[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
CONTRACTING THE INTERNET: DOES ICANN CREATE A BARRIER TO SMALL
BUSINESS
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, JUNE 7, 2006
__________
Serial No. 109-55
__________
Printed for the use of the Committee on Small Business
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
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COMMITTEE ON SMALL BUSINESS
DONALD A. MANZULLO, Illinois, Chairman
ROSCOE BARTLETT, Maryland, Vice NYDIA VELAZQUEZ, New York
Chairman JUANITA MILLENDER-McDONALD,
SUE KELLY, New York California
STEVE CHABOT, Ohio TOM UDALL, New Mexico
SAM GRAVES, Missouri DANIEL LIPINSKI, Illinois
TODD AKIN, Missouri ENI FALEOMAVAEGA, American Samoa
BILL SHUSTER, Pennsylvania DONNA CHRISTENSEN, Virgin Islands
MARILYN MUSGRAVE, Colorado DANNY DAVIS, Illinois
JEB BRADLEY, New Hampshire ED CASE, Hawaii
STEVE KING, Iowa MADELEINE BORDALLO, Guam
THADDEUS McCOTTER, Michigan RAUL GRIJALVA, Arizona
RIC KELLER, Florida MICHAEL MICHAUD, Maine
TED POE, Texas LINDA SANCHEZ, California
MICHAEL SODREL, Indiana JOHN BARROW, Georgia
JEFF FORTENBERRY, Nebraska MELISSA BEAN, Illinois
MICHAEL FITZPATRICK, Pennsylvania GWEN MOORE, Wisconsin
LYNN WESTMORELAND, Georgia
LOUIE GOHMERT, Texas
J. Matthew Szymanski, Chief of Staff
Phil Eskeland, Deputy Chief of Staff/Policy Director
Michael Day, Minority Staff Director
(ii)
C O N T E N T S
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Witnesses
Page
Burr, Ms. J. Beckwith, Partner, WilmerHale....................... 3
Jeffrey, Mr. John, General Counsel & Secretary, Internet
Corporation for Assigned Names and Numbers (ICANN)............. 5
White, The Honorable Richard, Member, VeriSign's Internet
Advisory Board................................................. 8
Mitchell, Mr. W.G. Champion, Chairman and Chief Executive
Officer, Network Solutions LLC................................. 11
DelBianco, Mr. Steven, Executive Director, NetChoice............. 13
Goren, Mr. Craig, Chief Executive Officer, Clarity Consulting.... 16
Appendix
Opening statements:
Manzullo, Hon. Donald A...................................... 29
Prepared statements:
Burr, Ms. J. Beckwith, Partner, WilmerHale................... 31
Jeffrey, Mr. John, General Counsel & Secretary, Internet
Corporation for Assigned Names and Numbers (ICANN)......... 37
White, The Honorable Richard, Member, VeriSign's Internet
Advisory Board............................................. 44
Mitchell, Mr. W.G. Champion, Chairman and Chief Executive
Officer, Network Solutions LLC............................. 50
DelBianco, Mr. Steven, Executive Director, NetChoice......... 63
Goren, Mr. Craig, Chief Executive Officer, Clarity Consulting 77
(iii)
CONTRACTING THE INTERNET: DOES ICANN CREATE A BARRIER TO SMALL
BUSINESS?
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WEDNESDAY, JUNE 7, 2006
House of Representatives
Committee on Small Business
Washington, DC
The Committee met, pursuant to call, at 2:00 p.m., in Room
2360 Rayburn House Office Building, Hon. Roscoe Bartlett [Vice-
Chairman of the Committee] presiding.
Present: Representatives Bartlett, Kelly, Musgrave,
Fitzpatrick, Velazquez.
Chairman Bartlett. The Committee will come to order. Just a
word of explanation as to why I am sitting here rather than the
usual occupant, my very good friend and classmate, Chairman
Manzullo. His wife is having surgery today, unexpected in a
sense apparently. I did not know until last evening that I
needed to be here today so I need to apologize for two things.
One, that I was not better prepared for the hearing. Had I
known I would be the Chair I would have been better prepared.
Secondly, for the fact that I may have to briefly recess
the hearing if there is not another Republican here on the dias
because I am also on the Science Committee which will meet in
25 minutes to mark up five bills and there will be some
contentious votes during some of those bills, but fortunately
they are on the same floor in the same building, just around
the corner so they will let me know when I need to go.
If there is not another member here to turn the gavel over
to, I will very briefly have to recess the meeting and then
come back. The Chairman has a statement which we will submit
for the record. Let me turn now to the Ranking Member Ms.
Velazquez.
[Chairman Manzullo's opening statement may be found in the
appendix.]
Ms. Velazquez. Thank you, Mr. Chairman. I welcome the
witnesses. It cannot be underestimated how important technology
is to small businesses. Today we look at issues regarding the
Internet and its availability to small businesses.
Increasingly small businesses are turning to the Internet
and starting their own websites to market their businesses.
From beauty salons to motor vehicle dealers posting their
services, hours, and location in addition to answers to
frequently asked questions is valuable and will only expand and
help grow their businesses.
We need to make sure that this continues to be a readily
available and affordable option for this nation's 23 million
entrepreneurs. Seventy-seven percent of small business owners
who have a website agree that it is a must for small business
and 60 percent say they wish they had built one for their
business sooner. The website allowed these entrepreneurs to
enhance their advertising efforts by placing pre-detailed
information, reports, and other beneficial content in a place
where anyone can access it.
For the most part, basic websites are becoming a core part
of the market and plan for many small businesses and so far the
cost of standard Internet use such as simple websites and e-
mail have fit well within the marketing budget of small
businesses. A large percentage of small businesses are waiting
to spend money and resources to use the Internet as part of
their relationships with customers. In fact, 61 percent of
entrepreneurs feel that the website has added to the bottom
line.
Many small business owners, 51 percent, currently view the
Internet as more cost effective than other marketing methods.
In 2002 39 percent of small business owners planned to market
their business on the Internet as opposed to 27 percent by
direct mail, 26 percent in newspapers or magazines, and 24
percent in the Yellow Pages.
The hearing today will examine the Internet and its access
for small businesses. It is important that the Internet and
websites remain affordable options for entrepreneurs, not just
for today but for the future as well. I look forward to hearing
the witnesses' testimony so that the Committee has a better
understanding of this proposed settlement and its impact on
small businesses.
The Internet is becoming a vital component of small
businesses marketing an outreach plans. Today we need to make
sure that small firms will consistently be able to afford and
have access to website ownership. Thank you, Mr. Chairman.
Chairman Bartlett. It is not usual that Government becomes
involved in a situation like this. Our apologies for the
appearance that we are trying to intrude to Government where
Government has no business being.
