reach the Registry first, to the detriment of mainstream
    and business users, unsophisticated individuals and intellectual
    property owners. We ask you: How do you think the names of all those
    churches and schools and non-profits, now redirected to porn sites, are
    registered during the millisecond they are available? Wonder no more.
    As one knowledgeable speculator put it:

             Currently many registrars are running their own programs to
            catch dropped names and then auction them or give [them] to
            their people or charge monthly for [the] facility. Which is not
            [what] their primary purpose was. For a genuine domain/website
            owner that's a nightmare.

        Since January, when we first proposed an immediate launch of the
    more fair system, the cream of the crop of over 3 million domain names
    have continued to go almost exclusively to registrars who exclusively
    serve speculators. On May 31, 2002, we examined a random sample of 1101
    domain names out of the 160,000 that deleted and became available again
    in the last five days of May 2002. These 1101 domain names were by
    definition highly valuable, because they were all registered literally
    within milliseconds of their return to availability.
        Of those 1101 names, we discovered that:

       2.5 percent or 27--had been registered by mainstream
            consumers on registrars' publicly available websites.
            Attorneys, corporations, the masses of unsophisticated users:
            this is your share.

       21.8 percent or 240--had been registered by registrars
            through means theoretically available to all consumers, but in
            reality the means were confusing or required a high degree of
            sophistication about the Registry's complex deletion process
            and a substantial investment of time in research and on the
            registrar's site.

       75.8 percent or 834--were registered by registrars through
            back-door means on behalf of a few dozen customers, and these
            registrars do not offer their services equally to all
            customers, or even mention the services on a website, where the
            services would be accessible, or at least transparent, to
            mainstream consumers and intellectual property owners.

        In sum, 97.6 percent of all valuable domain names are registered
    through means not practically available to the general public. This is
    a broken system.

    B. Market Demand Begging for a Market Response
        Left in the cold are the people the Internet was made for:
    educational and governmental institutions, organizations for worship
    and charitable organizations, corporations, actual users of domain
    names rather than those who warehouse them for sale, and trademark
    owners desiring to put these expired names to good and legitimate use.
        Any reasonable businessperson can see mainstream consumers
    demanding a re-registration service that provides businesses with more
    certainty about whether a name to delete in the future is one they
    might actually be able to plan on. Consumers want a service that is as
    fair, easy to understand, open, and transparent as the centralized
    registry's service for first-time registrations.

    C. Responses to Market Demand Blocked in ICANN Quagmire
        Unfortunately for the consumer, since September 9, 2001, in endless
    public discussions without form, shape, process, or any need for
    evidence or logic or consideration of the public interest, our
    innovative remedy for this corrupt system has been literally. Talked.
    To. Death. By a mis-conceived and frankly misguided process in which
    entities who have no business interfering with our business all have
    equal say, and apparently equal power to delay or veto.
        In early January 2002, debate and discussion over the WLS began
    again. At the request of ICANN's General Counsel, a public comment
    period lasted from early January to early February. Based on the
    feedback from various special interests (few actual consumers
    participated), the WLS proposal was modified and resubmitted for a
    third round of comment. This third comment period lasted another month.
    On March 22, the WLS proposal was finally submitted to ICANN. A month
    later, ICANN called for . . . another public comment period. By April
    22, still having taken no action, ICANN delegated the matter to an
    unrelated and egregiously uninformed body, the ``Transfers Task
    Force.'' After doing little more than hold two conference calls
    inviting competitors to complain about the WLS, the Transfers Task
    Force, on June 4, issued a ``report'' riddled with factual errors. On
    June 28, in Bucharest, Romania, the ICANN Board of Directors will
    apparently decide whether our business will go forward and provide what
    no one has persuasively denied would be the best possible consumer
    service.
        The entities who have a vote in blocking our innovations include:

       our competitors, if you can imagine that \2\
    ---------------------------------------------------------------------------
        \2\ And, what's worse in some ways, some of the biggest critics of
    our ability to launch our technology are barely even real competitors:
    they register a few names per year, and yet under the meaningless
    requirements for participation in the consensus system, their impact on
    the market is equal to that of the largest and most successful market
    competitors, such as Register.com and VeriSign.

       professional domain buyers (speculators, cybersquatters,
            etc.) who believe our innovation will level the playing field
    ---------------------------------------------------------------------------
            and impact their reign of preferential inside access

       trade associations who know far less about both the current
            corrupt system and the WLS than I have just explained to you

       random individuals representing no one in particular, many
            of them in foreign countries

       the ICANN Board of Directors, who will apparently try to
            figure out in 45 minutes on June 28 a technological, policy,
            and business matter that has been in development for two years.

       and so on.

    D. Consensus and its Cousin, Antitrust
        Many critics are blocking our business because they have numerous,
    sometimes understandable axes to grind with VeriSign. Others, the
    country-club of special interests who compete with us, don't want the
    public to know how the WLS creates a transparent, fair, first-come,
    first-served system for all customers and not just a select few.
    Rather, they want to sow confusion and delay by creating red herring
    issues, such as:

            a.  WLS Reduces ``Competition'': the imaginary claim that the
            WLS would eliminate something that does not actually exist
            today, except to the extent that professional speculators
            compete with each other. Moreover, competition under the WLS
            would be the same as it is today for first-time registrations
            and renewals: registrars compete for customers, a central
            registry provides a reliable service. Finally, the Supreme
            Court has made clear that antitrust laws protect only just such
            competition; they do not protect competitors who believe an
            innovation will reduce their business.

            b.  Objections to the price of the service--not objections by
            actual consumers (who set prices, typically, and whom market
            research has shown already pay for inferior services the prices
            proposed for the WLS) but by competitors! These objections are
            taken seriously despite the clear antitrust implications of a
            group of competitors attempting to veto a competitive service,
            or a group of customers boycotting a vendor's service based on
            price.

        Here is my question for those concerned with ICANN reform: Why is a
    consensus process substituting its judgment on what consumers want for
    the market's? Why is ICANN even entertaining our competitors' arguments
    of VeriSign's antitrust. Complex legal determinations are not in its
    charter or expertise; there are laws governing these concerns and ICANN
    should allow the laws to take their course, deferring the matter to the
    courts with the expertise rather than trying to consider everything
    itself.
        Worse, why have our competitors been handed the power to veto our
    superior technology? Some in the industry actually think it's legal to
    engage in antitrust blockage of innovation so long as one of the
    entities they're opposing is, in their simplistic lay opinion, a
    monopoly (by which they mean our licensee, VeriSign). Consensus
    processes are therefore custom-built for collusion; they are an open
    invitation to antitrust. Businesses injured by this process should not
    have to resort to antitrust suits simply because their competitors were
    inexplicably given apparent license to collude and to block superior
    customer services.
        (There are strong arguments that VeriSign Registry is not a
    monopoly (with over 250 top-level domains now in existence), but more
    dispositive is the fact that it is not illegal merely to be a monopoly
    in any event).

    V. Toward a Model and Some Criteria for the Industry's Oversight Body
        The consensus system can never be improved enough to make it work
    in what should be a market-driven space. More grass-roots
    representation by far-flung interests all over the globe will still
    suffer from all the same defects as less. True mediated representative
    democracies--that is, appointed or elected, but always representative
    of the appointers or electors and always accountable to them--are among
    politics' most difficult challenges. Experiments in mediated
    representation not only cannot work globally at this point in history
    and technology, but are arguably inappropriate constraints on an actual
    industry, which by definition should remain largely market-driven with
    appropriate regulation.
        The first rule when considering whether to scrap ICANN is: Be
    careful what you wish for. One alternative to ICANN is a U.S.
    governmental agency, but it would need to take over ICANN's contracts
    in order to assume jurisdiction over foreign entities, and it would of
    course need to acquire technical and policy expertise it doesn't
    currently have. And foreign nations would likely not find sole U.S.
    oversight a suitable arrangement. Another alternative is a strictly
    technical non-governmental body to try to make only technical
    decisions, but such a body would still be unaccountable and would
    decide policy in the guise of deciding technical questions. Neither of
    these are clearly preferable alternatives, and they may be worse than
    the status quo.
        Oversight needed, whether a body or a body of laws. Like most
    complex industries, the domain industry does need an oversight body,
    and a body of laws, after which the market should be allowed to run its
    course without hijacking by special interests and non-market-driven
    opinion. Whether that body should go by the name of ICANN, change its
    name, or be a different entity is a matter we don't feel strongly
    about. An ICANN by any other name is just as necessary. This is because
    the domain industry's technology, based on a single root server, is
    uniquely capable of making self-correcting market mechanisms
    irrelevant.
        Find a model. There are existing governance models that appear to
    have worked in the past in sufficiently similar contexts, such as the
    Port Authority of New York and New Jersey (``the Port Authority''),
    which combines qualities of a private corporation with governmental
    power. The Port Authority runs critical infrastructure facilities in
    and around Manhattan Island and has some governmental powers, including
    eminent domain and the power to issue bonds. \3\ While this
    Subcommittee would need a different panel of witnesses to adequately
    look into alternative governmental structures, in Appendix B I note a
    few facts about the Port Authority.
    ---------------------------------------------------------------------------
        \3\ The Port Authority ``was created as The Port of New York
    Authority on April 30, 1921, by compact between the two states, with
    the consent of Congress, to plan, develop and operate terminal,
    transportation and other facilities of commerce, and to promote and
    protect the commerce of the bistate port.'' See http://www.panynj.gov/
    (all citations are taken from this official website).

        Criteria. While we are not experts in governance structures, we do
    have views on some criteria the oversight body or body of statutes
    ---------------------------------------------------------------------------
    should satisfy. Any oversight body or law:

       Should stay out of market matters and largely stay out of
            technical matters that do not by their nature require
            cooperation or agreement and that do not measurably implicate
            national security; and it should act--and, of equal
            importance--refrain from acting in ways that allow the market
            to regulate consumer choice (see, e.g., the FTC or FDA, DOT or
            SEC);

       Should nevertheless have more of the enforcement powers of a
            governmental body than of the undercapitalized business ICANN
            is; (see same agencies)

       Should provide, and mandate for the rest of the industry,
            equal treatment and open, equal access for all consumers to all
            registries' resources.

       Should not be hamstrung by any need to get consensus for
            market innovation from unrepresentative, non-market-driven
            interests.

        Again, we thank the Subcommittee for its time and attention.

                                   Appendix A

        Following are additional details on policy recommendations to be
    enforced or newly effected by either Congress, or (more likely, given
    its broader jurisdiction) by ICANN or its equivalent.

    Enforcement I
        1.  Provide funds with which to enforce mandates. Like federal
    agencies overseeing other industries, ICANN must have some means to
    obtain more financial resources to enforce the mandates that it already
    has, as well as those wished by Congress. Unenforceable policies are no
    policies at all. Many registrants have already signaled their
    willingness to support ICANN's need for financial resources by paying
    higher fees into ICANN's enforcement escrow account than they pay
    today. (There has been some opposition to any higher fees than those
    that exist today on grounds that an increase in those fees would
    constitute a ``tax.'' I fail to discern the logic in an amount such as
    $.09 not being a tax and an amount such as, say, $.20, being deemed a
    ``tax''. In neither case would an enforcement escrow fee, in an
    industry run amok, be properly deemed a form of ``taxation.'' The
    benefits of ICANN having such additional funds for critical policy
    enforcement would far outweigh the trivial burden of another $.25 or so
    per domain name.)

        2.  Provide penalties or private causes of action for violations of
    ICANN contracts. (This may require congressional legislative action
    rather than, or in addition to, ICANN action, depending on whether the
    violator is already subject to industry jurisdiction.)
    Registrant Civil Sanctions for Bad-Faith Registrant Activities
        3.  Create new and more effective sanctions against bad-faith
    registrants. The recent U.S. bill criminalizing fraudulent provision of
    whois data will have little impact on parties' rights under U.S. civil
    laws, and no impact at all on foreign-based registrars, where much of
    the abuse and non-compliance take place. For real sanctions, bad-faith
    registrants should be fined or lose all additional names (for the loss
    of one $7 name alone is no disincentive at all), or both.

    Enforcement II
        4.  Create financial penalties for registrars who knowingly fail to
    comply with sanctions mandated upon them or bad-faith registrants by
    ICANN.
    Institutional Reform
        5.  Do not make reform policies dependent on consensus among the
    regulated.
        6.  Prohibit at least certain critical ways in which registrars use
    their privileged resources to favor a minority of customers (non-end-
    users) over all other customers.

                                   Appendix B

        Substituting only a few words into the Port Authority's mission
    statement, we get something not too dissimilar to what the DNS'
    governing body could look like:

             To identify and meet the critical transportation [domain name]
            infrastructure needs of the bistate region's businesses,
            residents, and visitors [needs of domain name businesses, e-
            commerce website owners, and registrants]: providing the
            highest quality, most efficient transportation and port
            commerce [domain name] facilities and services that move people
            and goods [services] within the region [around the world],
            provide access to the rest of the nation and to the world, and
            strengthen the economic competitiveness of the New York-New
            Jersey metropolitan region [of the domain name industry and its
            businesses].

        Similarly:

             The Port Authority is a financially self-supporting public
            agency that receives no tax revenues from any state or local
            jurisdiction and has no power to tax. It relies almost entirely
            on revenues generated by facilities users--tolls, fees, and
            rents. \4\
    ---------------------------------------------------------------------------
        \4\ In the DNS, the equivalent would be a domain name registration
    fee for use of the DNS facilities.
    ---------------------------------------------------------------------------
             The Governor of each state appoints \5\ six members to the
            Board of Commissioners, subject to state senate approval. Board
            Members serve as public officials without pay for overlapping
            six-year terms. The Governors retain the right to veto the
            actions of Commissioners from his or her own state. Board
            meetings are public.
    ---------------------------------------------------------------------------
        \5\ In the DNS, an equivalent might be that the chief executives of
    certain countries appoint members. Accountability is the goal.
    ---------------------------------------------------------------------------
             The Board of Commissioners appoints an Executive Director to
            carry out the agency's policies and manage the day-to-day
            operations.

        (emphases added). And my favorite analogy with the domain industry
    (substitute ``registrars'' for ``states'' and otherwise update
    accordingly):

        The states quarreled throughout the 19th[21st] Century over their
    common harbor and waterways [/their common resources]. A dispute . . .
    once led state police to exchange shots in the middle of the river.
    Eventually, the states found a governmental model for port management
    in the Port of London, what was then the only public authority in the
    world.

        Senator Wyden. Mr. Powell, thank you. That was very
    helpful. Mr. Cochetti, welcome.

              STATEMENT OF ROGER J. COCHETTI, SENIOR VICE
              PRESIDENT, POLICY AND CHIEF POLICY OFFICER,
                             VeriSign, INC.

