[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 *:
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    * 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.
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   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, [email protected]
                                 ______
                                 
   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

                                  
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