A primary function of this hearing today is to get the
facts on the table because apparently there is a lot of
disagreement as to exactly what this settlement portends for
the Internet community, and especially for small businesses so
we thank you very much for coming, especially those of you who
traveled considerable distances to get here. We will begin now
with our witnesses.
Our first witness is Ms. J. Beckwith Burr. Ms. Burr is
currently a partner at Wilmer, Cutler, Picker, Hale and Dorr
here in D.C., but more relevant to our proceedings today she
was the Director of the Office of International Affairs at NTIA
during the Clinton Administration and was the lead Commerce
staffer on the transition to private sector management of the
DNS at the time ICANN was formed.
Ms. Burr, and then we will introduce the other witnesses
when their turn comes. The floor is yours.
Ms. Burr. Thank you, Mr. Chairman.
Chairman Bartlett. Let me first say that all of your
written statements without objection will become part of the
permanent record so you are free to summarize any way you wish.
Thank you.
STATEMENT OF J. BECKWITH BURR, WILMERHALE
Ms. Burr. Thank you, Mr. Chairman. Prior to returning to
private practice I was, indeed, the primary USG interface with
ICANN so that very polite introduction may have been staff code
for ``it is all her fault'' which, I suppose, is why I have
been asked to provide some background on the original and
purpose of the Department of Commerce approval rights in the
registry agreement between ICANN and VeriSign.
In the spring of '92 the nonmilitary Internet was still
largely a creature of the academy. There was no World Wide Web
or user-friendly browser. Network Solutions operated registries
for the nonmilitary Internet top-level domains and provided end
user registration services under a cooperative agreement with
the National Science Foundation.
By 1998 when the cooperative agreement was scheduled to
expire, the commercial Internet had exploded. Given its
research orientation, NSF determined to end its role in
management of the DNS by letting the cooperative agreement
expire and permitting VeriSign to carry on. Had everything
proceeded as expected, the cooperative agreement might have
expired without anyone noting. Instead, as we know, lots of
people noticed and that is why we are here.
As the cooperative agreement's final expiration date
approached, it became clear that the structure in place to
manage the DNS was not going to scale. Policy authority resided
with a single, although well-respected, human being. Dr. John
Postel's consensus-building skills were legendary in the
technical community but they were less suited to a litigious
commercial setting.
Meanwhile VeriSign, and I will refer to the registry
services as VeriSign, appeared to control the most valuable
commercial assets associated with the public Internet, the
.com, .net, and .org top-level domains. There were lots of
objections to dispute resolution procedures, the amount of
money VeriSign was making, and the general dominance of the
U.S. based generic top-level domains. It was clear, on the one
hand, that the U.S. Government could not simply walk away from
the DNS management problem at that point. On the other hand,
the ITU was looking for a new job and any U.S. mandated
solution would clear be unacceptable internationally.
Accordingly, the U.S. Government set out to develop global
consensus for private sector management of the DNS. After
extensive consultation, the Commerce Department articulated the
emerging consensus in a document known affectionately in some
places as the White Paper, and embarked on what was intended to
be an orderly transition to private sector management of the
DNS.
Of course, the transition has been anything but orderly.
VeriSign predictably was not enthusiastic about relinquishing
its control of the generic TLDs. The allocation of rights and
responsibilities under the cooperative agreement was murky as
were the sources and limits on Dr. Postel's authority for the
collection of activities that came to be known as the Internet
Assigned Number Authority, or the IANA. When the Commerce
Department extended the cooperative agreement it fixed some of
the problems but not all. In October of 1998 VeriSign agreed to
get on board the privatization train and to see effective
control over the authoritative route to the Commerce
Department. In the months that followed the Commerce Department
recognized ICANN and began a transition to really back to
private sector management.
The registry agreement between ICANN and VeriSign was a
critical piece of this transition and the Commerce Department
was at the table of those negotiations for several reasons.
Most of VeriSign's obligations under the cooperative agreement
would have to be superseded by a registry agreement with ICANN.
The U.S. Government wanted to ensure that any such agreement
preserved the contractual concessions attained in Amendment 11.
U.S. Government also wanted to be sure that something was in
place if the agreement between VeriSign and ICANN fell apart.
Finally, given the degree of mistrust that had developed in
the intervening months between ICANN and VeriSign the Commerce
Department was needed as an honest broker. I believe both
parties would have said that.
In short, the Commerce Department's approval right in the
registry agreement was intended to do two things. To protect
the newly achieved legal clarity about the A root and to
facilitate the VeriSign ICANN relationship during the
transition period.
In both of these roles as in most everything it did here,
the role of the Commerce Department was to serve as a trustee
for the interest of the global Internet community in a
successful transition to private sector management of the DNS
based on the White Paper principles of stability, competition,
bottom-up policy development by a representative organization.
It may help to contrast or to think of this in the context
of the Department's residual control over the A root. There in
its capacity as trustee the DOC has to use its authority in a
manner that is consistent with the White Paper principles.
Given that the transition to private sector management was, as
it so clearly remains today, dependent on the support of the
global Internet community, use of the retained authority had to
be acceptable to stakeholders including our Government partners
around the world in this transition.
Finally, any use of that authority had to be faithful to
the ``what goes around comes around'' principle of Internet
regulation championed by the U.S. and other countries in the
mid '90s. Individual governments should generally refrain from
regulatory activity in favor of market forces, industry self
regulation, and bottom-up consensus policy development.
The contract approval clause has a slightly different
pedigree. As I said, the Commerce Department was there to serve
as an honest broker. In the event that one party thought the
other was abusing its power or contravening the White Paper
principles, it could appeal to the Commerce Department which
could, in turn, attempt to facilitate a sensible outcome
consistent with the White Paper blueprint.
Community has not discussed how this approval authority
might be appropriately exercised in the intervening years but
if we take as a given, as I do, that the role of the Department
of Commerce is in all cases to facilitate private sector
management of the DNS in accordance with the principles
articulated in the White Paper, two questions arise.
First, is the proposed contract inconsistent with the White
Paper principles or does it reflect some imbalance in
bargaining positions that undermines private sector management
of the DNS? If the answer to that question is yes, you must go
on to consider whether intervention will further and not
undermine the success of the ICANN experiment.
This question must be addressed on both a substantive and
procedural level. No matter where one comes out on the merits
or deficiencies of the .com agreement, I don't know anyone who
thinks that this was a particularly good process. In my
testimony I have provided some suggestions, for what they are
worth, and I will stop here and happy to take questions.
Chairman Bartlett. Thank you.
[Ms. Burr's testimony may be found in the appendix.]
Chairman Bartlett. Our next witness is Mr. John Jeffrey.