        Mr. Cochetti. Thank you, Senator Wyden and may I began by
    saying for those in the room who are not familiar with
    Congressional Internet policy development, I am pleased to say
    that the three of you able to make it to today's hearing in my
    experience, in my judgment, actually constitute the core of the
    Senate's Internet brain trust. And I would say that if you
    can't figure out a solution for the problems that we are
    discussing today, then I'm not sure that there is anyone who
    can. So, thank you for inviting me and thank you to all three
    of----
        Senator Burns. We're in trouble.
        [Laughter.]
        Senator Wyden. I saw a Burns sound bite coming.
        [Laughter.]
        Mr. Cochetti. Thank you for your interest in Internet
    matters, in general, and for coming. VeriSign, I think as you
    know, is the company that makes the Internet work. More than
    any other single company, VeriSign lies at the infrastructure
    of the Internet and makes it operate today.
        We are the largest provider of web merchant payment
    services in the world. We are the largest provider of digital
    signature services in the world. We are the largest provider of
    domain name registry services. And, we are among the largest
    providers of both commercial e-mail and web-hosting services.
        We more recently have extended into telecommunication
    support services. I think we are faithful to our mission and
    identity as a company that really makes the Internet and e-
    commerce work.
        For that reason, in part, I testified early last year
    before a Subcommittee of the Commerce Committee on the same
    topic. At that time I described ICANN as an experiment for
    which it was too early to reach conclusions. With nearly 4
    years of experience with ICANN now behind us, I don't think we
    can avoid reaching the conclusion any longer.
        We should recognize, I think at the outset, Mr. Chairman,
    that ICANN was handed an enormously complex task. I think it is
    appropriate to begin by conveying our respect and gratitude to
    the staff and the volunteer directors of ICANN for the effort
    they demonstrated over the past 4 years. Having done so, I have
    some thoughts on the state of ICANN.
        VeriSign is ICANN's largest and we think most enthusiastic
    supporter. We've contributed more to its budget than anyone
    else and done more to assist in supporting it than anyone else.
    We helped found ICANN and have an enormous stake in its
    success. We have studied its performance, however, and have
    concluded, as has its President, that at present course and
    speed, ICANN is failing and will continue to fail.
        ICANN is in need of fundamental reform. Its original
    mission of technical coordination is extremely important and it
    has drifted into activities that have no basis in its MOU with
    the Commerce Department; most notably efforts to
    comprehensively regulate the prices and services of the domain
    name industry. While this issue is complicated, the solution is
    not: And the Commerce Department is already working to bring
    about needed ICANN reform. Doing so, we think we will have many
    simultaneous benefits.
        A restructuring of ICANN's activities to ensure it does not
    turn from a coordinator into a regulator will improve ICANN
    itself. It will promote competition by creating a level playing
    field in the domain name market. It will relieve ICANN of the
    enormous expenses and demands for due process and endless
    controversies that are part and parcel of its efforts to
    regulate services and prices. It will considerably reduce the
    pressures that have grown for the public election of the ICANN
    Board. It will have no effect whatsoever on the ongoing
    regulation of the generic segment of the domain name industry
    by U.S. and foreign governments, and will permit ICANN to
    successfully conclude agreements with major segments of the
    Internet's technical community, including root server operators
    and county code service providers.
        As Secretary Victory explained, in 1998 the Internet was a
    very different place than it is today. In early 1998, almost 90
    percent of the domain name market was served by the three now
    famous generics called .com, .net, and .org. Slightly over 10
    percent of the market was then served by what are called
    country code top-level domains, such as .uk or .de for
    Deutschland or Germany.
        Today, according to ICANN's estimates, the country code
    segment of the industry serves about 35 percent of the market
    and .com serves less than half. Strong new competition from the
    likes of powerful country code service providers like ``.us''
    and ``.eu'' is now on the way; and will add further competition
    to the already competetive market.
        ICANN estimated that the country code segment of the domain
    name industry grew about 50 percent over the past year, while
    .com grew less than 20 percent. At present course and speed,
    there is no doubt that the country code segment of the domain
    name industry will prevail over the generic segment sometime
    soon.
        At the same time, there has been robust competition at the
    retail end of the market. In 1998, there was one registrar
    offering generic registrations. Today over 100 registrars offer
    generic registrations for such top-level domains as ``.com'' or
    ``.net''. And no registrar has more than one third of the
    market.
        Although competition is fierce and has been growing in the
    domain name industry, ICANN has erected a costly and
    discriminatory set of comprehensive controls and regulations
    that apply only to the generic segment of the domain name
    industry. ICANN regulates nearly every aspect of the business
    life of only the generic segment in the industry, including
    prices, services, information activities, and others. This
    effort by ICANN to evolve from its authorized role of a
    coordinator of Internet technical functions into a regulator of
    prices and services has hindered competition and sapped ICANN's
    resources, which it needs to pursue its critically-important
    role of technical coordination.
        ICANN's regulation of the generic segment of the industry
    has not caused a single government anywhere in the world to
    withdraw from regulation of that industry segment. If ICANN
    were to suspend or terminate its regulation of the generic
    segment of the industry today, governments everywhere would
    continue to regulate that segment just as they have done for
    both generic and the country code segment; and just as they do
    for every other e-commerce company from eBay to Amazon. As with
    most excessively-regulated industries, we have seen an
    unfortunate result for the domain name industry: persuading the
    right ICANN committee and convincing the right ICANN key
    staffer has replaced competition, innovation, and creativity in
    the marketplace.
        Because ICANN is a small non-profit organization, it has
    neither the resources, nor the mandate to incorporate due
    process into its regulation of prices and services, and as a
    result, few of its--many of its regulatory decisions tend to be
    discriminatory and arbitrary and few, if any, incorporate due
    process. By attempting to evolve away from the narrow technical
    coordination functions that were authorized by the MOU, ICANN
    has placed on itself an enormous burden of public
    accountability and generated great pressure for public election
    of its Board. Citizens everywhere demand and properly argue for
    the same accountability from ICANN when it acts like a
    government regulatory agency as they do from a genuine
    government regulatory agency.
        We believe ICANN is at a juncture in the road. One pathway
    will lead to continued controversy, continued arbitrary
    decision-making and a neverending struggle to gain adequate
    resources. Another pathway will lead to a tight focus on a set
    of coordination--not regulatory--functions that were assigned
    to it in 1998. We hope the Subcommittee will join with us in
    putting ICANN on a pathway of success.
        [The prepared statement of Mr. Cochetti follows:]

    Prepared Statement of Roger J. Cochetti, Senior Vice President, Policy
                    and Chief Policy Officer, VeriSign, Inc.

    Introduction
        Mr. Chairman, Members of the Subcommittee,
        Thank you for the opportunity to testify today and comment on the
    mission and organization of the Internet Corporation for Assigned Names
    and Numbers, (``ICANN''). I appreciate this opportunity, Mr. Chairman,
    both because I testified on behalf of Verisign on this topic before
    another Subcommittee of the Commerce Committee about a year and a half
    ago and much has happened since then, and because I have worked with
    ICANN since it was first developed. With almost four years of
    experience with ICANN now behind us, Mr. Chairman, it seems both
    appropriate and timely to review its performance and outlook.
        It is also appropriate for us to testify because VeriSign has been
    among ICANN's major supporters. We have been the largest contributor of
    dues to ICANN and we have been among the largest--if not the largest--
    donor of voluntary contributions to the organization. In addition, few,
    if any, companies or organizations anywhere have provided more support
    to ICANN to both help it organize and operate. We consider ourselves
    among ICANN's most important and active supporters.
        VeriSign has contributed to ICANN because we support it as an
    important experiment in international, private sector-based,
    coordination of Internet technical functions. These functions are
    important because they are, in part, what make the Internet work. When
    asked for my assessment of ICANN during the Subcommittee hearings early
    last year, I indicated that ICANN was an experiment, and it was at that
    time simply too early to conclude whether ICANN had been a failure, a
    success, or something in between. Sixteen months later, and with almost
    four years of experience with ICANN behind us, I don't think we can
    avoid some important conclusions. Most of these relate to the mission
    and functions of ICANN, for it is absolutely essential to have a
    focused idea of ICANN's, or any organization's, mission and functions
    before its optimal structure and funding can be addressed.
        Before summarizing our conclusions, Mr. Chairman, let me preface
    them by explaining that ICANN has been among the most complex
    organizational experiments ever undertaken by anyone. It includes
    elements of at least a dozen organizational models ranging from
    industry standards bodies to civic organizations to international
    organizations to trade associations. It brings together technical,
    legal, diplomatic, commercial and civic interests along with just about
    every industrial segment from content to hardware. And as a brand new
    organization, ICANN has been asked by someone at some time to help them
    with just about every imaginable problem.
        So, I should begin by giving credit where it is due: namely to the
    hardworking staff and volunteer directors and council members of ICANN.
    They have been at the center of a lot of pressure and, in the midst of
    it all, have built an organization from scratch. In doing so, they have
    had both successes and failures, which I would like to discuss.

    Summary Conclusions
        In February of this year, Mr. Chairman, ICANN's President issued an
    important report calling for a major reform of ICANN. Since that time,
    we have been carefully and thoroughly evaluating the ICANN experiment
    in light of its accomplishments, focus, mission, structure and
    organization. Perhaps the easiest way to describe our summary
    conclusions is to refer to the framework that I used last year. I
    described ICANN as a table that was planned to have four legs as its
    foundation. These legs--each consisting of a set of contracts with a
    different and important segment of the Internet--would together provide
    the structural foundation on which ICANN's programs and funding would
    rest. These four legs, or segments, are: (1) the generic Top Level
    Domain industry, called ``gTLDs'', consisting of the registries and
    registrars for such generic domains as ``.com'' or ``.biz''; (2) the
    country code Top-Level Domain industry, called ``ccTLDs'', consisting
    of registries/registrars for the 243 country code Top-Level Domains,
    such as ``.uk'' (United Kingdom) or ``.de'' (Deutschland or, in
    English, Germany); (3) the operators of the Internet's thirteen Root
    Servers, the network of Internet servers that distributes the
    authoritative directory of who controls which Top-Level Domain to the
    entire Internet; and (4) the operators of the Internet Protocol, or
    ``IP'' Numbering Registries, the registries that distribute IP numbers
    to the many thousands of network operators who then assign these
    numbers to individual Internet users to give them an identity on the
    Internet. When we examined the ICANN experiment last year, I reported
    that one of the four legs of the ICANN table was in place, but that the
    other three were then still being pursued. That situation has changed a
    little over the past sixteen months. While some progress has been made
    on one of these legs (the numbering registries) on two of them--the
    ccTLDs and the Root Server operators--ICANN seems little closer to
    entering into contracts with them today than they were early last year.
    Under these circumstances, it is important and timely that the U.S.
    government, and this Subcommittee, evaluate ICANN at this time.

    Background
        Before describing the conclusions that we have reached, Mr.
    Chairman, I would like to briefly review how we got to where we are
    today:

        Prior to 1998, the management of the technical functions of the
    Internet, such as domain names and IP numbering addresses, was
    conducted under various contracts and cooperative agreements between
    and among the U.S. Government, the Information Sciences Institute of
    the University of Southern California, which acted under the program
    name Internet Assigned Numbering Authority (``IANA'') and Network
    Solutions, Inc. (``NSI''), which was acquired by SAIC, later taken
    public, and then acquired in 2001 by VeriSign.
        In June of 1998, the U.S Department of Commerce (``DOC''), acting
    through the National Telecommunications and Information Administration
    (``NTIA''), published in the Federal Register a statement of policy,
    called the ``White Paper'' regarding the privatization of the domain
    name system. In its White Paper, DOC envisioned the creation of a
    private sector entity to which DOC would someday delegate the authority
    to manage and perform ``a specific set of functions related to
    coordination of the domain name system . . . '' The four coordinated
    technical functions discussed in the Federal Register Notice/White
    Paper are: `` (1) set policy for and direct allocation of IP number
    blocks . . . ; (2) oversee operation of the authoritative Internet root
    server system; (3) oversee policy for determining the circumstances
    under which new TLDs are added to the root system; and (4) coordinate
    the assignment of other Internet technical parameters as needed to
    maintain universal connectivity on the Internet.'' While the White
    Paper mentioned no other functions for the entity, it did not, perhaps
    mistakenly in retrospect, prohibit them either.
        In November, 1998, DOC entered into a Memorandum of Understanding
    (``MOU'') with a new, non-profit, California-based, corporation, ICANN,
    under which the U.S. Government agreed to experiment until September,
    2000 with a limited recognition of ICANN as a coordinator of the four
    functions described in the White Paper. This MOU, and thus this
    experiment, has been extended several times, most recently in September
    2001, and it expires on September 30, 2002.
        The MOU's purpose is explained in the following way: ``Before
    making a transition to private sector DNS, i.e., Domain Name System
    management, the DOC requires assurances that the private sector has the
    capability and resources to assume the important responsibilities
    related to the technical management of the DNS . . . the Parties will
    jointly design, develop and test the mechanisms, methods, and
    procedures that should be in place and the steps necessary to
    transition management responsibility for DNS functions now performed
    by, or on behalf of, the U.S. Government to a private-sector not-for-
    profit entity. Once testing is successfully completed, it is
    contemplated that management of the DNS will be transitioned to the
    mechanisms, methods, and procedures designed and developed in the DNS
    Project.'' The DOC and ICANN also agreed that ``If the DOC withdraws
    its recognition of ICANN or any successor entity by terminating this
    MOU, ICANN agrees that it will assign to the DOC any rights that ICANN
    has in all existing contracts with the registries and registrars,
    including any data escrow agreement(s) . . . ''
        Thus, it is entirely appropriate, and even necessary, that the U.S.
    Government review ICANN's performance under the MOU and consider the
    most appropriate U.S. policy.
        In this context, ICANN's President anticipated and opened the
    current discussion over the U.S. Government's review of its MOU with
    ICANN in a seminal report to the Internet community that was issued in
    February 2002. In this thirty six page report, ICANN's President makes
    many important points, the most important of which is captured by its
    title, The Case For Reform and the opening paragraph of its conclusion
    ``For all of the reasons described above, if we stay on our current
    course the ICANN experiment is likely to fail. But properly reformed, I
    am convinced it can succeed.''

    VeriSign's Assessment
        As a leading participant in, and supporter of, ICANN, VeriSign has
    studied closely ICANN's obligations under its MOU with the U.S.
    Government, its current structure and organization and its performance
    against its mission over the past three and a half years. We have
    participated in numerous group evaluations, both inside of the ICANN
    structure and outside of ICANN, and we have carefully evaluated changes
    to the environment within which ICANN has operated since the MOU was
    signed in 1998. We have reached five major conclusions, all of which
    have important implications for ICANN's future, its mission and
    structure, as well as the funding that it requires.
        In brief, at present course and speed, we share the ICANN
    President's concerns for the viability of the experiment. Although we
    have entirely different ideas about the reforms that are needed, we
    share both his optimism for the future of the experiment if reforms are
    implemented and his dedication to the need for ICANN reform. Achieving
    success requires that we recognize the following, however:
        The Internet, and most particularly, the domain name environment,
    has changed dramatically since 1998 and ICANN needs to change to
    reflect these environmental changes. When the DOC-ICANN MOU was
    negotiated and ICANN was designed at the beginning of 1998, the
    Internet was a very different place than it is today and the more time
    that passes, the more different it becomes. In the area of domain
    names, in early 1998, there were an estimated two and a half million
    domain names. Almost 90 percent of them were in the now-famous
    ``.com'', ``.net'' and ``.org'' TLDs and over 75 percent of the global
    market was served by ``.com'' alone. All of the ccTLDs combined were
    estimated to have served little over 10 percent of the worldwide
    market; and there were no gTLDs of consequence other than ``.com'',
    ``.net'' and ``.org''. NSI was the sole registry and registrar for all
    three of them.
        Today, according to estimates provided by ICANN in its May 15, 2002
    budget report, ``.com'' serves less than half of the global domain name
    market, while ``.de'' serves the second largest and ``.uk'' the third
    largest shares of the market worldwide. ccTLDs as a group serve around
    a third of the market and a half dozen new gTLDs, such as ``.biz'',
    ``.info'' and ``.names'' are active in the global markets and are
    serving growing shares of the market . More importantly, ICANN
    estimates that the thirty four largest ccTLDs grew over the past year
    at an average rate of almost 50 percent, while the rate of growth for
    all gTLDs was less than 20 percent, with ``.com'' growing at an even
    slower rate. While ICANN is not a market research firm, and its
    estimates were developed by them for budget planning, the trends cited
    by ICANN are exactly the same as those we see in the marketplace.
    Whether the ICANN estimates are accurate or not--and our market
    research suggests that they may underestimate both the decline in
    ``.com'''s market share and the rise in the market share served by
    ccTLDs--no one doubts that ``.com'' currently serves less than half the
    market and that its share is declining; or that the ccTLD segment of
    the market is rapidly growing. Moreover, many ccTLDs, such as ``.us'',
    ``.au'' (Australia), ``.cn'' (China), ``.eu'' and others have recently
    been revitalized and can be expected to be even more aggressive in the
    market in the future than they have been in the past. At this estimated
    rate of growth, ccTLD registrations would exceed .com registrations
    sometime this year or next, soon after which, ccTLD registrations would
    exceed all gTLD registrations combined. Again, Mr. Chairman, whether or
    not these exact estimates are accurate, the trends are clear.
        Even while the share of the domain name market served by ``.com''
    has shrunk dramatically, the share of registrations within ``.com''
    provided by the VeriSign Registrar (formerly the NSI Registrar) has
    itself also dropped dramatically. Whereas in 1998, 100 percent of all
    .com registrations were provided by the (NSI, now) VeriSign Registrar,
    today around one hundred registrars compete in the gTLD market and the
    VeriSign Registrar's share is less than 35 percent, with less than 20
    percent of new registrations being served by VeriSign.
        The net of these changes in the marketplace, Mr. Chairman, has been
    an enormous increase in competition in all segments and at all levels;
    and a natural and healthy increase in competitive pressures in such
    areas as pricing and new services. In this respect, however, ICANN's
    structure, focus, and programs have in many key areas hindered
    competition. Over the past four years, ICANN has developed an extensive
    set of contractually-based controls that it exercises over the gTLD
    segment of the market. These include ICANN's regulation of the gTLD
    segment's prices and services. In a manner reminiscent of the kind of
    controls exercised over the telephone or broadcast industries in the
    1960's, virtually every aspect of the services of the gTLD segment of
    the domain name industry is either regulated or subject to the
    regulation by ICANN--from prices to value-added services. A very large
    portion of ICANN management's attention and resources is dedicated to
    the negotiation and enforcement of service agreements with gTLD
    registries that permit ICANN to control everything from their budgets
    to employee information sharing.
        While ICANN has done some useful things that support a competitive
    environment, such as the introduction of new gTLDs like ``.biz'' and
    ``.info'', this attempt by ICANN to comprehensively regulate the gTLD
    segment has created an un-level playing field between the gTLD segment,
    which is subject to extensive ICANN contractual controls on its prices
    and services, and the fast-growing ccTLD segment, which is not. The
    effort to become a regulator has diverted significant resources that
    ICANN needs; discouraged innovation, particularly in the gTLD segment;
    replaced marketplace competition with competition among lobbyists to
    curry favor with ICANN; discouraged investment, particularly in the
    gTLD segment; and needlessly contributed to the growth of an alternate
    root movement, which proposes to offer an unregulated list of gTLDs
    that would in some respects compete with ICANN's heavily regulated list
    of gTLs. Unfortunately, the growth of ICANN's efforts to expand into
    service and price regulation of the gTLD segment has been at the
    expense of its ability to perform its core mission of technical
    coordination.
        ICANN's experiment with mandatory regulation of the gTLD segment of
    the domain name industry has been partially successful in one area but
    unsuccessful in most others and needs to be dramatically reformed.
    Although its delivery and follow up has been notably uneven, ICANN has
    been partially successful in one important area of the gTLD segment:
    Operators in the gTLD segment are nominally required to adopt three
    useful procedures. None of the three has been fully pursued by ICANN,
    but all are important and, in some respects, working:

       Escrow, under which registries and registrars are required
            to escrow their registration data in the event that one of them
            fails. This is in place today for registries; and

       WHOIS, a pre-ICANN lookup service that often permits law
            enforcement and others with a legitimate need (and
            unfortunately some spammers without a legitimate need) to
            quickly find some information about the identity and location
            of a domain name registrant. Currently, some--but not all--
            registrars offer a WHOIS service; and

       UDRP (Uniform Dispute Resolution Procedure), a mandatory
            domain name dispute resolution procedure, designed by the UN's
            World Intellectual Property Organization, that is available to
            anyone who believes that a domain name registrant is using
            their trademark without a legitimate right to do so. Under it,
            so-called ``cybersquatters'' with no rights to use a domain
            name that is, or closely resembles, someone else's trademark,
            can have that domain name registration transferred or deleted.

        The unfortunate facts about these three accomplishments, however,
    are that they have not been fully pursued and they apply only to one
    segment of the market. Nor are there any plans for them to apply to all
    market segments.
        A fourth ICANN procedure is worth noting, because it may be
    constructive, although the particularly intrusive approach taken to it
    by ICANN tends to offset any benefits. ICANN requires that each gTLD
    registry offer equal access to all gTLD registrars accredited by ICANN.
    On the one hand, this requirement benefits competition and confidence
    in the marketplace, although on the other, since only ICANN can
    accredit registrars and ICANN has established exceptionally low
    financial criteria for registrar accreditation, it has resulted in a
    large number of financially weak registrars that must be serviced by
    every gTLD registry. It has also imposed ICANN regulations onto the
    lowest level of the gTLD segment: service arrangements between gTLD
    registrars and their millions of customers; which is several steps
    removed from ICANN's intended role as a technical coordinator at the
    network management level.
        More importantly, Mr. Chairman, outside of some important, but
    limited, successes, ICANN's efforts to serve as a regulator of the
    services and prices of some, but not all, of the domain name industry
    has created enormous problems for the ICANN experiment. Among them:
        In its regulation of the gTLD segment's services and prices, ICANN
    has failed to provide due process. As a non-profit organization, ICANN
    has neither the resources nor the mandate to employ due process in its
    efforts to exercise control over the services and prices of the gTLD
    segment of the domain name industry. Moreover, many ICANN procedures
    involve a review of services and prices of one service provider by its
    competitors, hardly a practice that is likely to lead to procedural or
    substantive fairness. Perhaps the worst consequence of the absence of
    due process, Mr. Chairman, is the frequency with which arbitrary or
    inconsistent regulatory decisions are made. For those who might be
    tempted to consider permitting ICANN to evolve into some form of supra-
    national regulator over the domain name industry, by the way, it is
    important to keep in mind that any effort to regulate domain name
    prices and services in a multinational environment with due process
    will require both government agreements and millions of dollars
    annually. In such areas as consistency, transparency, and independence,
    ICANN's track record as a regulator of the gTLD segment has not been
    successful. With its inherent limitations, ICANN's approach to
    regulation is rarely transparent, frequently arbitrary, and never
    incorporates due process.
        ICANN's efforts over the past few years to extend its role to the
    regulation of services and prices in the gTLD segment of the domain
    name industry have not resulted in any reduction whatsoever of national
    governmental regulation of the gTLD industry segment. We know of not a
    single governmental regulatory agency anywhere that has indicated that
    it lacks regulatory authority over the gTLD segment of the domain name
    industry because ICANN asserts regulatory authority over that industry
    segment. The result is perhaps the most perverse consequence of the
    regulatory aspects of the ICANN experiment: the gTLD segment of the
    domain name industry--uniquely among all of the industries involved in
    the Internet--has been subjected to two levels of regulation. First,
    governmental regulation, which under the best of circumstances is
    extremely complex in the global Internet environment; and second, ICANN
    regulation, which is in no way coordinated with the regulatory
    activities of government authorities. By singling out the gTLD segment
    of the domain name industry for two layers of regulation, ICANN has
    competitively disadvantaged the gTLD segment, compared with the fast-
    growing ccTLD segment, and created a confusing situation in which the
    gTLD segment is subjected to both national regulation and ICANN
    regulation.
        By going beyond the technical coordination mission and functions
    originally set for it and attempting to expand its authority into
    regulation of the services and prices of the gTLD segment, ICANN has
    placed an enormous accountability burden on itself and generated great
    pressure for the public election of its Board. Citizens of all
    countries normally see themselves as having a right to participate in
    the regulatory proceeding of their governments. As a non-profit
    organization whose mission and functions are to provide coordination
    for the technical functions of the Internet, ICANN would attract
    relatively modest public and media interest and relatively little
    pressure for a publicly elected board. However, if ICANN were permitted
    to evolve into a supra-national, regulator over the domain name
    industry, then ICANN would, and should, attract enormous public
    pressure for a publicly elected board. As ICANN was originally
    envisioned--with a narrow set of coordination functions--it should
    probably always have some public participation in its governance; if
    for no other reason than to ensure accountability. But if ICANN is
    allowed to expand into service and price regulation, then its
    accountability to the public should not be appreciably less than that
    of government regulatory agencies; with all of the costs and
    complications that are involved.
        ICANN's attempts to evolve toward the role of regulator of the
    services and rates of the gTLD segment was not planned or anticipated
    when the original MOU with the DOC was entered into. In fact, as I
    noted earlier, the MOU cites four fairly exact and narrow functions for
    ICANN. For the most part, ICANN's effort to expand its responsibilities
    into regulation was an accident of circumstances, including the unusual
    market conditions in 1998, the personal ambitions of key people
    involved with ICANN and the effort of some entrepreneurs to turn what
    was supposed to have been an experiment in technical coordination into
    an experiment in the supra-national regulation of their competitors.
    Almost everyone involved in ICANN's effort to regulate the gTLD segment
    of the domain name industry --from those who support it because they
    think that they can manipulate the process for their own ends to those
    who oppose this ICANN mission creep--sees it as a failed aspect of the
    ICANN experiment. No one has put forward a realistic plan for how ICANN
    could be made into an effective, supra-national regulator of the entire
    domain name industry, equally and fairly regulating all segments of the
    industry, because it cannot be done without enormous expense and
    intergovernmental agreements.
        The solution is not to eliminate ICANN. It is to simply recognize
    that ICANN was never created to be--nor should it attempt to be--a
    regulator of services or prices. ICANN has neither the authority nor
    the resources to regulate services, rates, competition, operators, end-
    users or anything else in the domain name industry; the ccTLD segment
    or the gTLD segment. Ideally, such regulation should be done by the
    marketplace, which causes the least political distortion and rewards
    value instead of lobbying. Where the markets do not work, regulation is
    the job of governments, which are accountable and have the authority
    and the resources to do the job using due process.
        This conclusion, in our view, is not a criticism of ICANN. It is a
    reaffirmation of the importance and value of the ICANN that was
    envisioned and is still needed.
        ICANN has un-intentionally slid into the role of a network service
    operator, which has both distracted it from its critical mission of
    coordination and further diverted scarce resources. When the DOC-ICANN
    MOU was negotiated, no one envisioned that ICANN might itself become a
    significant operator of Web server machines, since ICANN was created to
    provide technical coordination mostly among major operators of network
    facilities. And yet by 2002, ICANN has found itself operating a variety
    of important server machines, including serving as the registry
    operator for the ``.int'' and the ``.arpa'' TLDs; the operator of the
    ``Internic'' website; the operator of reverse lookup services; and the
    operator of one of the Internet's 13, critically-important Root Zone
    Servers. Some assert that operating a variety of Internet server
    machines is a trivial task that consumes little of ICANN's time or
    resources. But anyone involved in the operations side of the Internet
    knows better. The Internet server machines operated by ICANN all
    provide critical functions for the entire Internet. Each of them needs
    to be operated in a reliable and secure environment with adequate
    support. Attempting to do so successfully diverts resources away from
    other technical coordination tasks. These Internet server machines
    should be operated and supported by organizations that are in the
    business of operating Internet servers. Any such organization, business
    or non-business, could easily integrate these machines into their
    large, on-going, secure infrastructures. These servers should not be
    operated by a small, non-profit organization whose mission is
    coordination. Based on our experience with other aspects of the
    Internet's infrastructure, we are confident that businesses like ours,
    that are involved in the large-scale operation of Internet servers,
    would be willing to manage and operate, under contractual controls, the
    servers currently operated by ICANN. This could easily be done at no
    charge to ICANN or the Internet community and with a significant
    increase in both security and quality of service. This would permit
    ICANN to focus its resources on its important, core mission of
    technical coordination.
        After almost four years of attempting to do so, ICANN has made
    little progress in establishing relationships with the 243 country code
    domain name operators or the thirteen Internet Root Server Operators.
    First, ICANN cannot continue to regulate the services and prices of the
    gTLD segment of the domain name industry and not the ccTLD segment; and
    Second, creating a secure and predictable legal environment for the
    Internet's Root Servers is important for the security of the Internet.
    We do not believe that there is a viable plan in place for ICANN to do
    either. To become fully established, ICANN must establish contractual
    relationships with the ccTLD segment of the domain name industry and
    with the operators of the 13 Internet Root Zone Servers, and thereby
    add two of the missing legs to the ICANN table. According to the ICANN
    President's February report on ICANN reform, `` . . . most of the root
    name server operators . . . and the majority of ccTLD registries--have
    not yet entered into agreements with ICANN . . . '' The principal risk
    created by the ambiguous legal environment surrounding the Internet's
    Root Servers is not necessarily at the operational level. (e.g.
    VeriSign operates two Root Servers, for example, and we do so at what
    we think is the highest possible level of security and reliability.)
    However, there is currently no legal environment that defines the
    security or other practices of the Internet Root Server Operators. The
    risk of this ambiguous Root Server legal environment is in confidence
    and predictability. ICANN can and should play a role in the
    coordination of the Internet's Root Servers, but it is not likely that
    they will effectively do so at present course and speed. This may be an
    area where governments should take an increased interest.
        As for ICANN's failure to establish contractual relations with most
    of the ccTLD segment of the domain name industry, this is critically
    important because, as I noted earlier, the ccTLD segment of the
    industry is large, rapidly growing today, and likely to grow more
    rapidly for the foreseeable future. So an ICANN that has contractual
    relationships with, and exercises extensive controls over a shrinking
    gTLD segment and that has no contractual relationships at all with the
    fast-growing ccTLD segment, is just not viable. In our view, Mr.
    Chairman, the principal cause of ICANN's failure to conclude agreements
    with the ccTLD segment of the industry lies in the same ICANN
    regulatory issue that I described earlier: By their own statements,
    leaders of the ccTLD segment are prepared to conclude agreements with
    ICANN that recognize a limited role for ICANN. Most of the operators in
    this fast-growing segment have asserted for four years, however, that
    they will not recognize ICANN as having regulatory authority over them.
    Most explain that, just like the gTLD segment, the ccTLD segment of the
    industry is already regulated by national governments and their local
    Internet communities. As best we can tell, ICANN has refused to accept
    a limited role of technical coordinator in its relationships with the
    ccTLD segment, giving rise to four years of marginally-productive
    negotiations between ICANN and the ccTLD segment. At present course and
    speed, we do not see any successful conclusion in sight. The successful
    conclusion of the ICANN negotiations with the ccTLDs could be within
    reach, however, but that turns on the same approach to ICANN regulation
    that I described earlier: the principal regulator of the domain name
    industry should be the marketplace, which is highly competitive today
    and will be increasingly competitive in the future. Where the
    marketplace fails, governments already provide--and will continue to
    provide--effective regulation. Only if and when the marketplace and
    governments cannot adequately address an important need for Internet
    coordination should we turn to ICANN for that benefit. We have noted
    elsewhere that, for the gTLD segment, ICANN's role in three areas
    should be continued and one should be carefully considered. For the
    ccTLD segment, ICANN should develop parallel voluntary programs that
    address UDRP, escrow, WHOIS and, perhaps, equal access.
        ICANN needs to have a carefully and tightly defined mission and a
    set of safeguards to ensure that the organization is not led away from
    that mission. Many of the problems that are discussed in this testimony
    stem from the fact that ICANN's mission, while it is often described as
    being ``focused,'' is in fact vaguely defined with no effective
    safeguards to prevent mission creep. And the proof of this is that the
    various documents that make up ICANN's constitution, ranging from the
    MOU itself to ICANN's many contracts with registries and registrars,
    both permit vastly different interpretations of ICANN's fundamental
    function and generally do not prevent ICANN from extending its reach.
        From the beginning, ICANN's purpose and function has been among the
    most important of any organization dealing with the Internet: provide a
    central depository for information about, and provide coordination
    among those who operate, the technical infrastructure of the Internet,
    most notably in the domain name system. While the DOC MOU was quite
    clear on what ICANN should do, it neither specified what ICANN could
    not do, nor did the MOU provide guidance to ICANN on how ICANN was to
    pursue its four authorized and narrow tasks. It's rededication to that
    mission and the establishment of safeguards will both place ICANN on a
    pathway toward success, and free it of the endless distractions,
    expenses, and controversies that have bogged it down so much during its
    first four years.
        We firmly believe that after four years of struggle, ICANN sits at
    a crossroad between pursuit of a narrow set of achievable and important
    technical coordination objectives with ample resources to accomplish
    them on the one hand, and continued pursuit of unachievable and
    needless objectives that generate enormous expense, market distortions
    and endless systemic stress.
        We hope that you will join us in placing ICANN on the pathway to
    success that is so important to the Internet's future.
        Thank you.

        Senator Wyden. We thank you very much. I also understand
    your son is here. Could you just introduce him to the
    Subcommittee.
        Mr. Cochetti. I would be happy to introduce him to the
    Subcommittee: Andrew Cochetti, who decided he wanted to come
    and see how the U.S. Senate works for his class project, is in
    the audience.
        Senator Wyden. Very good. What school is he in?
        Mr. Cochetti. He goes to Blessed Sacrament School in
    Washington, D.C.
        Senator Wyden. We are very glad you are here. Thanks for
    coming.
        Mr. A. Cochetti: Thank you.
        Senator Wyden. OK. Mr. Davidson, welcome. And we will put
    your prepared remarks in the record in their entirety and
    summarize in part----

     STATEMENT OF ALAN B. DAVIDSON, ASSOCIATE DIRECTOR, CENTER FOR
                        DEMOCRACY AND TECHNOLOGY

        Mr. Davidson. I can't top that, but----
        [Laughter.]
        Senator Burns. It's hard to follow kids and an animal act.
        [Laughter.]
        Mr. Davidson. Well, we will see. This may be the animal
    act.
        [Laughter.]
        Mr. Davidson. Mr. Chairman, Senator Allen and Senator
    Burns, good afternoon. The Center for Democracy and Technology
    welcomes this opportunity to testify before your Subcommittee
    regarding the future of ICANN. Members of this Committee are no
    strangers to complex technical issues that are complicated,
    whether encryption or Internet taxation, but that actually are
    ultimately very important to the American people. This falls
    into that category.
        We commend your leadership on Internet issues in general
    and we are particularly grateful for this hearing today.
    Because for many of us in the public interest and consumer
    community who have been following ICANN and who feel
    increasingly disenfranchised at ICANN, Congress and the
    Department of Commerce have become our forum of last resort.
        CDT has participated in the last ten international ICANN
    meetings dating back to 1999. In our view--and I'm sure this is
    a great shock to you--all is not well at ICANN. It is, in fact,
    our view that this is a very important moment in ICANN's
    history. ICANN is headed down the wrong track and your help and
    oversight is needed if ICANN is to get back on the right track.
        My testimony for the record focuses on several main points,
    which I will try to summarize. First and foremost, we still
    believe in the model behind ICANN set out in the White Paper in
    1998, which is the model of a non-governmental, globally
    representative, bottom-up organization to coordinate these
    important technical resources. We echo the sentiments of other
    speakers who indicated that the governmental models are not
    appropriate at this time.
        Second, we are concerned that in many fundamental areas,
    ICANN has not lived up to that initial vision. Today ICANN is
    becoming an unchecked global regulator of important Internet
    activities. And while we welcome the efforts and hard work that
    the ICANN board is putting into reform, we see three areas
    where further action is needed.
        First and foremost, and most fundamentally, ICANN has not
    found ways to meaningfully define or put checks on its
    activities or its powers.
        The fact is that the power to control how names and numbers
    are assigned on the Internet gives ICANN the potential to
    exercise a lot of control over Internet activities. Today the
    ICANN Board has very admirably disavowed any intention to
    expand its activities into these areas. The board knows that
    ICANN must not get involved in certain broad policy issues, but
    future boards of ICANN are going to face tremendous pressure to
    use their power, to create regulations on the Internet: to
    protect consumers, for example, or to deal with Internet
    taxation. Potentially these are very worthy goals, but goals
    that ICANN itself is not constituted to address.
        While ICANN was originally conceived as a narrow minimalist
    policymaker, a minimalist technical coordination body, it has
    increasingly acted like a broader policymaker. It has demanded
    massive and detailed contracts with the registries. It makes
    subjective and at times arbitrary decisions. A great case in
    point is the selection process for the new gTLDs 2 years ago.
    All of this has reduced the community's trust in the idea that
    ICANN is, in fact, a very limited body.
        At the same time, the voice of consumers and users is
    diminishing. The notion that half of ICANN's board is to be
    selected at-large from among the user community was a baseline
    guarantee that many of us looked to in our initial support for
    the organization, and for the original concept of the
    organization. ICANN's current reform process shockingly all but
    abandons this notion of direct user representation at the
    board. And while elections are controversial and there may be
    other mechanisms for providing user representation at ICANN, it
    is not sufficient to simply say ``democracy doesn't work.''
    Unless reforms are made we will soon have no user
    representation in this important organization.
        Churchill said, ``Democracy is the worst form of
    government, except for all the others.'' It is very hard to
    solve this problem, but ICANN needs to find a way to have more
    representation in its activities.
        A third area where ICANN has really fallen short of the
    original White Paper conception, is in the area of bottom-up
    processes and consensus-oriented policy development. In fact,
    more and more decision making in the critical area of domain
    name policy at ICANN devolves to the board and not to the
    technical experts or the individuals and consumers who have an
    obvious stake in how policy is being developed.
        It is our belief, then, that all of these things taken
    together amount to increasing power with less accountability
    for ICANN; more policymaking authority, but less representation
    from the affected user; less transparency in the process, but
    more authority in the hands of the board.
        And therefore, we think it's time for the U.S. Government,
    in conjunction with global stakeholders and other governments
    to take a much more active role in ensuring that ICANN meets
    its requirements for limited powers, accountability and
    representation.
        We think that these requirements should become part of any
    MOU that is signed with ICANN in this coming year. And we think
    that this Congress and this Committee should demand frequent
    reports from the Commerce Department both in September and
    throughout the year while it is progressing toward those goals.
    The time for action is now. In the next few months, ICANN will
    be making critical decisions about its future. It should do so
    with the knowledge that the U.S. Government and this Congress
    and other stakeholders are watching it carefully and that time
    is running out.
        We look forward to working with you and with the ICANN
    staff and community to make ICANN a more accountable steward of
    this critical resource. And I thank you for your time.
        [The prepared statement of Mr. Davidson follows:]