Mr. Jeffrey is the General Counsel and Secretary of the
Internet Corporation for Assigned Names and Numbers, otherwise
known as ICANN, based in Marina Del Ray, CA. ICANN is an
internationally organized nonprofit corporation responsible for
managing and coordinating the domain name system to ensure that
every address is unique, that all users of the Internet can
find all valid addressees.
When I think about the illegal immigrant problem, I think
about how wonderfully the private sector has solved many
problems and how maybe we ought to be enlisting their help. I
go to make a purchase and in a few seconds they know whether or
not my Discovery credit card is okay. I am sure that there are
more credit cards than there are illegal immigrants so I would
suggest that we don't need 14 days to determine whether an
immigrant is legal or not.
Mr. Jeffrey, the floor is yours.
STATEMENT OF JOHN JEFFREY, INTERNET CORPORATION FOR ASSIGNED
NAMES AND NUMBERS (ICANN)
Mr. Jeffrey. Thank you, Mr. Chairman, for the opportunity
to speak before the Small Business Committee. ICANN is
recognized by the world community as the global authoritative
body on the technical coordination and organizational means to
ensure the stability and interoperability of the Internet's
domain name and numbering systems. I am pleased to speak before
your Committee as we are very proud of ICANN's role in the
domain system and ICANN's role in helping to facilitate a
global interoperable Internet used by America's small
businesses and small businesses throughout the world.
Since 1998 ICANN's self-governance model has succeeded in
addressing stakeholder issues as they have appeared and in
bringing lower cost and better services to DNS registrants and
everyday users of the Internet. Among ICANN's main achievements
are the following:
Streamlining of domain name transfers. ICANN developed a
domain name transfer policy that allows domain name holders to
transfer management of their domain names from one registrar to
another bringing further choice to domain name holders.
Market competition. Market competition for generic top-
level domain registrations established by ICANN has lowered
domain name cost in some instances as much as 80 percent with
savings for both consumers and businesses.
Choice of top-level domains. ICANN continues to introduce
new top-level domains to give registrants right of choice.
These include the introduction of seven new gTLDs in 2000 and
four additional ones so far from the 2004 sponsored top-level
domain names round. The uniform dispute resolution policy, also
called the UDRP. This policy has resolved more than 6,000
disputes over the rights to domain names and has proven to be
efficient and cost effective.
Internationalized domain names, or IDNs, working in
coordination with the appropriate technical communities and
stakeholders ICANN's adopted guidelines have opened the way for
domain name registration in hundreds of the world's languages.
Since ICANN was founded in 1998 ICANN has entered into many
private arm's length agreements with registries that run the
generic top-level domains and with registrars who are
accredited by ICANN to sell those domains directly to consumers
and businesses.
A 2004 report by the OECD stated that, ``ICANN's reform of
the market structure for the registration of generic top-level
domain names has been very successful. The division between
registry and registrar functions has created a competitive
market that has lowered prices and encouraged innovation. The
initial experience with competition at the registry level in
association with a successful process to introduce new gTLDs
has also shown positive results.''
Now I will address the difference between the competition
picture in 1998 and in 2006. In 1998 there were only three main
generic top-level domain registries, .com, .net, and .org from
which domain names could be purchased by businesses and
consumers. Only one company was running all three registries,
Network Solutions. Most registrations by small businesses were
only in one registry, .com. The price of a single domain name
in .com in 1998, based upon the information I could gather, was
greater than $50 per domain name per year. The competition in
2006 is much different.
The .com registry now controlled by VeriSign maintains a
significant percentage of the marketplace but now accounts for
less than 50 percent of the world market. The price for a .com
registration today depends on where you purchase the name from,
but in some instances the price of a domain name has been
reduced significantly by as much as 80 percent.
On June 4th the price of a .com domain name for a one-year
registration at GoDaddy, the largest registrar by market share,
was $8.95, or $6.95 if you are transferring from another
registrar. The price at Network Solutions, now a separate
registrar business here at the panel, and is now only partially
owned by VeriSign, is $34.99 per year and they have varying
plans relating to that that I am sure Mr. Mitchell can address.
Small businesses today can choose from over 688 ICANN
accredited registrars derived from 261 unique business groups
located in 39 different countries. In addition to the greater
choice in registrars, consumers also have a greater choice
regarding which top-level domain they may use, some specialized
for specific areas.
Between 2000 and today 11 new generic top-level domains
have been introduce. Four of those TLDs, .cat., .jobs, .mobi,
and .travel have signed agreements with ICANN in 2005 and 2006.
ICANN currently accredits domain name registrars to sell names
in the following top-level domains, .aero, .biz, .cat, .com,
.coop, .info, .jobs, .mobi, .museum, .name, .net, .org, .pro,
and .travel. In addition, an agreement for the introduction of
.tel was recently completed and negotiations continue relating
to other top-level domains from the 2004 found.
I'll now address the VeriSign settlement agreement and the
proposed .com registry agreement. On October 24, 2005, ICANN
announced a proposed settlement to end the long-standing
dispute with VeriSign, the registry operator com and net. The
proposed agreement between ICANN and VeriSign provided for the
settlement of all existing disputes between ICANN and VeriSign
and a commitment to prevent any future disagreements from
resulting in costly and disruptive litigation.
Under the current VeriSign com registry agreement, VeriSign
has permitted an automatic renewal of the com agreement. That
original renewal clause was a key factor in the negotiation of
the 2001 .com agreement and was added in exchange for
concessions relating to the yielding of VeriSign's rights in
.org and opportunity for a rebidding process relating to the
.net registry. Subsequently, .org was transferred to the public
interest registry in 2001 and .net was rebid in 2005.
Independent evaluators after a careful review re-awarded the
net registry to VeriSign and a new agreement was executed
between VeriSign and ICANN for net last year. As part of that
rebid the wholesale price of net domain name registrations was
lowered from $6.00 to $4.25 for the registrars. It is
noteworthy, however, that the reduction in price was not in any
measurable way past through by registrars to small businesses
or consumers.
The price of $6.00 which was set during the first .com
registry agreement with ICANN in 1999 has not been subject to
review or increase during the past seven years. ICANN agreed in
the proposed new com agreement to allow VeriSign to increase
the price of .com registration by up to 7 percent per annum.
Following public comments, ICANN and VeriSign renegotiated the
terms in December and January and agreed to limit those
proposed increases to 7 percent in four of the six years.
Additionally, VeriSign could only raise their rates in two
other years if VeriSign was able to show a need to do so to
support the .com infrastructure and in specific support of the
security or stability. Effectively, VeriSign can only raise the
price of a .com registration by $1.86 before 2012 without
providing justification.
Following extensive review and opportunity for additional
public comment, on February 28, 2006, the ICANN board of
directors by a nine to five vote weighed the favors involving
the continued conflict with VeriSign and the lawsuits with
VeriSign against the proposed terms and voted in favor of
settlement.