    Prepared Statement of Alan B. Davidson, Associate Director, Center for
                            Democracy and Technology

    ``Limited Powers, Improved Accountability: Saving the ICANN
            Experiment''

    Summary
        The Center for Democracy and Technology (CDT) welcomes this
    opportunity to testify before the Subcommittee regarding the future of
    the Internet Corporation for Assigned Names and Numbers (ICANN), an
    issue of great importance to the management of the Internet. CDT is a
    non-profit, public interest organization dedicated to promoting civil
    liberties and democratic values online. We have participated in the
    last ten international ICANN meetings as advocates for mechanisms that
    protect the public voice in ICANN and that promote the decentralized,
    user-controlled vision of the Internet that has been so successful to
    date.
        Today ICANN is at a crossroads, and in our view it is failing. Its
    authority over central naming and numbering functions gives it both a
    public trust and an enormous potential to exercise power over Internet
    activities. Its original conception is sound. Yet three years into its
    existence ICANN has not yet lived up to that original vision in key
    areas. Its current efforts appear likely to create a global Internet
    regulator with increasing powers, reduced public accountability, and a
    diminishing voice for the public's interests in its stewardship of
    public resources.
        ICANN is in need of substantial reform if it is to succeed. We
    believe the current path to reform, while welcome, is not sufficient.
        Our testimony focuses on these main points:

    1. We still believe in the original concept of a non-governmental,
            globally representative, bottom-up technical coordination
            organization.
        The U.S. government alone cannot forever maintain responsibility
    for coordination of global Internet resources. A private-sector body--
    but one that is narrowly focused, publicly accountable, and
    representative of affected interests--remains the approach most likely
    to reflect the needs of the Internet community.

    2. ICANN has not yet lived up to that vision, and risks becoming an
            increasingly unaccountable global regulator of important
            Internet activity.

       While ICANN was originally conceived as a narrow technical
            manager, it has increasingly acted as a broader policy-maker,
            demanding massive and detailed contracts with registries,
            making subjective and at times arbitrary decisions, and
            reducing trust that there are meaningful limits on its powers.

       The bottom-up, consensus-oriented approach to policy
            development has failed to develop in key areas at ICANN, and
            the current reform proposal appear to retreat from that bottom-
            up approach.

       The voice of consumers and users is diminishing at ICANN,
            and the current reform process all but abandons the critical
            commitment to At-Large board seats as a mechanism for
            accountability and representation.

    3. Most fundamentally, ICANN must find ways to limit its powers to
            promote trust.
        Only a truly ``thin'' ICANN, with real checks on its powers that
    people can point to and understand, is likely to gain the trust of
    users and of the country registries and others who have been reluctant
    to enter into contracts with ICANN. Only a truly focused private body
    will be able to create the global accountability mechanisms needed to
    exercise power with the trust of the global Internet community.

    4. There is a path to reforming ICANN.
        The hard work of ICANN's Reform Committee makes good progress in
    some areas, but our testimony explains how ICANN must:

       Limit its power and mission through clear delimitation of
            its powers and a binding review process to ensure it does not
            overstep those bounds.

       Increase accountability through more transparent bottom-up
            processes.

       Represent user and consumer interests in its Board and
            structure. CDT has in the past supported elections from among
            stakeholders as one method of providing representation and
            accountability, and others are available as well. ICANN cannot
            reject this mechanism without providing an alternative public
            voice, and the reform process has been shockingly vague on this
            issue.

    5. The time has come for the U.S. Government, in conjunction with other
            global stakeholders, to take a more active role in ensuring
            that ICANN meets these requirements for limited powers,
            accountability, and representation.

       These requirements, with meaningful benchmarks, should be
            made obligations in whatever Memorandum of Understanding is
            signed by the Commerce Department with ICANN this year.

       They should be conditions for continued support of ICANN by
            the U.S. and other governments.

       The Commerce Department should report back to Congress on
            progress toward these benchmarks this fall and regularly
            throughout the coming year.

        The time for action is now. In the next few months, ICANN will make
    key decisions affecting its future structure and activities. It should
    do so with the knowledge that the U.S. government and other global
    stakeholders are watching carefully, and that time is running out.
        We commend the Subcommittee for holding this hearing. For many
    public interest groups and non-commercial participants who feel
    disenfranchised at ICANN, Congress and the Commerce Department have
    become a forum of last resort. We look forward to working with you and
    with the Internet community to make ICANN a more trusted and
    accountable steward of critical public resources.
        The Center for Democracy and Technology is a 501(c)(3) non-profit,
    public interest organization dedicated to promoting civil liberties and
    democratic values on the Internet. CDT is a member of ICANN's Non-
    Commercial Constituency and has attended the last ten global ICANN
    meetings. CDT, with the support of Markle Foundation, co-authored two
    major studies of ICANN governance: ICANN's Global Elections: On the
    Internet, For the Internet, (March 2000); and ICANN, Legitimacy, and
    the Public Voice: Making Global Participation Work (September 2002), as
    part of the NGO and Academic ICANN Study (NAIS) collaboration of
    international researchers studying ICANN's governance structure.

    Extended Statement for the Record

    1. CDT still believes in the concept of a non-governmental, globally
            representative, bottom-up technical management organization.
        The Internet's great promise to promote economic opportunity, civic
    discourse, and the free flow of information relies largely on its open,
    decentralized nature. Yet even such a decentralized network of networks
    relies heavily on and benefits greatly from centralized mechanisms to
    coordinate certain aspects of naming, addressing, and protocol
    assignment. The way these centralized systems are managed has
    potentially broad implications for consumers, companies, and
    communities around the world.
        The Internet Corporation for Assigned Names and Numbers (ICANN),
    now three years old, is an unprecedented experiment in open management
    of these important global technical resources. Although ICANN in 2002
    is in need of serious reform, CDT continues to support the concept
    behind ICANN and expressed by the Commerce Department in 1998.
        While the U.S. government had a critical leadership role in
    building and maintaining many of these Internet coordination
    mechanisms, it alone cannot forever maintain responsibility for
    coordination of global Internet resources. As the Internet has grown in
    importance worldwide, it is to be expected that global stakeholders
    will appropriately demand a role in the management of these systems--
    and should accept their appropriate responsibilities to support those
    systems.
        We believe a private-sector body remains the approach most likely
    to reflect the needs of the Internet community, so long as it is:

       Non-governmental--to benefit from more nimble private sector
            capabilities to handle fast-paced, complex Internet technical
            decisions, and more likely to reflect the diversity of user
            interests.

       Bottom-up and consensus oriented--making decisions in the
            best traditions of Internet bottom-up processes designed to
            account for broad interests.

       Narrowly focused--to create trust that it would not exercise
            undue power and to increase comfort in its non-governmental
            character.

       Globally representative--to ensure both public
            accountability and to include the interests of stakeholders
            affected by its decisions.

        Alternative mechanisms remain unattractive. Multi-lateral
    government organizations like the ITU or UN are widely viewed as
    unlikely to move with the pace or technical sophistication needed, and
    are less reflective of diverse consumer perspectives. The Commerce
    Department alone is likely to be an unacceptable global coordinator in
    the long run. And no obvious private sector entity at this time
    exhibits the characteristics thought to be needed.
        The Department of Commerce formative documents on naming and
    numbering management--the White Paper and Green Paper--reflected these
    principles: Stability, Competition; Private, bottom-up coordination;
    and Representation. \1\ They also included an early reflection of the
    notion that ICANN's mission should be as narrow as possible. \2\
    ---------------------------------------------------------------------------
        \1\ DNS Statement of Policy (``White Paper''), National
    Telecommunications and Information Administration, June 5, 1998.
    Available at .
        \2\ The White Paper stated that the new management body's policies
    and practices should be ``no broader than necessary to promote the
    legitimate coordinating objectives of the new corporation.'' Ibid.
    ---------------------------------------------------------------------------
        It was under this stated framework that the Department of Commerce
    in 1998 ultimately selected ICANN. \3\ These principles were part of a
    broad understanding of ICANN's mandate at its creation and were viewed
    by many, including CDT, as part of the conditions for their support of
    ICANN and the Commerce initiative. As such they continue to be
    important metrics in judging ICANN's performance since 1998.
    ---------------------------------------------------------------------------
        \3\ Significant debate has arisen about whether Commerce's
    solicitation of a private body to manage these resources violated
    either the Administrative Procedures Act or the Constitution's
    nondelegation doctrine. See A. Michael Froomkin, Wrong Turn in
    Cyberspace: Using ICANN to Route Around the APA and the Constitution,
    50 Duke L.J. 17 (2000).
    ---------------------------------------------------------------------------
    2. ICANN has not lived up to that vision, and risks becoming an
            increasingly unaccountable global regulator of important
            Internet activity.
        ICANN has made notable progress in several areas, arguably most
    evident in increasing competition, introducing a first set of new top-
    level domains (though more slowly and with greater problems then many
    would have liked), and developing trademark dispute-resolution
    procedures. In other essential areas, ICANN has failed to live up to
    the promise put forward at its conception. ICANN President Stuart Lynn
    acknowledged as much in February when he wrote, ``many of those
    critical to global coordination are still not willing to participate
    fully and effectively in the ICANN process . . . [ICANN] has not become
    the effective steward of the global Internet's naming and address
    allocation systems as conceived by its founders. Perhaps even more
    importantly, the passage of time has not increased the confidence that
    it can meet its original expectations and hopes.'' \4\
    ---------------------------------------------------------------------------
        \4\ M. Stuart Lynn, ``ICANN--The Case For Reform,'' February 24
    2002. Available at .
    ---------------------------------------------------------------------------
        Most critically, we believe the essential question facing ICANN,
    from which all else flows, is the exact scope of its authority and
    powers, today and over time.

    ICANN lacks a clear community understanding of its mission and
            meaningful constraints on its power.
        While ICANN was originally conceived as a narrow technical manager,
    it has increasingly acted as a broader policy-maker, demanding massive
    and detailed contracts with registries, making subjective and at times
    arbitrary decisions, and reducing trust that there are meaningful
    limits on its powers.
        On the highly decentralized Internet, ICANN's emerging central
    authority over critical aspects of naming and numbering gives it the
    potential to exert tremendous control over Internet activity. Its
    contracts could give ICANN the potential to exert power directly over
    registries and registrars (and RIRs and root-server operators), and
    indirectly over end users by placing conditions on the use of domain
    names or IP numbers.
        ICANN's current Board has admirably indicated its commitment to a
    ``narrow'' mission for ICANN. But many questions remain about the exact
    scope of ICANN's power. Moreover, future ICANN boards will face both
    external pressure and internal temptation to take on increasing
    activities and assume additional power--unless meaningful constraints
    are placed on their ability to do so.
        Within the Internet community there are many different definitions
    of ICANN's appropriate mission and activities. The idea that ICANN's
    mission is ``mere technical coordination'' has been eroded by an
    understanding that ICANN's decisions have not been purely ``technical''
    in nature, but rather have broader ``policy'' impacts. The idea that
    ICANN's mission is ``narrow'' and limited is being challenged by
    concerns about its expansion through ``mission creep'' to date and in
    the future.
        Examples of ICANN actions that have raised questions about
    ``mission creep'' include:

       The size and scope of its massive contracts with new gTLD
            operators, including detailed limitations on business plans and
            marketing requirements.

       The selection of new gTLDs. ICANN's final selections were
            based on subjective and even arbitrary criteria, such as how
            strings sounded when pronounced, or the Directors' fondness for
            certain spellings. Decisions once taken were unappealable, and
            the Board never fully justified its decisions.

        Recent consideration of Internet ``keywords'' policies, where the
    Board ultimately took no action, but an area not obviously included in
    ICANN's list of name, number, and protocol responsibilities.

        Without debating the merits of these actions--we likely agree with
    many of the motivations behind them--together they are indicative of
    why many question whether there is a common understanding of ICANN's
    mission that is either ``narrow'' or based on ``technical
    coordination.'' Moreover, some have already called for ICANN to have a
    greater role promoting goals such as consumer protection online,
    assistance collecting Internet taxes, or regulation of content.
        The mission problem is made worse by the absence of any mechanism
    to serve as a check on the Board. This past March, ICANN abandoned as
    unworkable the notion of an Independent Review Panel (IRP), one of the
    key accountability mechanisms in the Department of Commerce's MoU. In
    early June ICANN proposed replacing the IRP with a non-binding system
    of international arbitration--a proposal that has attractions but that
    many find lacking.
        Even if ICANN manages to assemble a new IRP, its effectiveness will
    be limited unless ICANN establishes a meaningful community
    understanding of its powers and their limits. Our suggested reforms
    below outline how ICANN could more effectively do so.

    Bottom-up, consensus-oriented policy development is failing in key
            areas at ICANN.
        ICANN's founding conceptual documents, the Green and White Papers,
    called for ``private bottom-up coordination'' as the governance model
    for ICANN. Despite early attempts at consensus-based decision-making,
    authority in ICANN increasingly rests at the top, with the
    Corporation's nineteen-member Board of Directors.
        Bottom-up processes have the benefit of placing policy development
    in the hands of those technical experts, companies, and individuals
    most expert and those most affected by policies. If done properly, it
    can also ensure that there are opportunities for the voices of affected
    stakeholders to be heard at the early stages of policy development.
        This bottom-up approach has worked well in ICANN's Address and
    Protocol Supporting Organizations, which remain largely technical in
    nature. Increasingly, however, the process has not worked in the
    context of the Domain Name Supporting Organization, which has generated
    most of ICANN's controversial policy discussions. Today, policies are
    increasingly generated by staff and decided by the Board. As a result,
    the benefits and guarantees of fairness offered by a consensus-oriented
    process have not been realized.

    The voice of consumers and users is not adequately represented at
            ICANN.
        Even with a narrow mission, ICANN makes decisions of interest and
    importance to consumers, Internet users, and the non-commercial
    community. Yet these groups are largely underrepresented in ICANN's
    structure, and ICANN appears to have abandoned efforts to establish
    meaningful representation for users at the real locus of ICANN
    decision-making, the ICANN Board.
        A single Non-Commercial Constituency serves all non-commercial
    interests at ICANN (individuals and user advocates have no formal
    constituency), and it is only one of seven groups making up one of the
    three supporting organizations. ICANN's meetings pursue the admirable
    goal of global inclusiveness by meeting all over the world, but few
    individuals or NGO's have the resources to attend. CDT's own experience
    has been that the ICANN community is receptive to thoughtful input, but
    that it requires an ongoing effort to be effective. In our case, that
    effort was only possible through the generous support of the Markle
    Foundation, and many are not so fortunate.
        The main hope for a public voice and accountability in ICANN has
    been the promise that half the board would be selected ``At-Large'' by
    the user community--indeed, ICANN's initial bylaws explicitly provided
    for nine At-Large Directors on a nineteen-member Board. \5\ To date
    there has been a great deal of debate about the selection mechanism for
    At-Large Directors, in which CDT has commented extensively. Five of the
    nine At-Large directors have been elected (the seats were otherwise
    filled with appointed directors), in a global election with many flaws
    but widely viewed as producing legitimately selected Board members.
    ---------------------------------------------------------------------------
        \5\ ICANN bylaws, adopted November 6, 1998. Available at .
    ---------------------------------------------------------------------------
        While elections remain a controversial--and we believe still poorly
    understood--method of including the user's voice, it is shocking how
    ICANN's current reform effort has abandoned them without putting a
    clear user representation mechanism in their place. ICANN's own At-
    Large Study Committee, chaired by no less an eminent figure then former
    Swedish Prime Minister Carl Bildt, recommended a modified election
    system for selection of directors-a substantial effort now abandoned by
    the Board. \6\
    ---------------------------------------------------------------------------
        \6\ CDT also participated in an independent effort to review the
    2000 election and suggest ICANN's course for the future. Known as the
    NGO and Academic ICANN Study (NAIS), the group encompassed researchers
    and experts from around the world. Its final report, ICANN, Legitimacy,
    and the Public Voice: Making Global Participation and Representation
    Work, is available at .
    ---------------------------------------------------------------------------
        In March the ICANN President proposed that foreign governments
    select Directors. The most recent reform proposals would have the seats
    on ICANN's board once reserved for At-Large user selection be filled by
    a Nominating Committee selected by ICANN's Board. Such processes
    provide a pale shadow of the accountability and user representation
    expected from the At-Large process. While elections may be
    controversial, the onus remains on the ICANN Board to show how its new
    process will provide an adequate voice for users.
    3. Major reforms are necessary if ICANN is to succeed.
        The ICANN community has recognized the need for change, and a great
    deal of work has already gone into the reform process. The reform paper
    presented this winter by President Stuart Lynn, while controversial in
    many ways, deserves credit for its honest assessment of the challenges
    facing ICANN and its attempt to find new solutions. The hard-working
    Committee on ICANN Evolution and Reform has made good progress in some
    areas, and appears to have reaffirmed some of the basic principles of
    non-governmental, transparent structure that were hallmarks of ICANN's
    original conception.
        In three main areas we believe the reform efforts should do more if
    ICANN is to succeed.

    ICANN must find ways to limit its powers to promote trust.
        ICANN needs a focused and narrow mission, clearly defined, with
    real checks on its powers that people can point to and understand.
    Without a narrow mission, ICANN will need a much broader--and likely
    unsustainable--policy-making mechanism to ensure its accountability to
    affected stakeholders and the public. Without a narrow mission, ICANN
    is unlikely to gain the trust of those it wishes to sign contracts
    with, such as the country code registries (ccTLDs), RIR address
    registries, or root server operators--all who may fear a future and
    overbearing ICANN. \7\
    ---------------------------------------------------------------------------
        \7\ With a broad mission, ICANN will be increasingly forced to make
    decisions in areas where it has no competency--such as the economics of
    gTLD allocation, or consumer protection on the Internet, or who is
    qualified to be in .churches or .union.
    ---------------------------------------------------------------------------
        The current reform effort has taken steps to define ICANN's
    mission, producing two helpful papers describing what ICANN believes it
    does and should do. This work does not go far enough, nor has ICANN yet
    taken steps to put serious constraints on its powers. Two examples
    illustrate the difficulty faced:

       The ``What Does ICANN Do'' paper release this fall includes
            this straightforward item: ICANN ``defin[es] the content of the
            root zone file, which means maintaining and updating the list
            of recognized TLDs and the name servers for each TLD.'' \8\ But
            how does it do that? ICANN could select new TLDs based on
            relatively objective criteria, even using a lottery to select
            among similarly qualified candidates. Or ICANN could select new
            TLDs based on highly subjective criteria or those designed to
            promote goals like increasing competition, addressing the
            digital divide, or stopping piracy. Clearly the second model
            vests far more discretion--and far more power--in the hands of
            the Board than the first.

        \8\ ``What ICANN Does,'' March 10 2002. Available at .
    ---------------------------------------------------------------------------
       The reform committee's paper on mission puts forward a
            helpful framework of ``values'' designed to limit ICANN's
            mission. Among them: ``limit[s on] ICANN`s activities to those
            matters within ICANN`s mission requiring or significantly
            benefiting from global coordination.'' \9\ Such wiggle room
            makes it very difficult to trust that a future board will be
            constrained from calling nearly any proposed activity that
            affects the DNS an activity ``benefiting from global
            coordination.''
    ---------------------------------------------------------------------------
        \9\ ``Working Paper on ICANN Mission and Core Values,'' May 6 2002.
    Available at .
    ---------------------------------------------------------------------------
        Reforms to ICANN, then, should include both substantive limits on
    the powers granted to ICANN and procedural safeguards that govern the
    ways those powers are exercised. Substantive limits could include:

       Enumeration of powers in the ICANN charter and bylaws. The
            ICANN charter and bylaws should explicitly enumerate the powers
            it may exercise. We believe those core functions to be few in
            number, and could be limited to issues:

          for which central and coordinated resolution is necessary
            to assure stable interoperability of the domain name and
            address system;
          directly related to the safety and integrity of
            registration data;
          directly related to the availability of accurate WHOIS
            data; and
          directly related to the resolution of disputes regarding
            the registration of particular domain names (as opposed to the
            use of such domain names) by particular parties.

       Explicit prohibition of certain activities. If powers cannot
            be limited to a clear list, ICANN could adopt a formal
            declaration of activities in which ICANN may never engage. The
            reserved powers could, for example, generally guarantee
            individuals and companies around the world basic protections
            for their property, certain basic liberties, or their
            expectation to be treated fairly and with due process.

       Directive of limited action. The two examples above indicate
            the difficulty in creating a simple list of permitted
            activities; the way those activities are executed can make a
            big difference. ICANN should consider an overiding directive of
            limited action--that is, as a guiding principle it will act in
            as limited way and as objectively as possible, avoiding
            subjective policy-making unless they are narrowly tailored and
            there are no less objective alternatives.

        The substantive limits on ICANN's powers described above must be
    bolstered by procedural safeguards to ensure their effectiveness:

       Limits on amendment power. Codified limitations and rights
            provide an incomplete guarantee without restrictions on their
            future amendment. ICANN has amended its bylaws eleven times,
            and changes to the ICANN charter and bylaws require a two-
            thirds vote of the Board. That standard should be raised to
            three-fourths where changes implicate the scope of ICANN's
            power or the rights of users, and such changes should not be
            commonplace.

       Independent review and enforcement of limitations and
            rights. The only institution responsible for reviewing the
            Board's activities is the Board itself. ICANN needs a check to
            give assurance that limitations will be enforced. (See below)

    Reforms must increase ICANN's accountability and transparency in its
            activities.

       A better Independent Review process: ICANN has largely
            abandoned its critical accountability mechanism, the
            Independent Review Panel (IRP). ICANN's proposal that alleged
            bylaws violations be subjected to international arbitration has
            merit, but is non-binding and its costs may discourage many
            claims with merit. ICANN's complexity may make commercial
            arbitration a poor fit, better left to respected experts in the
            issues ICANN faces. Commercial services designed to weigh the
            interests of private companies against one another are unlikely
            to succeed at measuring the activities of ICANN (a private
            organization with public responsibilities) with the interests
            of the global Internet community.

             ICANN's latest MoU with the Department of Commerce still
            requires it to provide for external review of its decisions,
            and we urge Commerce to maintain this provision.

       Fair administrative procedure and reporting. ICANN should
            adopt procedures guaranteeing the openness and fairness of its
            activities. All decisions and meetings should be fairly
            noticed, input should be openly taken, documents should be made
            widely available, and stakeholders should be provided with
            detailed reasoning behind decisions made both by the ICANN
            Board and staff. We note that some progress has been made in
            this area by the reform committee, though more needs to be
            done.

       Board and staff codes of conduct. At present there is no
            adopted standard for measuring the performance of the Board and
            staff or providing a baseline of acceptable behavior. ICANN
            should adopt a code of conduct for all its Board members and
            staff.

    The public's interests must be represented at ICANN.
        At-Large representation of users was a critical part of its initial
    conception and was pointed to by ICANN's leaders in gaining political
    support for ICANN. For example, in a November 1998 letter to Department
    of Commerce representative J. Beckwith Burr, then-ICANN Chairwoman
    Esther Dyson wrote, ``Some remain concerned that the Initial Board
    could simply amend the bylaws and remove the membership provisions
    [establishing an At-Large Membership and election]. We commit that this
    will not happen.'' Tellingly, ICANN now is at the point of removing
    those same provisions from its bylaws, with no accountability for that
    action.
        Elections are not the only method of ensuring that broad consumer,
    user, and public interests are represented in the Board's activities.
    Some of the alternatives--and their relative merits--are outlined in
    the NAIS September 2002 report, ICANN, Legitimacy, and the Public
    Voice. But a strong form of public representation was a key part of the
    original deal that led to the creation of ICANN, and ICANN made strong
    public commitments as an original matter to adhere to the deal. If
    ICANN rejects elections as a feasible means of implementing this
    principle, then the onus is on it to substitute another effective
    alternative. To date the reform process has not done so.
        We note that ICANN has made a welcome recommitment to increasing
    user participation through a new At-Large supporting organization. But
    it faces an uphill battle to get individuals engaged in ICANN with few
    guarantees their voices will be heard or represented at the Board.

    4. Congress and the Department of Commerce have important roles to play
            in putting ICANN back on the right track.
        ICANN is at a crossroads, and the next six months will be critical
    to its future. The time has come for the U.S. Government, in
    consultation with and in conjunction with other global stakeholders, to
    take a more active role in ensuring that ICANN meets requirements for
    limited powers, accountability, and representation.
        A large measure of ICANN's authority derives from its Memorandum of
    Understanding (MoU) with the Department of Commerce. The MoU includes
    such responsibilities as establishing an external review process for
    ICANN activities (still incomplete) and providing for the security of
    the root server system. Other responsibilities, such as establishing
    user participation in policy development, were originally in the MoU
    but were removed by Commerce in 2000. The removal of those
    responsibilities now appears premature.
        The MoU is set for renewal in September. If it is renewed (and some
    have argued that it should not be), Congress and the Commerce
    Department should use this opportunity to exercise greater oversight
    over ICANN:

       Any renewal of the MoU should add new obligations regarding
            mission, accountability, and representation that explicitly
            require:

          Enumeration of ICANN's powers and prohibition of certain
            activities;
          Procedural reforms, including a directive of limited
            action;
          Establishment of an independent mechanism to interpret
            and enforce the scope of ICANN's powers;
          Representation of consumer and user interests at key
            levels of ICANN decision-making, including the Board; and
          Effective mechanisms of user participation in the ICANN
            process.

       These requirements should be conditions for continued
            support of ICANN by the U.S. and other governments.

       The Commerce Department should take a more active oversight
            role, both in providing guidance to ICANN and information to
            the Congress and public. At a minimum, Commerce should report
            back to Congress on progress toward these benchmarks this
            September and regularly throughout the coming year.

        We note that some have called on Commerce to ``re-bid'' the MoU and
    seek competitors to ICANN. A recent expression of this sentiment came
    on May 29, when fourteen non-profit organizations signed a letter
    asking Commerce to ``re-compete'' its three agreements with ICANN. \10\
    While CDT has not joined the call to replace ICANN--we do not feel
    comfortable doing so without a clear understanding that there is a
    better alternative--we share many of the concerns expressed in that
    letter.
    ---------------------------------------------------------------------------
        \10\ Available at .
    ---------------------------------------------------------------------------
    5. Conclusion
        The time for action is now. In the next few months, ICANN will make
    key decisions affecting its future structure and activities. It should
    do so with the knowledge that the U.S. government and other global
    stakeholders are watching carefully, and that time is running out.
        Congress has an important role providing oversight and guidance to
    both ICANN and the Department of Commerce. This hearing sends an
    important signal that this Congress recognizes the issues at stake in
    ICANN. We look forward to working with you, the Commerce Department,
    the ICANN Board and staff, and the greater ICANN community to make
    ICANN a more trusted and accountable steward of the critical public
    resources it manages.

        Senator Wyden. Thank you. Mr. Auerbach.

                  STATEMENT OF KARL AUERBACH, MEMBER,
                        ICANN BOARD OF DIRECTORS

        Mr. Auerbach. Good afternoon, Mr. Chairman and
    distinguished Senators. Thank you for giving me an opportunity
    to appear. Today I would like to speak on the topic of ICANN
    reform.
        Everyone agrees that ICANN is in dire need of reform. The
    only argument is over the shape of that reform. I have been
    involved in the Internet since 1974. I was elected to the Board
    of Directors of ICANN in the year 2000. I am the only person on
    ICANN's Board of Directors who was elected by the Internet
    community of North America.
        My seat on ICANN's Board of Directors and the seat of every
    other publicly elected Director will cease to exist on October
    31st of this year. ICANN's plan is a repudiation of the concept
    of public participation and public accountability. ICANN
    replaces the voting and representation of the at-large
    membership with a group that will not vote. This replacement
    at-large group can best be described as a garden club. It will
    have no voice and no authority in ICANN's affairs.
        For years, ICANN has promised the Congress and the public
    that there will be elections, accountability and transparent
    decisionmaking. ICANN has retracted those policies. There is no
    trace of elections, no accountability, no transparency in
    ICANN's proposals. ICANN will tell you about its public forums
    and public processes and its broad consultation with
    ``stakeholders.'' As a Director, I can tell you from experience
    this are facades. Most of ICANN's decisions are made by its
    staff, often without consultation with the Board of Directors.
        In light of this experience, I encourage you to view with
    deep skepticism what ICANN has said to you today about the
    nature of its processes. The key to salvaging ICANN lies in
    processes and accountability. ICANN will not be saved as ICANN
    proposes, by simply adding more layers of insulation and
    increasing its budgets and staff.
        The following factors have contributed to ICANN's present
    troubles. Bias and favoritism are woven deeply into ICANN's
    form. ICANN's role has not been adequately identified and
    articulated. The Department of Commerce has routinely renewed
    or extended its agreements with ICANN, while ICANN disavowed
    and disregarded its promises to an institution accountable to
    the public and the public interest. ICANN resists public
    accountability and disregards public input.
        The so-called evolution proposals created by ICANN are
    reforms only in the sense that they reshape ICANN at the
    surface. The reconstituted ICANN that they envision is one that
    exacerbates, rather than cures ICANN's flaws. Instead of
    increasing responsibility and accountability to the public,
    ICANN's proposals impose more impenetrable walls between
    ICANN's decisionmakers and the public. Instead of creating a
    nourishing flow of new ideas into ICANN, ICANN's proposals
    create councils and nominating committees that will create an
    even more insular body. Instead of being a body of limited
    powers, ICANN's proposals would create a body with ever-
    increasing powers over the Internet, and an ever-growing
    bureaucracy to exercise those powers.
        It is my suggestion that ICANN's charter be precisely
    defined with specific mandates of what it must do and specific
    barriers to prevent it from doing what it should not do. The
    concept of stakeholder should be abandoned. It should be
    clearly recognized that everyone is affected by the Internet.
    Everyone is a stakeholder.
        Structural separation should be used to reinforce
    functional roles. In other words, ICANN should be split into
    several distinct entities. The Department of Commerce must
    exercise real oversight. ICANN must be made fully accountable
    to the public and the public must have full and meaningful
    means to participate in ICANN's decisionmaking processes.
        All of this is occurring against a backdrop of concern
    about what might happen if ICANN were to just disappear or
    become non-functional. ICANN does not have its hands on any of
    the technical knobs or levers that control the Internet. Those
    are firmly in the hands of ISPs, VeriSign, the regional ISP
    registries and those who operate the DNS root servers. Were
    ICANN to vanish, the Internet would continue to run. Few would
    notice the absence.
        There is an old joke about corporate life. It says when all
    else fails, it is time to reorganize. May I suggest in closing
    that all of ICANN's proposing is nothing more than hollow
    reorganization.
        Thank you very much for this opportunity to speak. I would
    be happy to answer any questions you may have.
        [The prepared statement of Mr. Auerbach follows:]

     Prepared Statement of Karl Auerbach, Member, ICANN Board of Directors

        Good afternoon.
        My name is Karl Auerbach.
        Today I would like to speak on the topic of ICANN reform.
        I have been involved in the Internet since 1974.
        I am a computer engineer. I am a principal of a new (and yet
    unnamed) start-up to create products that will make the Internet more
    reliable, secure, and efficient.
        I am also an attorney. I graduated cum laude in 1978 from Loyola of
    Los Angeles specializing in commercial, international, and
    administrative law. Although I maintain my status as the member of the
    California Bar and the Intellectual Property Section of the California
    Bar, I am not engaged in active practice. I have been named a Yeun
    Fellow of Law and Technology at the California Institute of Technology
    (CalTech) and Loyola Law School of Los Angeles.
        I have been a founder, principal, or first employee in several
    Internet related start-up companies. These have provided me with a
    broad base of experience in commerce and technology. I have direct
    experience with the needs and obligations of Internet related
    businesses.
        I have been active in the core design and standardization body of
    the Internet, the Internet Engineering Task Force (IETF), since the mid
    1980's. And I have been a member of the Internet Society (ISOC) since
    its formation.
        I have been deeply involved during the last several years with the
    evolution and activities of what has become ICANN. I am a founding
    member of the Boston Working Group, one of the groups that submitted
    organizational proposals to NTIA in 1998 in response to the so-called
    ``White Paper.'' I have recently been named to the Board of Directors
    of the Domain Name Rights Coalition.
        I speak for myself; I am here at my own expense and on my own time.
    ICANN
        I am the only person on ICANN's Board of Directors who was elected
    by the Internet users of North America.
        My seat on ICANN's Board of Directors, and the seat of every other
    publicly elected Director, will cease to exist on October 31 of this
    year. On that date real public representation within ICANN will end.
    After that date, ICANN will be effectively controlled by a small group
    of privileged ``stakeholders''.
        Many commentators have noted ICANN's weaknesses. Among these are
    excessive secrecy, lack of public process, lack of accountability,
    insufficient oversight by the Board of Directors, and poor business
    practices.
        As a Director it is my job to work to correct these weaknesses.
    ICANN has chosen to either ignore my input or resist my suggestions.
    For example, ICANN has ignored a paper I wrote shortly after September
    11--Protecting the Internet's Domain Name System--online at http://
    www.cavebear.com/rw/steps-to-protect-dns.htm.
        ICANN has even demanded that I relinquish my rights and obligations
    as a Director as a pre-condition of inspecting ICANN's financial and
    other records. I have been forced to assert my rights as a Director
    through a legal action that is presently before the California courts.
        I spoke before this Subcommittee sixteen months ago--on February
    14, 2001--my comments of that date are as apt today as they were then.
    One may review those comments online at http://www.cavebear.com/
    cavebear/growl/issue--6.htm
    Reforming ICANN--The Need To Know History and Establish Principles
        There is no doubt that ICANN is in need of reform.
        I submitted my own suggestions to ICANN about how ICANN might be
    reformed. That paper is available online at A Plan To Reform ICANN: A
    Functional Approach--http://www.cavebear.com/rw/apfi.htm
        It would be an error to blindly reform ICANN without knowing where
    we want to go and why. Without this the result could easily be as
    flawed as the ICANN of today.
        So let me first state in short form what it is that has gone wrong
    with ICANN.
        Then I will then discuss various principles that should guide the
    reform process and discuss why those principles are necessary.
    What Has Gone Wrong With ICANN?
        Sixteen months ago I said to this Subcommittee: ``ICANN is ill
    designed, has been ill operated, has brought upon itself significant
    ill will within the Internet community, and has greatly exceeded its
    proper scope.''
        I believe that significant restructuring of ICANN is needed so that
    the corporation can fulfill its purposes and fulfill its obligations
    towards its stated beneficiaries.
        Unfortunately the last sixteen months have brought no improvement.
        The following factors have contributed to ICANN's present troubles:

       Bias and favoritism are woven deeply into ICANN's form.
            Certain groups have been given privileged status within ICANN.
            These favorites are known by the euphemism ``stakeholders''.
            That grant of favored status is mirrored by a nearly total
            exclusion of the public and of non-commercial and small
            businesses interests. These have been given only token voices.