Subsequently, ICANN submitted the .com registry agreement,
the only part of the settlement process that the Department of
Commerce is subject to review, and we await the result of the
Department of Commerce's review. The agreements between ICANN
and VeriSign are likely to facilitate a more secure and stable
.com registry and Internet.
In the long run a structure to support VeriSign's business
and to encourage and provide incentives for VeriSign to invest
in the stability and security of the .com registry is likely to
be a much better choice than requiring them to cut cost for the
benefit of a few parties.
In conclusion, Mr. Chairman, ICANN supports the small
business community through its actions. Due to the Universal
DNS resolvability secured and coordinated by ICANN, the
Internet works in the same way for every user of the Internet.
ICANN remains committed to the stewardship of a stable and
globally interoperable Internet and is committed to fostering
competition in the domain name marketplace. Through private
agreements ICANN has acted to enhance competition in the
registry and registrar industry without undermining ICANN's
commitment to the overall stability and security of the
Internet.
[Mr. Jeffrey's testimony may be found in the appendix.]
Chairman Bartlett. Thank you very much.
Our third witness is the Honorable Richard White.
Rick, I generally try to avoid being introduced that way
because almost nobody thinks Congress is honorable. When
introduced that way, it just gives the audience another excuse
to reflect on all the reasons they don't think Congress is
honorable.
Mr. White. We are used to it, though, aren't we, Mr.
Chairman?
Chairman Bartlett. Fortunately, the average citizen out
there believes that their Congress, not any specific
Congressman, is considerably more honorable than the
institution. Interesting, isn't it? I am very pleased to
welcome you back. Rick was representative of the 1st District
of Washington from '95 to '98. While a member of Congress Rick
founded and led the bipartisan Bicameral Internet Caucus and
served as a member of the Energy and Commerce Committee.
During that time her led policy development for a wide
variety of Internet related issues including the Department of
Commerce's transition of Government management of the Internet
to the private section. Currently Rick serves as a member of
VeriSign's Internet Advisory Board.
Rick, welcome. The floor is yours.
STATEMENT OF THE HONORABLE RICHARD WHITE, VERISIGN'S INTERNET
ADVISORY BOARD
Mr. White. Thank you very much, Mr. Chairman. It is great
to be back and thanks for that nice welcome. Also nice to see
Congresswoman Kelly, my classmate. I am glad to see you have
lasted a little longer than I did. I hope you are enjoying it.
Let me say a couple words about this. I did submit a
statement for the record and I hope you will have a chance to
look at that. What I would really like to do is just focus on a
couple things that I think is important to consider. After I
left Congress I was CEO of a trade group for CEOs of technology
companies. I just finished that up last year. Currently, as the
Chairman said, an advisory group member for VeriSign.
I am not an employee of VeriSign. I am not a consultant for
VeriSign so I can't really speak for the company. These are
really my own opinions, although I have had the opportunity to
observe their business so some of what I say here is kind of
informed by what I've learned about being part of that group.
I want to just make sure the Committee understands the
context where this came up because I thought Ms. Burr did a
great job of explaining why we came up with ICANN in the first
place. I was chairman of the Internet Caucus at the time and I
very clearly remember the day that Ira Magaziner came over from
the administration. He had this idea about a White Paper.
I think actually Mr. Horowitz might have been on my staff
at the time. We went through and talked about how this ICANN
thing would work, that it would be a good idea, and talked
about. There have certainly been plenty of growing pains. I
think in retrospect we might have done some things differently.
We would probably all agree with that. At the time we all
agreed it was important to get the international private
Internet community involved and get the U.S. Government a
little bit less involved. That was really the whole point.
So, as Mr. Jeffrey pointed out, what happened was they
stood themselves up, they got a big chairman, and they
readjusted a lot of things. They took VeriSign, or the company
that became VeriSign, and took away some of their rights under
the existing situation. No longer could they be in charge of
the .org name.
They made them go through a rebid process for the .net
name. Then I think it was in the year 2000 they signed this
agreement that we talked about that would govern VeriSign's
ability to administer the .com name which, of course, is the
biggest one certainly in the United States and I think is by
far the biggest overall.
What we are really talking about today, just so the
Committee understands, is basically the renewal that happened
in the last few months of the agreement that was done between
ICANN and VeriSign in the year 2000. Really in a lot of ways it
is a big nonevent. There aren't a lot of changes from what
happened. It is still a six-year agreement like that one was.
It will provides, as it did at that time, that if VeriSign
fails to do a good job of administering this, they can be
kicked out. You have to have somebody who is going to do a good
job. On the other hand, if they do a pretty good job, there is
the presumption that they will be renewed.
It also does provide for the ability to raise prices but it
puts a cap on their ability to raise prices. It is basically, I
think, $1.86 all told that they could raise prices which
basically would mean that from the year 2000 when there was a
$6.00 price, and that is what it still is today, to the year
2012, the price for a wholesale name in .com could go up from
$6.00 to $7.86. It is a price increase but it is not a huge
price increase I think given the span of time that we are
talking about. I just want to make sure that the Committee
understood that.
Let me give you a couple of other fact points that I think
you ought to consider. From a small business perspective the
Internet is an absolutely wonderful tool. Dan and I used to
think about this a lot, but it gives them the ability to
compete really on a pretty equal basis with a lot of big
companies and that is a very good thing. A small business owner
typically takes the Internet for granted now just like the rest
of us do.
It is the first place we go for information. It is the
place where a small business owner can have e-commerce and do
that sort of thing. They don't really care about how it works.
They just want it to work. The reason they can feel that way
and the reason we can all feel that way is that under this
agreement that VeriSign had with ICANN for the last six years,
there hasn't been a single minute of down time over that six-
year period.
They have run it well enough so that unlike the telephone
company which is what we use to call five nines of reliability,
99.999 percent. There has been 100 percent reliability of this
network over this six-year period and I think there is every
confidence that will continue over the next six-year period. I
think that is a big reason why ICANN was so willing to make
sure VeriSign got the job.
Let me make sure you understand something else. It is not
because the job has gotten easier. I have some information here
that just was absolutely amazing to me when I was reading it.
VeriSign had 13 computers to run this system in the year 2000.
It has 1,300 now to run the same portion of the system. It has
servers that in the year 2000, I think, they had the number 60
and they have 4,000 today to do the same thing just to have the
capability they need to have to make sure this is a secure
network.
To put this in a little bit of perspective, you talked
about your credit card transactions, Mr. Chairman. The number
of transactions that VeriSign conducts in five days over this
network is in excess of the number of credit card transactions
in the world in a year. In five days they do more matching of
numbers and routing of requests than you have credit card
transactions in the whole world in a year. Another way to look
at it, it is six times the daily number of phone calls in the
United States. That is how many connections these computers
have to make. Yet, they have done it without a flaw for six
years. Not only that, just to make sure you understand, they do
it while they are under attack.