       ICANN's role has not been adequately articulated--its
            charter is too vague and subject to extremely elastic
            interpretations. There are few explicit limitations. ICANN,
            like most organizations, tends to expand. And ICANN has few
            constraints that limit that expansion.

       The United States Department of Commerce has silently
            watched ICANN devolve. The Department of Commerce has routinely
            renewed or extended its agreements with ICANN, without a word
            of concern or protest, while ICANN disavowed and disregarded
            its promises to be an institution accountable to the public and
            the public interest.

       ICANN's management has not been fiscally responsible.

       ICANN resists public accountability. ICANN has worked
            ceaselessly since its formation to build walls between itself
            and the public.

        The so-called ``evolution'' proposals created by ICANN are reforms
    only in the sense that they reshape ICANN. The reconstituted ICANN that
    they envision is one that exacerbates rather than cures ICANN's flaws.
    Instead of increasing responsibility and accountability to the public,
    ICANN's proposals impose more impenetrable walls between ICANN's
    decision-makers and the public. Instead of creating a nourishing flow
    of new ideas into ICANN, ICANN's proposals create councils and
    nominating committees that will create an even more insular body.
    Instead of being a body of limited powers, ICANN's proposals would
    create a body with ever-increasing powers over the Internet, and an
    ever-growing bureaucracy to exercise those powers.

    Defining ICANN's Charter
        The most important aspect of any reform is to define the duties and
    limitations of the reformed body. Vague phrases such as ``internet
    stability'' are inadequate; they must be replaced with precise
    formulations.
        ICANN's technical duties should be clearly enumerated and precisely
    defined. The phrase ``technical duties'' contains more than a hint of
    irony--ICANN has done little, if anything, during the nearly three and
    a half years of its existence that can be construed as ``technical''.
        Why is the charter so important?
        Phrases such as ``stability of the internet'' have been shown to be
    so elastic as to be virtually meaningless. In addition, ICANN has
    ignored clear mandates, such as the obligation written into its own By-
    Laws to operate in an open and transparent manner.
        ICANN has grown into areas where its presence is not desirable--
    such as the regulation of business practices unrelated to the technical
    operation of the Internet--and away from areas where ICANN's presence
    is desirable.
        Two examples may illustrate:

       ICANN has created a very intensive and intrusive regulatory
            system over domain name business practices.

             At the same time ICANN has been unwilling to address technical
            concerns that relate directly to the technical reliability of
            the Internet. ICANN lets the actual DNS root servers remain as
            they were a decade ago--run by an ad hoc collection of well
            meaning people and organizations who have no formal obligation
            to any performance standards and who may not have adequate
            resources or institutional commitments to weather any
            operational setbacks, such as a fire, natural disaster, or
            worse.

             In other words, ICANN takes a hands-off approach to the single
            most critical technical item on its plate, the consistent and
            reliable operation of its DNS root, and instead spends enormous
            efforts building a regulatory empire over the business
            practices of those who buy and sell domain names.

       In the IP address space arena--an area of considerably
            larger long-term impact than that of domain name policy--ICANN
            has simply abandoned its responsibilities to the public,
            leaving IP address policy to the regional IP address
            registries. In return, those registries make substantial money
            ``contributions'' to ICANN.

             Because the IP address allocation part of ICANN's job is
            arcane, it is not often discussed. However, IP addresses are
            the fuel upon which the Internet operates. The allocation of IP
            addresses can be a major factor in who survives and who dies on
            the Internet. Small ISPs (Internet Service Providers) are often
            unable to grow because they are starved for addresses. The
            allocation of addresses is a balance of many technical and non-
            technical concerns. The existing policies are not unreasonable.
            However because there is nearly no public involvement in the
            creation of address allocation policies the balances that are
            struck tend to be based more on the needs of larger ISPs than
            on the needs of smaller entities and consumers.

             The regional IP address registries (RIRs) have flourished and
            become powerful, but largely invisible, organs in their own
            right. ICANN provides an umbrella that protects the RIRs from
            public oversight. The RIRs and ICANN have entered into a tacit
            bargain--ICANN provides insulation from public oversight and
            the RIRs pay money to float ICANN's expanding bureaucracy. The
            public loses.

        A clear charter for ICANN is imperative. This charter must not only
    make positive statements about what ICANN is to do but must also
    establish inviolable walls that constrain ICANN's authority, role, and
    scope.
        Certain matters of heightened importance should require a
    supermajority vote of its Board of Directors. ICANN's Board of
    Directors should not have the unilateral power to resolve the meaning
    of any ambiguities that might arise.
        The charter ought to require that extraordinary questions be placed
    before an ``at-large'' body of interested members of the public
    Internet community.
        Prototype charters for ICANN have been suggested by a number of
    people. Nearly all of these call for a significantly smaller, more
    limited structure that is more publicly accountable and representative
    than the charter published by ICANN's staff.
        These proposals include:

       Harald Alvestrand: ICANN Reform--a personal view at http://
            www.alvestrand.no/icann/icann--reform.html

       Preliminary Comments On ICANN Reform From The Asia-Pacific
            Top Level Domain Association at http://forum.icann.org/reform-
            comments/general/msg00103.html

       CENTR: ICANN 2 and the ccTLD Community at http://
            www.centr.org/docs/presentations/ICANN-reform.pdf

       David J. Farber, Peter G. Neumann, Lauren Weinstein:
            Overcoming ICANN: Forging Better Paths for the Internet at
            http://www.pfir.org/statements/icann

       Domain Name Rights Coalition: A Proposal for Reform at
            http://www.domainnamerights.org/proposal51702.html

       Alexander Svensson at http://www.dnso.org/clubpublic/ga/
            Arc10/msg00202.html

       Tucows: The Heathrow Declaration at http://www.byte.org/
            heathrow/

       Danny Younger at http://www.icannworld.org/evolution.htm

       Houlin Zhao, ITU, ISB at http://www.itu.int/ITU-T/tsb-
            director/itut-icann/ICANN Reform.pdf

    Abandon The Word ``Stakeholder''
        The Internet is so pervasive today that everyone has an interest in
    the Internet.
        ICANN has been crippled from its inception by the concept that
    there are ``stakeholders'' in the Internet and that only
    ``stakeholders'' should be allowed into the forums of Internet
    governance.
        The ``stakeholder'' concept has limited ICANN's flexibility and
    forced ICANN into channels that are dictated by the ``stakeholder''
    definitions. By denying people and organizations the ability to form
    fluid coalitions and relationships according to their self-perceived
    interests the ``stakeholder'' concept has made compromise within ICANN
    exceedingly difficult and rare.
        The reform of ICANN must avoid placing people and entities into
    pre-defined classifications. Instead, the reformed ICANN must allow
    people and entities to work in concert (or in opposition) as the ebb
    and flow of their self-interests dictate.
    Structural Separation--One Job Per Entity
        The third principle of reform is to create structural boundaries
    that prevent mission creep and constrain ICANN to do only what it is
    intended to do.
        ICANN's multiplicity of roles has created a situation in which it
    is difficult to ascertain responsibility for decision making. For
    example, ICANN has accepted a no-cost purchase order from the
    Department of Commerce to provide something known as the ``IANA
    function''. This ``function'' is not well defined, however, the
    ``IANA'' function is most frequently invoked by ICANN with respect to
    the actual creation of new top-level domains and the maintenance of
    country-code (ccTLD) top-level domains. Because of the multiplicity of
    roles, it is often impossible to tell whether a decision is made by
    ICANN acting as ICANN or ICANN acting as IANA. Accountability to the
    public disappears when it is impossible to determine who or what is
    making a decision or taking an action.
        My suggestion is that ICANN be reorganized into several separate
    and independent entities that share neither personnel, nor office
    space, nor any other resources. This separation of functions is the
    core idea of my proposal A Plan To Reform ICANN: A Functional
    Approach--http://www.cavebear.com/rw/apfi.htm
        It is not uncommon, or improper, for entities to split themselves
    into separate parts with minimal residual linkages--Hewlett Packard/
    Agilent, AT&T/Lucent, and Cabletron/Riverstone/Enterasys are but three
    examples of companies that have done this.
        In my proposal I suggest that ICANN be divided into six entities--
    three operational entities, each having a clear task and minimal
    discretion about how to do that task, and three policy bodies, each
    focused on a single policy area.
        The three operational entities would be:

       DNS Root Administrator
       IP Address Administrator
       Protocol Parameter Administrator

        And the three policy entities would be:
       ccTLD Policy Organization
       gTLD Policy Organization
       IP Address Policy Organization

        This may seem like an excessive number of entities. However, these
    functions do, in fact, exist within ICANN today but as a hodgepodge. By
    separating them into distinct bodies they may be more precisely defined
    and be more visible and thus more amenable to oversight and to be held
    to account for their actions.
        The three operational entities encompass the core aspects of
    technical reliability of the Internet. These three entities could be
    quickly and inexpensively established. I believe that they could
    rapidly obtain wide acceptance and support.
        The three policy entities encompass the difficult, value-laden
    debates over Internet policy that are so necessary but which have so
    burdened ICANN. The actual day-to-day operations of the Internet would
    be insulated from these debates by the clearly drawn lines that divide
    the operational entities from the policy entities.
    The United States Department of Commerce Must Actively Oversee ICANN
        This statement will cause a great outcry among those who live in
    other nations. That outcry is legitimate and must be heard.
        However, as long as ICANN obtains its authority from agreements
    with the US Department of Commerce, the DoC ought to ensure that ICANN
    remains true to its promises.
        The National Telecommunications and Information Administration
    (NTIA) has been extremely lax and has permitted ICANN to evade promises
    made to NTIA and to the public. A few examples will suffice:

       One of the goals set forth by NTIA for ICANN was to promote
            competition in the domain name space. When ICANN was formed,
            Network Solutions had a government-backed monopoly over most of
            the domain name space, including the largest and most lucrative
            top-level domain, .com. Slightly more than a year ago ICANN
            adopted a proposal privately brokered by ICANN's outside
            counsel, Joe Sims, to transfer the .com top-level domain to
            Network Solutions/Verisign in perpetuity. This act effectively
            terminated hopes of true competition in the domain name space,
            particularly given ICANN's dilatory efforts to add new top-
            level domains. NTIA acceded to ICANN's abandonment of one of
            the primary reasons for ICANN's existence.

       ICANN was created with the promise of public participation
            on ICANN's Board of Directors. NTIA sat by and made no comment
            when ICANN dragged its feet on these promises and also allowed
            interim members to repeatedly extend their terms of office.
            When ICANN finally did create a debased election process, NTIA
            accepted this watered-down substitute with neither comment nor
            protest.

        There is a widely held perception that NTIA has been captured by
    ICANN.
        Assistant Secretary Nancy Victory has recently taken the reins of
    NTIA. There is already evidence of a new and more open attitude. I have
    every hope that the problems of the past will not recur.
        I recognize that the Department of Commerce has to walk a very fine
    line when dealing with the private corporation that is ICANN. However,
    the DoC should not use that fine line as an excuse for silence. In
    fact, if not in law, ICANN is a creation of the Department of Commerce.
    And ICANN receives its authority from the several legal agreements that
    exist between the Department of Commerce and ICANN.
        Recently there have been several petitions to the Department of
    Commerce asking the DoC to consider something more than an automatic,
    unthinking renewal or extension of the various legal agreements between
    the DoC and ICANN. I wonder about the effectiveness of this approach
    unless the DoC clearly invites and considers competing proposals from
    others who might wish to assume one or more of ICANN's tasks.

    Full and Meaningful Public Participation
        No matter what form ICANN may take, it must include full and
    meaningful public participation.
        The so-called ``forums'' that populate ICANN and its plans do not
    constitute ``full and meaningful'' public participation. In addition,
    ICANN's board and staff have frequently disregarded proposals and
    recommendations that have been promulgated by these forums, even when
    directly compliant with ICANN's bylaws.
        As I have suggested previously, ICANN could be split into several
    pieces. This division would have the ancillary benefit of allowing the
    form of public participation to correspond to the degree of discretion
    of the particular ICANN-chunk in question. For those ICANN-chunks that
    have well defined administrative roles with little discretion, the
    obligation of public participation could be satisfied by a simple
    notice-and-comment mechanism. For those ICANN-chunks that are formed
    around more contentious policy-making tasks, full and meaningful public
    participation would require more--such as the ability of the public to
    fill a majority of the seats on a board of directors or board of
    trustees.

    True Accountability To The Public
        True accountability has several aspects:
       The public must be able to learn what ICANN is doing. This
            means that ICANN will have to reverse its proclivity for
            secrecy and confidentiality.

       The public must have effective means to change ICANN. This
            means that the public must be able to fill a majority of the
            seats on any governing organ, such as a board of directors or
            board of trustees.

        Meaningful public participation and public accountability will
    bring a much-needed flow of new faces and ideas into ICANN. This will
    reduce ICANN's sense of ``us versus them''. And it will almost
    certainly indirectly result in the eventual hiring of replacement staff
    and supporting professionals and firms who have more capable financial,
    business, and legal skills and who comprehend that the role of staff is
    not to supplant the Board of Directors.
    What Would Happen To The Internet If ICANN Were To Vanish?
        Much of the debate over ICANN is colored by the fear of what might
    occur were there to be no ICANN.
        ICANN does not have its hands on any of the technical knobs or
    levers that control the Internet. Those are firmly in the hands of
    ISPs, Network Solutions/Verisign, and those who operate the root DNS
    servers.
        Were ICANN to vanish the Internet would continue to run. Few would
    notice the absence.
        Were there no ICANN the DNS registration businesses would continue
    to accept money and register names. With the passage of time the
    already low standards of this business might erode further.
        The UDRP (Uniform Dispute Resolution Policy) system runs largely by
    itself. The Federal ACPA (Anti Cybersquatting Consumer Protection Act)
    would remain in place.
        ICANN has already established a glacial pace for the introduction
    of new top-level domains. ICANN's absence will not cause perceptible
    additional delay in the creation of new top-level domains.
        ICANN has already abrogated the making of IP address allocation
    policy to the regional IP address registries; those registries will
    continue to do what they have always done with or without ICANN.
        ICANN has no agreements with the root server operators; the root
    servers will continue to be operated as an ad hoc confederation, as has
    been the case for many years.
        The only function that would be immediately affected would be the
    IANA function. IANA is an important clerical job, particularly with
    regard to the country-code top-level domains (ccTLDs.) IANA is not a
    big job, nor does it have real-time impact on the Internet. (In fact
    there is a credible body of evidence to suggest that ICANN delays
    certain clerical tasks on behalf of ccTLDs for months on end in an
    effort to coerce ccTLDs to sign contracts with ICANN.)
        There are those who will try to divert outside reforms of ICANN by
    asserting that touching ICANN will cause the Internet to collapse or
    otherwise be damaged. The truth is quite the reverse--ICANN's ties to
    the technical and operational stability of the Internet are tenuous at
    best. A full inquiry into ICANN, a full reform of ICANN, or a complete
    rebid of the agreements under which ICANN operates would not damage the
    Internet.