You know, we take for granted this system works pretty
well, but every day there are upwards of 1,000 attacks on the
system, teenagers trying to bring it down, but also malevolent
actors trying to bring it down who are very sophisticated. You
have seen a number of examples of that. Just to summarize, they
have done a good job. This contract is, if anything, very
consistent with what was talked about before.
It has been negotiated under an arms-length agreement with
ICANN which isn't really all that fond of VeriSign and vice
versa so it is an arms-length agreement by private parties
working pretty much the way Ms. Burr and I had anticipated at
the time we set up this whole system.
My own view is that from a small business perspective, in
particular, this will control any significant price increases.
It will make sure this thing works great for the next six
years. All in all it sounds like a great deal for small
business to me so I would hardily recommend that the Committee
take that approach. Thanks very much. I would be happy to
answer questions.
[The Honorable Richard White's testimony may be found in
the appendix.]
Chairman Bartlett. Thank you very much. those of us who
have had the opportunity to be both audience and speaker
recognize that five minutes can be a very short time for the
speaker and a very long time for the audience. Yet, if it is
your question that is being answered by the speaker, five
minutes may have end up a very short time which is why we ask
the witnesses to summarize their statements because there is
generally more than ample opportunity to expand during the
question and answer period. What may seem like an interminable
witness testimony ends up being a very short segment during the
discussion.
Our next witness is Mr. W. G. Champion Mitchell. Mr.
Mitchell is the Chairman and Chief Executive Officer of Network
Solutions based in Herndon, VA. Network Solutions currently
hosts millions of domain names and hundreds of thousands of e-
mail boxes and websites for customers. In 1993 Network
Solutions was awarded a grant from the National Science
Foundation to develop the Internet's domain name registration
surface. After developing the technology, Network Solutions
became the first and only domain name registrar until 1999 when
the domain name industry opened up to competition.
Mr. Mitchell, the floor is yours.
STATEMENT OF W.G. CHAMPION MITCHELL, NETWORK SOLUTIONS LLC
Mr. Mitchell. Thank you, Mr. Chairman, and thank you for
inviting me to be here, and thank the Committee for its
interest in something that is so important, small businesses. I
will certainly try to speak and rapidly as accent and cultural
heritage allow me to.
I am not going to go into all the reasons the Internet is
important to small business. I gather from the members
themselves that is quite clear to them. I would say one thing,
Mr. Chairman. We are here today because the U.S. Government is
required to be involved in this contract. This is not solely a
dispute between private parties. The Department of commerce is
required to approve this contract so it is U.S. Government
involvement to an extent, at least.
Far from making access to the Internet more reliable, more
secure, and more affordable for small businesses, this proposed
agreement between ICANN and VeriSign shocks the conscience and
works against all of those things. We see two big problems from
our standpoint with the contract as it stands. There are many
people who see other problems but we have two big ones. The
first one, and I hope Mr. White will forgive me, I will have to
correct a significant factual inaccuracy in his testimony.
Under the perpetual monopoly provision of the proposed
contract, VeriSign cannot lose it if they ``don't do a good
job.'' Under the current contract, the one that is about to be
renewed, VeriSign can lose that contract if it is in material
breech of a provision of the contract or if they ask for a
price increase which they have. Then it is supposed to go to
competitive bid. Under the new contract those provisions are
removed. They can come in and ask for a price increase anytime
they want to. There are only three small provisions which they
could lose it over. Even then it has to go to arbitration and
then after arbitration they have 21 days to procure. There is
no way they can lose it. It is perpetual monopoly.
No. 2, it has unreviewable price increases, unreviewable,
unregulated, and unjustified price increases. The fact is that
that the cost of technology has been going down. I am sure that
Dell and Gateway would love to be here saying, ``We haven't had
a price increase in six years.'' Everybody else's prices are
going down and it is not needed. It enriches VeriSign at the
expense of American small business. $1.86 may not sound like
much. That is $1.3 billion dollars in monopoly taxes over the
period of the contract of which more than half will be paid by
U.S. small businesses.
It is not a small thing. To put that in perspective, 700
million of monopoly profit to VeriSign from U.S. small
businesses compares with an under $500 million SBA budget. If
we had this and could use this money to fund small businesses
to push them forward, I think it would be a lot better use of
it than giving it to a monopolist.
It is allowed to hike its fees more than 30 percent in four
of the six years. ICANN is not left out. ICANN gets a slice of
that monopoly profit. They will get about $200 million in fees
over that time of which about half of it will come out of the
monopoly profit. The notion that VeriSign has put forward in
the media and before this Committee that the Internet has to
choose between continuing safety and stability on the one hand,
and a perpetual monopoly with unregulated price raises on the
other is simply a false dichotomy.
By the way, all of the examples that have been used in this
Committee and in the testimony are ones which VeriSign has
nothing to do with in defending the Internet. The Internet is
vulnerable at many places. It is a largely fixed cost to defend
the Internet so the more subscribers you have, the less it cost
per subscriber to defend. In fact, VeriSign is going from 33
million .coms under management at the beginning of 2005 to 52
million plus this morning so that cost is going down, as well
as the cost of your equipment and everything else.
Monopoly being granted in perpetuity is not necessary. A
five or six-year term is plenty of time to make an investment
and recover it. VeriSign has not said that the Internet is
unstable and they only had a five-year or six-year term in the
contract. They made plenty of investment.
By the way, you can have more money to protect the Internet
if you are VeriSign. The contract allows it. It just says you
have to come and cost justify it. In six years there has been
no effort to cost justify an increase because there has been no
cost to justify an increase.
Competition has clearly helped in the registrar business.
John's testimony is absolutely right about that. Driven prices
down as much as 80 percent. We haven't seen the same thing in
the registry business except on rare occasions such as with the
.net rebid last year where VeriSign because of the rebid had to
make commitments to improve the security of .net and, at the
same time, drop the price from $6.00 to $3.50. That is what
competition does. It gets you better security and lower prices
at the same time.
Let me be absolutely clear, and I am about to close down
here, Mr. Chairman. Since I am a voice crying in the wilderness
and a slow talker, just please bear with me for a minute more.
I have no objection to VeriSign continuing to run the .com
registry. That is not a problem. What I do have is an objection
to it being done in a manner that gives a perpetual monopoly to
a company with unregulated price increases at the cost of
American business.
As my friend on my right, Mr. DelBianco, here is going to
testify in his testimony, he says the greatest threat of all to
the Internet security is the UN or foreign interest taking
over. They are waiting for a cause. Last year in Tunisia
everybody thought there would be a firestorm. They backed off.
As we say down south, they are hiding in the weeds and they
are waiting for a cause. The cause is if I can, which was
supposed to be set up to internationalize this with the
approval of the Department of Commerce, gives a perpetual
monopoly to an American monopolist, it is going to break lose
and it is going to break lose this year in Athens. This does
not have to be done. This contract is not up for renewal until
November 2007. This September ICANN is supposed to undergo a
review with the Department of Commerce to say what its policy
is going to be in its relationship with these registries.
I would submit to you, Mr. Chairman, members of the
Committee, that this is more than getting the cart before the
horse. This is executing on a policy before there is a
strategy. This is a classic example of ready, fire, aim. For
those reasons, we would ask the members of the Committee to
become active and involved to see that the policy is set before
the execution happens, and to protect small business from a
perpetual monopoly with unregulated price increases. Thank you
very much, Mr. Chairman.
[Mr. Mitchell's testimony may be found in the appendix.]
Chairman Bartlett. Thank you very much.
Our next witness is Mr. Steven DelBianco. Mr. DelBianco is
the Chief Executive Director of NetChoice, a Washington, D.C.
based coalition of trade associations, e-commerce businesses,
and online consumers who share the goal of promoting
convenience, choice, and commerce on the net. Mr. DelBianco.
STATEMENT OF STEVEN DELBIANCO, NETCHOICE
Mr. DelBianco. Thank you, Chairman Bartlett, and members of
the Committee. I should also say that I appear before you today
as a small business survivor. In 1984 I did start a small IT
business and built it into a couple of hundred employees before
selling it and then moved downtown here to Washington for, of
all things, to start a trade association that helps small IT
businesses.
NetChoice today is a vocal advocate against barriers to e-
commerce. That is our battle cry. By barriers to e-commerce we
mean a legacy, rules and regulations that are being used to
inhibit commerce like regulations against online auctions,
rules that would block the interstate shipment of wine, rules
that would bury online sellers of caskets. These e-commerce
barriers are brought to light for one reason, because the
Internet works for small business.
The question you have asked today is does ICANN's new
registry contract present a barrier to small businesses using
the Internet? It is a key question because as ICANN has
developed this new agreement, they have declared they want to
use it as the template for all subsequent registry contracts in
the future. To get you answers, we went straight to the source.
We sponsored a Zogby interactive poll last week of 1,200 small
businesses that use the Internet across the nation. Here are
some top lines from the poll.
Seventy-eight percent of small business owners say that a
less reliable Internet would damage their business. No
surprise. The same percentage said that reliability and
performance were more important to them than lower fees for
domain names. Two-thirds, 68 percent, supported $1.86 increase
in domain name fees to keep the Internet reliable and secure
and 81 percent said plain out they are just unconcerned with
that kind of a fee increase period.
It is clear that small business is not worried about this
fee increase. What are small businesses worried about other
than security and stability? Our poll results show that small
businesses are very concerned with abuses to the domain name
system. Fifty-nine percent of small businesses reported last
week they are concerned about cyber squatting. Cyber squatting
is where a speculator buys and holds a domain name that is very
closely related to the domain name of another legitimate
business and then holds that name ransom. Sixty-nine percent
said they were concerned about being exploited when their
domain name is allowed to expire which is just another form of
extortion which is that they have to pay an exhorbinate fee to
reinstate an expired domain. A few weeks ago I bought
DelBiancofamily.us from a registrar GoDaddy. They are a very
affordable registrar. They charged only $8 for a one-year
registration. But the fine print tells me right up front that
if I allow it to expire inadvertently and then ask them to
renew it for me, to reinstate it for me, they would charge me
$80, ten times what I had to pay to get it. That doesn't seem
right, not to small businesses nor to consumers.
We also know that small business is very concerned about
something called parking. This is where a deceptive website
preys on the fact that human beings make errors when we type in
domain names. A simple typo takes you to a site you didn't
intend to go at. Parking sites generate ad revenue by steering
the users who inadvertently landed there to competing
businesses.
Pool.com, for instance, has made a science out of this
parking. They snatch expiring domain names everyday at 2:00 in
the afternoon. Pool's president says, and I quote, ``It's like
going to the horse races every day.'' A fourth type of domain
name abuse that we are concerned about is something called
slamming. That is where a registrar other than the one that you
originally used to buy your name sends a fraudulent invoice to
you months ahead of your expiration telling you here is what it
is going to cost to renew.
If you fall for it and pay the bill, the slammer has taken
over your domain account. Fortunately, our Federal Trade
Commission stepped in and forced several registrars to stop
slamming users in 2003. So knowing these real concerns of small
business, let's turn to ICANN's new registry contract for a
moment. I think it is comforting to see that ICANN gets it
about what really are barriers to small business.
Three quick points. No. 1, security and stability is
absolutely baked-in to their contract. Those words are
mentioned 26 times in the 28-page agreement, not counting the
appendices. No. 2, the contract states right up front that
ICANN fully intends in the years ahead to resolve domain name
disputes and stop some of these abuses that small business is
concerned about.
In fact, Section 3 of the contract, and it is a tough
contract to read, says that the registry operator must
implement any and all brand new policies that ICANN adopts over
the life of the contract. If they fail to implement and fail to
cure, they lose the renewal option. They lose the renewal
option. It is plainly in the contract.
Now, if a registry operator can meet unlimited upside
obligations under a price cap over the term of a contract, I
think you would agree they deserve a presumption of renewal.
Third point I will address is that ICANN is seeking
independence in this contract. Independence, as Champ said,
from the United Nations and from other governments.
The Government and the UN know how important and vital the
Internet has become and anything that is that important, well,
they want to control it. They will use any excuse to come out
of the weeds. They are waiting for a cause, as Champ indicated.
I would tell the members of this Committee that this group is
looking for any excuse at all. They will take as an excuse the
approval of this agreement and you can bet they would take as
an excuse if this group or this Government intervened in some
way to mess with the contract. If this agreement between ICANN
and any registry is changed by our Department of Commerce in
any way, foreign governments say, ``You see, the U.S. won't
keep its hands off the Internet.'' We lose either way.
I also wanted to suggest that independence has another
motive. The current contract that ICANN is proposing calls for
a larger and more predictable revenue stream from the registry
operator as opposed to the registrars. That is a move towards
independence that really could be concerning to the large
registrars who have a lot of control today.
Last December I was in Vancouver and heard ICANN's finance
chair say that spending on critical initiatives was being
delayed and diminished because the biggest registrars hadn't
approved the fees that were already in the adopted budget.
Resalers of domain names cannot be allowed to control ICANN
that way.
So, to conclude, I would say that our poll shows plainly
that ICANN's new registry contract does address the real
concerns of small business and should be approved. These real
concerns, however, do not match the complaints of a few large
registrars who have their own ax to grind. Too often the
booming voice of a bigger business will drown out the voices of
small business.