        Senator Wyden. Thank you. There was remarkable diversity of
    opinion on this account.
        [Laughter.]
        Senator Wyden. It helps us launch a discussion. I think
    many of you heard me ask the witnesses on the previous panel to
    list the tasks that are important for ICANN to perform--and
    each of the witnesses, essentially, went to the White Paper.
    It's almost as if the White Paper has now become the Holy
    Grail. I want to ask each of you to start a different way,
    including you, Mr. Powell. I am particularly struck by these
    comments that you've made that ICANN basically hammered your
    technology, and, of course, that's the crown jewel of
    technology companies. So, maybe you want to get into that in
    your answer. Each of you state for us the one reform that you
    would like to see most at ICANN. If each of you is to waive
    your wand once and propose a reform by ICANN, what would yours
    be? Mr. Powell, and we'll just go right down the line.
        Mr. Powell. I think it would be the original theory that
    you can't really have good substance without good process. And
    certainly, you shouldn't have broken processes. It's hard for
    me to move away from our personal interest in reducing ICANN's
    ability to throw up processes between the invention of the
    product and its launch to market without any clear legal basis,
    constitutional basis or any other reason to do so and really
    stifle innovation, rather than foster it.
        And I think the creation of unnecessary, arbitrary,
    unwritten processes without signposts or guideposts is--it
    beggars description as you can clearly see--something that we
    had no idea about going in. And as I mentioned before, I
    suppose we were naive. But it is all so opaque to us, it has
    never been clearly explained to us why we are in the midst of
    this consensus process in which our competitors are invited to
    weigh-in on whether we should be allowed to defeat them in the
    marketplace or not. Let the customers decide.
        Senator Wyden. Mr. Cochetti, your one reform.
        Mr. Cochetti. Thank you, Senator. Since the three of you
    are legislators and understand the power of words and the
    consequences of poorly written legislation or poorly written
    laws, let me put it in the context which I think is quite
    relevant: the comparison.
        The White Paper's language, in terms of what ICANN is
    authorized to do, is not vague. It's not expansive. The verbs
    used in very simple sentences which are quoted in my testimony
    are to ``set policy'', ``oversee operation of'', ``oversee
    policy for'', and ``coordinate''. There is nothing else. It is
    not: ``and everything else you feel like doing''. It's those
    four activities that ICANN is authorized to do.
        As Secretary Victory indicated earlier, over the last 4
    years ICANN has added to those four authorized activities that
    it should also engage in ``related policy areas'', or ``policy
    areas related to'' those four authorized activities. Under the
    authority implied by ``policy areas related to'' the four
    authorized activities, ICANN has engaged in every imaginable
    form of regulation of the generic segment of the industry:
    prices, services, terms of service, information, management and
    much more. I would say if there was one thing that needs to be
    done, it needs to be clarified that what is not specifically
    authorized to ICANN is prohibited. What ICANN is not authorized
    to do, it should not do, and that an expansive interpretation
    of a phrase like ``policy areas related to these four'' needs
    to be interpreted in a most narrow and specific form possible.
    That, I think, would solve almost all of the problems you've
    heard described in today's testimony and outside of today's
    testimony.
        Senator Wyden. Mr. Davidson.
        Mr. Davidson. He took mine, but I will agree. And to expand
    on that, I would say that this is probably the fundamental
    reform that needs to happen at ICANN. A very clear
    communicative understanding of a narrowly defined, focused
    mission and a charter of powers that has real checks on it. A
    mission statement can only be meaningful to people if people
    can point to specific ways in which ICANN can't go beyond that,
    whether it's in a review process or some other way to be sure
    the narrowly enumerated powers can't be exceded.
        Senator Wyden. Mr. Auerbach.
        Mr. Auerbach. Sure. I consider ICANN a serious threat to
    technical innovation. So, I would constrain ICANN to matters
    that clearly and directly pertain to the reliable technical,
    and I underscore technical, operation of its DNS root and the
    allocation of IP addresses. They should stay away from
    legislating on matters. It is not a national legislature, on
    matters such as the UDR, and should stay away from regulating
    business practices, such as it is done with the DNS registries
    and registrars.
        Senator Wyden. Let me see if I can get one other quick one
    in. My light is on. I would really appreciate just a yes or no
    on this. I would be interested in whether each of you thinks
    that ICANN can reform itself or whether the Commerce Department
    has to step in and do it of its own initiative. Mr. Powell, can
    ICANN reform itself?
        Mr. Powell. Senator, I have to confess to not having an
    opinion on whether it can or----
        Senator Wyden. Mr. Cochetti.
        Mr. Cochetti. Senator, I don't know the answer to that
    question. I think we will have to wait and see. Certainly, if
    we are talking about meaningful reform of its functions, the
    answer is not yes. I'm sure of that.
        [Laughter.]
        I mean, ICANN a theoretically reform itself, but--it will
    not without external stimulation to do so. The answer is no.
        Senator Wyden. All Right. Mr. Auerbach.
        Mr. Auerbach. When the proposal is placed in front of me, I
    will make my best judgment as I see appropriate. However, hope
    springs eternal and I am hopeful.
        Senator Wyden. OK. Senator Allen.
        Senator Allen. I want to ask Mr. Cochetti a question here.
    First, your son would never get away with an answer to you
    that's not yes.
        [Laughter.]
        Senator Allen. We understood that--I think your father
    would want a yes or no answer when he asks you a question.
        [Laughter.]
        Senator Allen. Mr. Cochetti and you, as well, Mr. Davidson,
    your view of the role of ICANN is very much similar to my view
    of the Constitution of the United States of the Bill of Rights.
    I hear your interpretation which is of what prerogatives do
    they have, and it's like the 10th Amendment which I consider
    very important in that those powers not specifically delegated
    for Federal Government are reserved to the people of the
    states. And in that lot, you might have been here when I was
    questioning Mr. Lynn, the President of ICANN, and so far as
    this issue of them actually managing and serving as the the
    registry operator for .int and .arpa.
        In your written testimony, Mr. Cochetti, you go in some
    length--this is page 14, at least, in this draft that I have.
    It may be 13. But it's come in here, so I consider that a part
    of your testimony. How great a problem do you consider this to
    be as far as ICANN accomplishing its core mission? And you
    heard the concerns on the root servers. To me, it was a
    reasonable explanation of why it will take them longer on the J
    root server to transfer that. But on the .int and the .arpa, it
    will be a year or several years off. What commentary can either
    you or Mr. Davidson share with us on that? And do you see their
    activities there to be exceeding the scope of their authority?
        Mr. Cochetti. Thank you, Senator. And as you point out, my
    written testimony addresses this in greater detail. There has
    been, in our view, sort of a disturbing trend on the part of
    ICANN to move into the direction of operating server machines--
    Internet core facilities.
        This function has nothing to do with the ``coordinate'',
    ``oversee'', and ``direct verbs'' that I described as being
    authorized by the MOU. I think ICANN's drift into operations
    has three adverse consequences. One is that it's a waste of
    resources. It costs a small non-profit organization like ICANN
    many times what it would cost IBM or EDS or any large operating
    entity to operate the same server machines. And even when ICANN
    does it, there is no way it can provide the same level of
    reliability or security that a large operation or other entity
    could.
        Second, it distracts ICANN's management from its core
    functions which are too important to be overlooked. If you are
    worried about server machines breaking down or hiring people to
    operate the server machines or whatnot, then you are not
    worried about the core tasks of technical coordination.
        Third, it's a distraction of not just money, but of
    strategic focus from what ICANN should be doing. We believe
    that all of the servers ICANN now operates--I think there are
    probably about six--maybe even more--could be transitioned to
    operators in a relatively short period of time. There is no
    shortage of companies who could operate thes servers. And this
    is not an advertisement for VeriSign. It could well be Newstar,
    EDS--you name it. These activities should be transitioned to
    private sector operators who do this for a living. And it could
    be done relatively quickly. Some of these server machines are
    not that big or complicated. It doesn't mean that we should
    risk security or reliability; but these machines are not so big
    and complicated that one couldn't technically execute the
    transfer in a matter of weeks if one had the determination to
    do so. If there were a deadline, I'm quite sure that it could
    be met, as long as it were reasonable. But I think that none of
    these are transitions that would, for technical or operational
    reasons, take years. These are all transfers that are
    relatively easy to execute.
        Senator Allen. Mr. Davidson.
        Mr. Davidson. Well, I think many people would probably say
    this is not the most important reform needed at ICANN. It's
    probably also not the key issue in its charter. However, it is
    important. It has, I think, in addition to things that were
    just mentioned, an effect over time. Imagine that the FCC was a
    broadcaster as wellas a regulator. To the extent that it was
    viewed as an objective policymaker, people would have to wonder
    whether it was an objective policymaker in the area where it
    also was an operator. I'm not saying that this has happened yet
    at ICANN, but I think that's the thing that we worry about over
    time.
        Senator Allen. Mr. Auerbach, I would like to ask you your
    view on it. I find it interesting. I would like you to share
    with us how you got on the Board of Directors and as a Board
    Member, what is your feeling as far as allowing the private
    sector to operate .int and .arpa, which may not be the most
    important, but a specific example of ICANN exceeding the scope
    of their authority?
        Mr. Auerbach. You've asked quite a few questions there.
        Senator Allen. I know.
        Mr. Auerbach. First, to cover the simple ones. As far as
    .arpa, there really is only one useful subdomain, which is in--
    addr.arpa and that is run on a day-to-day basis by a group
    called Arin. ICANN virtually does nothing with regard to
    operating the .arpa. And so transferring it would just
    basically--it's already transferred.
        As far as the election goes, it's like the same process by
    which you--I ran in an election against several other people,
    well-known names, presidents of universities and the like, And
    we had a campaign. We argued, went back and forth and we had an
    election and I won. Here I am.
        ICANN has used the excuse that the election wasn't perfect
    to get rid of any further elections and it's largely as if, you
    know, we've had our problems before, the counting in the last
    Presidential election. It's almost as if the U.S. were to
    abolish congressional elections on the basis of that, which is
    not a valid response.
        With respect to the separation of governments and private.
    I really believe that governments have a place and in these
    areas of very difficult public discourse. We've learned to
    create this very slow, painful system called government and
    include into it the concepts of due process and reconsideration
    of tensions between parties. That's what makes governments
    uncomfortable to many, it's because it is slow. And I think we
    need a lot of those processes within ICANN, because we have a
    lot of contention here, and it's not just within the U.S. We
    have a lot of world different points of view.
        What I have learned within ICANN about the points of view
    of democracy is just astounding. Some people in many parts of
    the world are very suspicious of it for reasonable reasons.
    It's based on experience. We are very lucky to have democracy
    in this country. I think we really ought to err on thinking of
    ICANN as a governance body, because it truly does govern and it
    ought to have a lot of the aspects that typically go on with a
    governmental type body. And we shouldn't think of it merely as
    a private public benefit non-profit corporation that it
    technically is.
        Senator Allen. Thank you. This is obviously not a rubber-
    stamp board with you on it.
        [Laughter.]
        Senator Allen. Might I suggest my comments to Mr. Cochetti
    and Mr. Davidson, my general view of the government is to
    prevent people from injuring one another, but otherwise leave
    them free. The whole purpose of the government is to protect
    people's human rights. And then I'll, obviously, govern with
    the consent of the people. So, at least, on that phrase we are
    in agreement.
        But, thank you all so much.
        Senator Wyden. Thank you. Senator Burns.
        Senator Burns. I want to explore with Mr. Cochetti the
    statement that a private company, EDS or IBM or whoever outside
    of any kind of a quasi government standardized organization
    could do as well. Are we ready to transition to that--are we
    ready to make the transition into the private sector?
        Mr. Cochetti. Thank you, Senator. Let me be clear. When I
    referred to companies that had large operational server files--
    --
        Senator Burns. Well, I used them too. We may have been too
    loose in that, but we understand what we are talking about.
        Mr. Cochetti. But, I believe that the operation of those
    server machines could be done relatively easily and transferred
    relatively swiftly to any of a large number of well-qualified
    companies that do this worldwide. So, I think on the operation
    of server machines--such as the server machine that supports
    the Internic website or the server machine that supports the
    root server, the server machine that supports ``.arpa'' or
    ``.int'' could all be transferred to companies or a non-profit
    organization that do this for a living relatively easily and
    quickly, yes.
        Senator Burns. And, I guess on the election day--the great
    answer to how did you get elected? I said, well, I got more
    votes.
        [Laughter.]
        Senator Burns. That's the only answer I've ever come up
    with. Really it's truthful and deserves no further
    investigation. But, I listened to you and I also listened to
    the plan of Mr. Powell and I'm wondering how we solve his
    problem, in other words, he should not be denied access and
    yet, was denied access. We have to take those things into
    consideration whenever we start, maybe, trying to reform. And
    you've already answered all the questions that I had.
        Your recommendation on what our role should be in the
    oversight and--Department of Commerce and the reissuance or the
    extension of the MOU. I think they are going to be very, very
    important and so we appreciate your counsel. We appreciate your
    opinions, and Mr. Auerbach, we didn't have to buy you a cigar
    to get you to come today, but your recommendations on the
    Board, I think, should be looked at very seriously as we move
    into that direction.
        I think that with negotiations of the extension, that they
    are going to have enquiry on a dialog. And I think we have an
    obligation to be a part of that dialog along with the Secretary
    and Ms. Victory, who are both very capable people.
        One thing that does concern me is how do we reach out now
    to the international community if we are all together,
    understanding the great challenge that we have on protocol and
    on our ability of performing in a world where interoperative
    ability is very, very necessary? Do you want to comment on
    that, Mr. Auerbach?
        Mr. Auerbach. Yes, please. I deal quite frequently with
    people on an international basis. I sense a great deal of
    nervousness on the part of people who are not citizens of the
    United States. And my only answer to them, besides move here--
    --
        [Laughter.]
        Mr. Auerbach.--is that we need to constrain ICANN's powers
    so that it becomes a less fearful institution, so that they
    can, essentially--we are going to have to say trust us. But, if
    we make it so that they only have to trust us a little bit,
    they will be a lot more comfortable.
        Senator Allen. We go back to Mr. Raymond's trust with
    VeriSign.
        [Laughter.]
        Mr. Davidson. If I might--I would say that actually should
    be a theme today. Your continual involvement and this
    Committee's continual involvement is an important part of
    making sure that that dialog happens. I think you especially,
    as Chair of the Internet Caucus, will have a chance to talk to
    a lot of Europeans and others about some of these issues in
    upcoming caucus events too.
        This cannot happen in a vacuum. I think the Commerce
    Department is aware of that. I think, if anything, this
    Commerce Department, this Congress has erred a little too far,
    understandably perhaps, but a little too far on the side of
    deference to ICANN--but the time has come now to get back
    involved in this. Similary as lots of governments are going to
    need to be watching what happens in this reform process and
    giving it the Good Housekeeping Seal of Approval only if meets
    the checklist of criteria. So, it's a conversation with a lot
    of people around the world.
        Mr. Cochetti. Senator, if I may add briefly to that. I have
    had the opportunity to discuss the subject of ICANN with quite
    a few governments from other countries. And I think there is a
    remarkable sense of support for the simple proposition that
    what is not specifically authorized, is prohibited. I think the
    reason is that governments, not just the U.S. Government, not
    just----
        Senator Burns. Do we need another 10th Amendment? Is that
    right?
        Mr. Cochetti. That governments are concerned about mission,
    creep, self-redefinition and self-advancement; all of the
    concerns that I think you've heard echoed here. The concept is
    that what is specifically authorized is all that is authorized.
    If it's not specifically authorized, then it's prohibited and
    if ICANN wants to engage in an activity it must first obtain
    new authorization. I think that is not a complicated
    proposition and one that enjoys global government support.
        Senator Burns. Mr. Powell, do you want to comment on that
    or--we appreciate your testimony today and are sensitive to
    your situation.
        Mr. Powell. Well, I think I would agree with what Mr.
    Cochetti just said. There are long-standing legal principles
    that we can appeal to. We don't have to make up a lot of things
    as we go along. We don't have to reform something out of whole
    cloth, reinvent the wheel. We really can say there is an
    enormous volume of laws that take into account much of what
    ICANN thinks it needs to be doing. That there is a safety net
    where people who don't like certain things can go to the courts
    or can go to elected representatives and the go-to party is not
    ICANN. It doesn't have the staff, the expertise, the
    accountability and many other things. And this body has already
    spoken through legislation in so many instances of what we are
    talking about.
        Senator Burns. Well, we want to thank each of you
    witnesses. It has been very enlightening today and thank you
    for being very candid and----
        Senator Wyden. Let me----
        Senator Burns. Well, I want to wrap up. And I want to thank
    the Chairman for this hearing today, because it's been a very,
    very good hearing. I want to thank the representatives of
    ICANN, the Board of Directors and, of course, the Chairman of
    the Board who has sat through here--once you testify, everybody
    wants to run away. They don't stay and listen to the rest of
    the testimony. But, I'm certainly glad that we were able to do
    this. I thank each and every one of you. And thank you, Mr.
    Chairman, for holding this hearing.
        Senator Wyden. All right. I thank my colleague and thank
    you for all of your interest in this. You've been at it for a
    long time and it's been exceptionally helpful.
        Let me be clear with this panel and those who care so much
    about this issue where we are going to go from here. First,
    these are, obviously, important issues. My state has the
    highest unemployment rate in the country and when a technology
    company like Mr. Powell's comes before the U.S. Senate and says
    an organization like ICANN is hammering his technology and
    causing layoffs and the like, that is going to be taken
    seriously. So, these are important issues.
        First, this Subcommittee is going to monitor the
    developments with respect to ICANN very closely from this point
    on. Fortunately, we've had Senator Burns leading the effort to
    keep the Congress focused on it, and I haven't had the gavel in
    my hands for very long, but on my watch we are going to follow
    these issues very closely. That's No. 1.
        Second, we are going to especially look at the factors that
    the Department of Commerce examines with respect to whether or
    not to continue this MOU. My own sense of this is, at this
    point, is that the Department of Commerce is going to have to
    push ICANN harder than they are doing today in order to get in
    place the necessary reforms.
        I asked the question earlier of whether ICANN could reform
    itself or should the Department of Commerce step in. It's a
    clear consensus of people who are knowledgeable in this in
    field that it would be better for ICANN to do it of its own
    volition. But, if that's going to happen, my sense today in
    listening to the testimony for the last couple of hours, is if
    ICANN is going to reform itself, the Department of Commerce is
    going to have to push that organization harder than they have
    done in the past.
        Obviously, there are specific issues that we are going to
    follow as well, like making sure that the mission of the
    organization is clearly and narrowly defined. That certainly
    comes to mind. And coming up with broader ways of more
    significant opportunities for the public to participate, given
    the level of dissatisfaction. The way ICANN decisions are made
    is important as well. So, there is plenty to do. You all have
    been very helpful and with that, the Subcommittee is adjourned.
        [Whereupon, at 4:30 p.m., the hearing was adjourned.]