I close by thanking you for listening to small business and
I look forward to your questions.
[Mr. DelBianco's testimony may be found in the appendix.]
Chairman Bartlett. Thank you very much. Our next witness,
and our last witness, is Mr. Craig Goren who is the Chief
Executive Officer of Clarity Consulting. When I read the name
of your organization, I thought what a creative name. It is one
of those several times when I see a name that I ask myself,
``Gee, why didn't you think of that?''
Another one of those names was Serendipity, Inc. What a
great name for a company. Thank you, sir, for being so clever
as to choose a name like Clarity Consulting. What other
consulting firm would you want to go to? A Chicago based
software development firm. Thank you and the floor is yours.
STATEMENT OF CRAIG GOREN, CLARITY CONSULTING
Mr. Goren. Thank you. Ironically before I start with my
notes, that domain name was available but a company that was
selling domain names wanted about $25,000 for it at the time
which we couldn't afford. That's one of the reasons why I am
here actually.
Mr. Chairman, thank you for inviting me to testify here
today on the subject of Contracting the Internet: Does ICANN
Create a Barrier to Small Business? I am the Chief Executive
Officer of Clarity Consulting. We are a Chicago based software
development consulting firm that specializes in building custom
software solutions for clients that depend on the Internet from
small innovative start-up firms to Fortune 50 financial service
firms.
Additionally, I'm the co-founded of CenterPost, a small
business that relies on the Internet to provide automated
customer messaging solutions such as flight status alerts,
appointment confirmations, and late payment reminders for
clients like United Airlines, Wells Fargo, the Weather Channel,
and so on and so forth.
The Internet has become as essential as the phone, fax, and
overnight delivery for all businesses both small and large
purchasing products online, websites, e-mail, ATM machines.
Thousands of other everyday business scenarios rely now on the
Internet. Name resolution, the issue here today, is a technical
term for the service provided by the registries, resold to
companies like mine by the registrars, and it is ultimately
what puts my name on the Internet.
If there is a problem with DNS resolution, my business and,
therefore, everyone else's business essentially becomes
invisible. When DNS service goes down, all of the critical
infrastructure that supports the kind of services I just
articulated go down as well. Just as business dependency on the
Internet exist today, and on DNS exist today, and it has grown
over the past several years, it will similarly continue to grow
as new and new ways of using the Internet in business scenarios
arise.
I couldn't have predicted blogging 10 years ago or iTunes
or anything else but all of those kinds of services, as well as
the negative services like denial services attacks and that
sort of things, continue to tax the Internet. I just heard some
testimony comparing the lowering of cost. I do agree there are
economies of scale that need to be taken into consideration
when we are talking about services like this. On the other
hand, pulling price in the other direction should be
consideration as to what kinds of new things are taxing the
existing system.
In terms of small businesses, however, let me state this up
front and very clearly. My business, my client's businesses,
and even my competitor's businesses now absolutely depend on a
secure stable internet to provide products and services.
Whatever the cost, business must be able to count on a network
simply working. For my clients network up time must be so close
to 100 percent the difference is undetectable. If it isn't,
planes are missed, checks bounce, e-mails are lost or millions
of dollars are lost per minute in financial transactions.
Mr. Chairman, your hearing today asks questions about the
barriers to small business but the biggest barrier we fear is
our reliance on the Internet infrastructure working properly
and small businesses who can least afford to invest in
redundancies and safeguards around the risk of DNS failure are
most substantially exposed by the reliance on DNS and the
Internet.
It is my understanding that ICANN is including a provision
for possible $1.86 wholesale cost a year increase to the
registrars from their cost today of $6.00 a year in order to
reinforce the infrastructure and enhance security as the
Internet morphs over the coming years. Most small businesses
pay about $10 to $50 a year to register their domain name.
Even if the registrar elects to pass that $2.00 cost along
to me, it is pretty much inconsequential in terms of the big
picture for a small business in the overall cost in providing
those services on the Internet. I would be happy to pay an
additional $2.00 a year to guarantee equal or better service
than what I have experienced over the past seven years, for
example.
In terms of the contract itself I want to take a moment to
speak about what I consider the ridiculously deceptive and
perverse misuse of the term perpetual monopoly. This is simply
an contract with the potential for renewal. If we allow this
absurd definition to stand, every service provider is a
monopolist regardless of industry or size.
By that definition every single vendor contract linked to
renewal where some kind of service level agreement creates a
monopoly and, therefore, my 50 percent firm based in Chicago is
a monopoly and I am a monopolist. I don't think anyone would
agree with that. Such contracts in my opinion are ideal and I
think most businesses large and small would support it. They
are win/win/win. Buyer, vendor, and consumers all benefit.
As a small business consumer I want my registrar's
registry, VeriSign in this case. I want their stockholders
counting on keeping me happy and I want them scared out of
their mind that if they screw up they lose all that forecasted
revenue.
On behalf of small businesses everywhere, my business, my
employees, my customers, I urge you to make certain that the
interest of all businesses are protected, not just the narrow
group of players and competitors who may be seeking Government
assistance for the competitive advantage of themselves. Any
decision I and our Department of Commerce makes should take
into account the need to preserve stability and security of the
Internet ahead of everything else.
The consequences of a registry service disruption are
enormous. I can speculate on a lot of reasons, big money
reasons, why certain companies might not like disagreement but
it is not my position to do so. My testimony is to clarify one
thing, the absurd notion that $2.00 a year over the next seven
years for the price of my domain name is something that should
play into part of whether or not to let this contract go
further.
[Mr. Goren's testimony may be found in the appendix.]
Chairman Bartlett. Thank you all very much for your
testimony. Because you do not all have the same perspective on
this issue, because you are very much more knowledgeable
collectively than we are, I would like to ask you to pay
individual particular attention to the questions that are asked
and the discussion that occurs.
If at the end of this hearing we have not had the wit to
ask important questions that you would have asked were you
sitting here, we would ask you to please convey those questions
to us and we will ask all of you to be ready to answer
questions for the record because we want to make sure that this
hearing provides as complete testimony as possible.
With that, let me now turn to my friend Mrs. Kelly for her
questions and comments.
Ms. Kelly. Thank you, Mr. Chairman. I am glad to be here
and to hear this discussion. It is kind of a complicated thing
and it is not something that is generally understood by the
American public. They are certainly not going to spend the time
reading all in depth in the newspapers about it so I think a
hearing like this is very important.
I have a couple of concerns. It seems to me that none of
you are arguing against VeriSign serving as a .com registry.
You are asking that VeriSign be able to compete at a reasonable
interval for that privileged market position that it has. Is
that correct?