                                A P P E N D I X

                                  Intercosmos Media Group, Inc.
                                         New Orleans, La, June 13, 2002
    Hon. John Breaux,
    U.S. Senator from Louisiana,
    Commerce, Science, and Transportation Committee,
    Washington, DC.
      Re: Senate Subcommittee on Science, Technology and Space
                       Subcommittee Hearing on ICANN Governance

    Dear Senator Breaux:

        I am the Chief Executive Officer of Intercosmos Media Group, and I
    am writing in connection with the hearing scheduled for Wednesday, June
    13, 2002, in the Senate Subcommittee on Science, Technology and Space
    concerning ICANN governance. I ask that you share my letter with the
    Chairman and Members of the Subcommittee and make this part of the
    record.
        Intercosmos is located in New Orleans, Louisiana and provides a
    full-range of Internet domain name registrations, DNS hosting, and web
    design and hosting services. We currently have 54 full-time employees,
    whereas we only had 12 full-time employees before we began offering
    domain names. In fact, domain name services kept Intercosmos from going
    out of business when the Internet advertising market evaporated.
        In 1998, our domain name registration services didn't exist,
    because there was a monopoly. There was only one provider for
    registration service of .com; .net; and .org domain names--Network
    Solutions, now owned and operated by VeriSign. Because of the
    introduction of competition in the registrar marketplace, through
    ICANN, over 100 ICANN accredited registrars are in business. My own
    company is pleased to be one of those accredited registrars.
        I encourage you to support the efforts underway to constructively
    reform ICANN and provide it with the necessary staff and resources to
    ensure that competition and stability continues to exist at the
    registrar and registry level for the benefit of consumers and small
    businesses.
            Sincerely,
                                            Sigmund J. Solares,
                                               Chief Executive Officer.
                                     ______

                  Prepared Statement of The Markle Foundation

    A Pluralistic View of DNS Governance: Core Principles For ICANN Reform

    I. Introduction and Summary
        As of February 2002 more than 500 million people \1\ worldwide are
    using the Internet regularly. They include adults and children of all
    ages and all backgrounds, small, medium and large businesses,
    governments, military services and policy makers. They use it for e-
    mail, to find information, to buy and sell products and services, to
    find a job, to vote, to browse the World Wide Web and for
    entertainment.
    ---------------------------------------------------------------------------
        \1\ See http://www.nua.ie/surveys/how--many--online/
    ---------------------------------------------------------------------------
        The success of the Internet, e-mail, and the World Wide Web has
    been in significant measure due to the user friendliness and
    flexibility of domain names. Internet domain names are particularly
    crucial because they are the primary means by which users and creators
    of information and services worldwide identify themselves and
    information.
        Although the Internet has scaled dramatically over the past several
    years to become a critical global infrastructure and a massive business
    marketplace, the administration of Internet domain names and other
    identifiers has remained essentially an industry-led initiative within
    the context of the Internet Corporation for Assigned Names and Numbers
    (ICANN).
        Along with the growth of the Internet has grown the frustration
    with ICANN among those who depend upon and are affected by the domain
    name system (DNS). ICANN was initially created to focus on the
    technical management of the DNS, but many of its ``technical''
    decisions necessarily involve ``public policy'' choices. ICANN's
    decisions affect how people arrive at websites and what domain names
    they can have, how conflicts over trademarked domain names are
    resolved, how domains that expire are reallocated and how much data on
    users should be public. At a time when we all grapple with the security
    vulnerabilities that our increased interdependencies have generated,
    ICANN plays a critical role in maintaining and enhancing the stability
    and security of the entire Internet. Though no one disputes that the
    Internet's name and address system is functioning, ICANN has proved
    poorly equipped to handle these numerous policy matters.
        For these reasons, the Markle Foundation has been involved in the
    evolution of ICANN with the aim to foster legitimate processes that
    serve the interests of the public and growing user community.
        We believe, however, that ICANN, as it has developed, is seriously
    flawed as a global institution able to make decisions worthy of
    deference or to safeguard the public interest in an increasingly
    networked society.
        We also believe that many of the problems and shortcomings ICANN
    faces highlight a need to look beyond specific proposals to ``fix''
    ICANN and to reflect on the broader question of whether ICANN embodies
    the right concept and governance structure to implement its mission and
    separate functions, or whether there are alternatives, such as existing
    or new global institutions, that should play a key role in managing
    certain critical parts of the Internet's architecture. Separating out
    the question of what needs to be done, from which organization will do
    it, provides an opportunity to review whether ICANN or some other
    organization is best able to manage certain elements of the DNS.
         If this review results in ICANN retaining authority for technical
    management of the DNS, then, at a minimum, the following reforms are
    necessary:
        Multi-Sectoral Participation: ICANN's Board needs to be
    restructured in a pluralistic and multi-sectoral way, including
    governmental, private and non-commercial members to increase its
    legitimacy;
        Accountability and Transparency: Board and staff need far greater
    oversight by politically accountable officials; and decisions must be
    more transparent, open and developed through a due process.

    II. Further Comments on ICANN Reform Principles
       Ensure Multi-Sectoral Representation in ICANN
        ICANN's credibility as a global manager of critical parts of the
    Internet's infrastructure depends on the Board's ability to ensure that
    the various private and public interests are represented in ICANN's
    activities. As most would agree, ICANN, although organized as a
    private, not for profit corporation has ``public trust'' functions. One
    of the priority, corrective actions that either a reformed ICANN or
    another organization must undertake is to address and eradicate the
    irony that ICANN, intended to serve a vital public trust for the entire
    global Internet community, has neither adequately defined nor
    institutionalized public interest representation. Global elections have
    not proven to be the means to provide adequate public interest
    representation. If ICANN is not to become a governmental entity, then
    it must implement a better alternative, and not abandon the goal of
    ensuring public representation.
        We believe that effective governance, including DNS management,
    requires input from many stakeholders, who all fulfill various roles in
    the process: democratic governments provide public accountability and
    possess enforcement and oversight capabilities; the private sector
    offers technological expertise and a driving culture of innovation;
    non-profits provide public confidence in efficiency and integrity--less
    bureaucratic than governments, less profit-motivated than business. But
    no single institution or sector is equipped to handle the task on its
    own. Therefore, ICANN's board and major decision making authorities
    need to consist of government, private and non-commercial
    representatives.
        The call for pluralistic governance structures for the Internet is
    backed-up by a major study the Markle Foundation conducted in 2001,
    entitled Toward a Framework for Internet Accountability. \2\
    Respondents said by a 2-to-1 margin that the government should develop
    rules to protect people when they are on the Internet, even if it
    requires some regulation of the Internet. In addition, the public felt
    industry has a key role to play but 58 percent indicated they do not
    support industry self-regulation alone, and 70 percent felt non-profits
    should have a significant role in making rules for Internet. In sum, in
    looking for solutions, the American public appreciates the complexities
    of the Internet and wants to go beyond such black and white choices as
    ``government regulation'' or ``industry self-regulation'' to fashion
    instead multi-sectoral approaches involving government, industry,
    technical experts, non-profit organizations and the public itself.
    ---------------------------------------------------------------------------
        \2\ See Toward a Framework for Internet Accountability, Markle
    Foundation, July 2001 and available at http://www.markle.org. Greenberg
    Quinlan Rosner Research conducted the research, through a series of
    national telephone interviews, online surveys, conventional and on-line
    focus groups, and one-on-one interviews with the public and Internet
    experts. The study was designed to examine multiple aspects of the
    American public and experts' views regarding Internet governance,
    including whether the public believes more needs to be done to provide
    protections and give users greater control on-line. In turn, it
    examined whom they trust to make Internet policy.
    ---------------------------------------------------------------------------
       Better Accountability and Transparency
        Steps to bolster ICANN's accountability will require improved
    public oversight by politically accountable officials. One of the key
    priorities in this area is the creation of a greater oversight role for
    governments regarding policy decisions. In addition, ICANN must set
    forth in writing clear procedures regarding the approval of matters
    within its delineated jurisdiction, and provide an impartial and due
    process enabling parties to appeal those decisions based on either
    procedural or substantive grounds.
        Moreover, keeping staff and Board members accountable to a clear
    set of professional norms and standards established by ICANN's Board
    and overseen by outsiders is essential to making ICANN accountable to
    the Internet community. Board members and staff should be required to
    adhere to a code of conduct regarding minimum standards for completion
    of responsibilities, duties to the organization, conflicts of interest
    and other basic conduct standards.

    III. Conclusion: a Pluralistic View of ICANN Governance
        Establishing balanced and multi-sectoral Board representation for
    ICANN (or a successor organization) is key to having appropriate checks
    and balances that will foster effectiveness and preserve openness. In
    addition, ICANN requires development of due process principles and
    clear, publicly available procedures for the resolution of complaints,
    as well as a policy for holding open meetings and a process for
    systematically documenting the rationale for ICANN's policy decisions
    and actions. Given the inability of ICANN to adequately represent the
    broad public interest over the course of its initial four years, we
    believe that a narrowing of its mission and increased governmental
    oversight of its remaining policy activities must be established.
        What ultimately is needed--as confirmed by our studies to date--is
    a pluralistic model for Internet governance, in which a range of public
    and private actors help to craft the norms and rules that guide DNS
    management--balancing each other and working together to earn the
    public's trust.

    About the Markle Foundation
        The Markle Foundation works to realize the potential of emerging
    communications media and information technology to improve people's
    lives. The Foundation's work focuses on three primary areas: Policy for
    a Networked Society, Interactive Media for Children, and Information
    Technologies for Better Health. Many of the Policy for a Networked
    Society activities help to build the capacity to include the public
    voice in the governance of the Internet. Markle pursues its goals
    through a range of activities including analysis, research, public
    information and the development of innovative media products and
    services. The Foundation creates and operates many of its own projects,
    using not only grants but also investments and strategic alliances with
    non-profits, governments and businesses. (See http://www.markle.org for
    more information.)

        Contacts:

        Stefaan Verhulst, The Markle Foundation, sverhulst@markle.org
                                     ______

       Supplementary Statement of Karl Auerbach, Member, ICANN Board of
                                   Directors

        This document contains supplementary statements to my oral and
    written statements to the Subcommittee on June 12, 2002.
    .int and .arpa
        A question was asked during the hearing about the difficulty of
    transferring the .int and .arpa top-level-domains (TLDs) away from
    ICANN.
        It would be a trivial exercise to do this. Neither the .int nor the
    .arpa top-level-domains impose more than the most trivial of burdens
    upon ICANN.
        At the present time, .int is a largely moribund top-level domain;
    keeping it up to date is essentially a trivial exercise and involves no
    matters of policy or discretionary decision-making.
        The .arpa top-level domain is joined at the hip with the in-addr
    second level domain; they are essentially a single unit. Administration
    of .in-addr.arpa has long been delegated to the regional IP address
    registries (RIRs) such as ARIN, RIPE, and APNIC. The administrative
    burden of the .arpa piece alone is a trivial exercise and involves no
    matters of policy or discretionary decision making.
        Thus the effort to transfer either .int or .arpa away from ICANN
    would involve an effort of almost vanishing small size and complexity.
    Security of the Domain Name System
        ICANN's response to the question of security of the Domain Name
    System has been inadequate.
        DNS security is not merely a question of prevention; the larger
    portion is the question of recovery after a natural or human event.
        ICANN has chartered a committee of experts in the field of computer
    and network security to look into the issue. This committee's skills
    are largely academic and focus on the technical aspects of network
    protocols and operating system security. The committee lacks expertise
    in matters of physical protection, personnel security, and other non-
    technical aspects of security. Similarly the committee lacks expertise
    that pertains to recovery and re-establishment of service after a
    security event. ICANN's committee has no experts in restorative
    measures or data repository techniques. The committee does not have
    expertise in matters such as finance (i.e. where will the cash come
    from when one needs to buy new computers and obtain new office space
    after a security event or natural disaster?) Nor does the committee
    have expertise concerning the gathering and protection of evidence
    (i.e. how will one investigate and prosecute the wrongdoers?)
        At the same time, ICANN has quietly failed to recognize concrete
    and easy measures to protect DNS or enhance its recoverability that
    could have been taken immediately and at nearly no cost.
        For example, ICANN has ignored a document presented to ICANN
    shortly after September 11 by this Director: Protecting the Internet's
    Domain Name System--http://www.cavebear.com/rw/steps-to-protect-
    dns.htm.
                                     ______

                               Trans Atlantic Consumer Dialogue
                                                         April 29, 2002
           Re:Letter to Committee on ICANN Evolution and Reform

    Dear Members of the Committee on ICANN Evolution and Reform:

        The Transatlantic Consumer Dialogue is a forum of U.S. and EU
    consumer organizations that develops and agrees joint consumer policy
    recommendations to the U.S. government and European Union to promote
    the consumer interest in EU and U.S. policy making. The TACD includes
    45 European and 20 U.S. consumer organizations (http://www.tacd.org/
    about/participants.htm).
        In February 2000, TACD adopted Ecom 14-00, which is on the web
    here:
        http://www.tacd.org/docs/?id=43.
        Among the TACD February 2000 recommendations were the following:

            1.  ICANN's mission should be limited so that it does not
            become a general purpose Internet governance organization.

            2.  The records of ICANN should be open to the public,
            including financial records, and all ICANN contracts. ICANN
            should be accountable to the public, and the public should be
            given an annual opportunity to review and comment on the ICANN
            budget.

            3.  Fees associated with domain registration should only be
            spent on activities essential to the management of the DNS
            system.

            4.  U.S. and the EU governments were asked to report on the
            legal mechanics that would limit ICANN's power to address broad
            Internet content issues, and insure public accountability.

        TACD would like to make the following contributions to the
    discussion over ICANN evolution and reform:
    Boundaries for ICANN Mission
        1.  At present, ICANN is dominated by business interests, and the
    ICANN board has blocked the election of board members from the general
    public. The ICANN Domain Name Supporting Organization (DNSO) is greatly
    biased toward business interests. Individual or non-commercial domain
    holders have only three of 21 votes in the DNSO governing body, and may
    lose voting rights to even those three votes in disputes over DNSO
    fees.

        2.  A broad range of civil society groups agree that ICANN should
    not become a general purpose Internet governance organization. To
    address the issue of mission creep, it is important to have a much
    clearer statement of what the ICANN mission is, and to have legal
    mechanisms that would restrain ICANN from inappropriate expansions of
    that mission.

        3.  There are many Internet issues that will require greater global
    cooperation, such as the coordination of efforts to control Internet
    spam, privacy, the protection of children, securities fraud, cross
    border marketing practices, and a variety of complex and sometimes
    controversial areas concerning intellectual property and speech. Many
    of these topics are more appropriately addressed by national
    governments or by treaties or agreements between countries. ICANN has
    neither the competence nor the mandate to address a wide range of
    issues. ICANN should only address narrow issues involving the
    assignment of Internet domain names and numbers, and even here, only
    those that require global coordination.

        4.  ICANN should not be empowered to use control over essential
    Internet name and numbering resources to address broader public policy
    issues.

        5.  The International Telecommunications Union has offered to play
    a role in defining the boundaries of ICANN policy making. The ITU
    should inform TACD how consumer interests will be able to participate
    in this process.
    Decentralization
        6.  Even in the area of global cooperation, ICANN should not rely
    upon excessive centralization of decision-making. In the areas of the
    assignment of Internet names and numbers, ICANN should defer as much as
    is practical to regional or local decision-making.

        7.  The functions of the ICANN relating to domain names should be
    much more decentralized. ICANN can play a useful role in resolving
    disputes over uniqueness of the top-level domain (TLD) space, assuming
    it does not act to restrain entry by registries in order to protect
    incumbents, or prohibit the creation of new TLDs by non-commercial
    entities. In this respect, we express disappointment and indeed
    astonishment that ICANN did not approve the application by the World
    Health Organization to create the .health domain, following objections
    by the pharmaceutical industry, or that it did not permit the
    International Federation of Free Trade Unions to create the .union TLD.

        8.  ICANN should permit national governments to authorize the
    creation of new TLDs, subject to addressing minimum requirements for
    global coordination the uniqueness of the TLD name, and other minimum
    technical requirements that may be essential for Internet stability.
    Consumer Protection for Domain Name Holders
        9.  ICANN should follow a two track strategy with respect to
    consumer protection that relates to persons who register domain names.

        10.  ICANN should adopt minimum standards for protection of domain
    name holders, on issues such as abusive registration practices or
    privacy, that all ICANN approved registrars should follow. The minimum
    standards for consumer protection should be developed by domain
    holders, subject to approval by the ICANN Government Advisory Committee
    (GAC).

        11.  National government should be free to supplement these minimum
    levels of protection, for example to provide additional protection in
    cases of abusive pricing or registration practices, to protect personal
    privacy, and to protect legitimate trademark concerns.
    Representation of Consumer Interests
        12.  Consumer interests should have at least equal representation
    to provider interests in ICANN decision-making.

        13.  Consumer interests should not be required to fund ICANN's
    fixed costs or otherwise pay unreasonable fees to participate in ICANN
    meetings or decision making bodies. Users have already paid fees to
    registrars and registries, and should not be required to pay twice to
    have a voice in ICANN decision making.

        14.  The global DNSO should be reorganized to ensure that user
    interests have at least half the votes on the names council, and that
    individuals, small businesses, and non-commercial domain holders do not
    face difficult barriers to participate in the DNSO.
    Transparency and Conflicts of Interest
        15.  The ICANN board should record all of its board meetings, and
    provide pubic access to MP3 files of its meetings.

        16.  The ICANN DNSO should not permit persons with employment or
    business relations with registrars or registries to vote in the user
    constituencies in the DNSO.

        17.  There should be a ``cooling off'' period after leaving ICANN
    staff, before representing an ICANN regulated registry or registrar.

        18.  ICANN board members should disclose on the ICANN web page any
    business interests with ICANN regulated registry or registrar
    interests.

            Yours sincerely,
                                                    Ben Wallis,
             TACD Coordinator--On behalf of the TACD Steering Committee