Mr. Mitchell. Yes, ma'am. That is correct.
Mr. White. Not quite.
Ms. Kelly. Is there something unreasonable about this?
Rick, my colleague from the class that we came in together
with, go ahead and answer that with Mr. Mitchell. I would like
to hear a dialogue between the two of you so I can understand
this more completely.
Mr. White. Yes. Absolutely. You know, I think you remember,
Congresswoman, you and I came in at a time when competition is
something we absolutely believe in. There is nobody, I don't
think, who voted probably more than either one of us for
competitive things when I was here and I think you are still
probably still upholding that great tradition. But, you know,
there are certain industries where--well, to start off with,
what you have here is an arms-length contract between two
private parties that don't really like each other so it is hard
to imagine there is too much collusion in that. We set it up
exactly for that reason.
Ms. Kelly. One second. Mr. Mitchell just shook his head,
no, that is not true. I want to hear a dialogue. Go ahead and
talk not to me but talk to each other because I would like to
hear what you have to say to each other.
Mr. Mitchell. It's not an arms-length contract between two
independent parties. What you had was the regulator and the
regulated getting into a room with the door closed without
anybody being aware that it was happening and agree to
essentially a perpetual renewal provision that gave a perpetual
monopoly, and they are a monopoly. I mean, they are the only
people you can get it from.
That is the difference between them and the man from
Clarity. He has thousands and we have got hundreds. Neither one
of us are monopolies. They got into the room, they closed the
door, and they made an agreement and here was the agreement.
VeriSign gets a perpetual monopoly. Verisign gets a price
increase without have had it reviewed or justified. ICANN gets
$80 million of additional fees and gets removed from any
review.
Now, it is not true that the registrars have the right to
approve the ICANN budget. They have no ability to say anything
about approving the ICANN budget. What they do do is have a
right to vote on the particular fees that they pay. It is only
part of the ICANN budget but it is the only review that exist.
I would be the first to agree that is not the best way to
do it, that we should have reform of the way the ICANN budget
gets reviewed. That is what should be happening this September
with the MOU review and should be decided before we ever
prematurely renew a contract that doesn't come up for renewal
until November of 2007.
Ms. Kelly. Your position is that there should be stronger
oversight?
Mr. Mitchell. I think in certain areas, yes, ma'am, there
should be. In other places competition will take care of it. We
don't have to worry about pricing because we compete with 687
other registrars.
Mr. White. We would all like the Government to help us
lower our wholesale cost. I mean, that is essentially what we
are asking here. The fact is he didn't disagree. These are
private parties. Yes, there is a relationship that one is
supposed to quasi-regulate the other but that doesn't make this
anything different from an arms-length negotiation between two
private parties.
I would also say every registry is a monopoly for their
particular name. If it is .com or .us or .mobi, you have got to
have one as a technical matter. You have got to have somebody
who is the final answer. How do you track it down? Somebody has
got to have the computer that has that question in there. The
idea that this is a monopoly situation is totally off in left
field.
To say one other thing, we also do have some businesses and
we recognize them where it doesn't make sense to have two dams
built across the river so we can compete. It doesn't make sense
to sell Spectrum for cell phones to two different people and
have them try to build out the same area. In areas where you
have a huge investment that you have to make, hundreds of
millions of dollars in this case, you have got to recognize the
desire of the person making that investment to have a
reasonable period of time and this is now different in those
situations.
Mr. Mitchell. I would agree with certain things that he
says and I want to be clear where we do agree because I think
that is just as important, Congresswoman, as where we disagree.
I agree that it is best to have one registry for a gTLD and I
agree they have to have a reasonable period of time to recoup
investment. I am a businessman. Five years is more than
reasonable. We give the key to the commanding control of the
United States military out on a contract that is bid to private
parties just the way we are talking about this should be bid
for terms of about five years. That is plenty.
Last point, VeriSign most definitely is a monopoly. It is
true that not every generic TLD is a monopoly. .name, I think,
probably has 6,000 total. They don't have a monopoly. Who wants
it? On the other hand, you have .com that has 78 percent of the
market share in the United States. By anybody's definition that
is a monopoly. There is no substitute for .com.
Ms. Kelly. So it is a check and balance system right now
and that is what this Government is supposed to do. I am
sitting here thinking that it sounds like we need--Mr.
Chairman, I think we need to take a look at what is going on
here in terms of that check and balance system.
The other thing is having been a businesswoman before I got
here, it seems to me when you are talking about increased
price, and you are allowed to do that at VeriSign, I don't know
that is going to produce any better safety or security for
anybody who is paying that additional cost. I haven't heard
anything today that tells me that is going to be the product of
the increase. If your costs are going down, why are you
increasing the cost to people?
Mr. White. Let me help you with that one. I think you make
two really good points. To deal with your first point--I'm
sorry, I just missed the point I was going to make. Oh, I know.
I wanted to say that ICANN was set up, Congresswoman Kelly, to
do exactly what you are talking about. There is supposed to be
oversight but it is supposed to be done by ICANN, experts in
the field, a private self-regulatory organization.
It is not supposed to be done by members of Congress. I
would ask why in the world would this Committee get involved in
this? I mean, you have a arms-lengthy deal between these
private parties just exactly the way it is supposed to work.
You have 100 percent performance by this company. Talk about
international concern. If anything is going to get the
international community upset, it is when you overrule the
decision made by the body set up to support their interest.
I guess I would suggest to you that this is not a place
where oversight by this committee as called for because you
have already gone through the process that was required that
actually this Congress and this Government set up almost 10
years ago.
Ms. Kelly. I will do anything to support small business.
That is my point. I appreciate you giving me a little extra
time here, Mr. Chairman, but this is really serious for the
small business person. If they are going to pay more money,
they ought to be getting something more for their money.
Mr. DelBianco. Congresswoman, may I react to that, please?
I did take some time to examine the process that ICANN was
going through at soliciting input on this proposed contract. It
is far from being in a smoke filled room because whatever
happened behind a closed door, everything was shown to the full
public of the world and you wouldn't believe the number of
comments that showed up on these world wide database, world
wide bulletin boards and commentary. All of us can download and
print the entire agreement, every bit of it. None of this is
closed. What amazes me most of all in the agreement is that
VeriSign or any other registry operator is willing to sign on
to a limited price cap, whatever it is. I told you it is $1.86.
We don't really care in small business. As a small business I
would be scared to death to sign an agreement that obligated me
to any and all new policies that ICANN comes up with. Any and
all new policies for security and stability, any and all new
policies to resolve disputes bout domain names and squatting
and renewal.
In other words, ICANN is promising to invent new policies
as problems occur to be reactive and I am glad but they are
putting folks on the hook for a fixed price to deliver anything
and everything it takes to make ICANN happy. that strikes me
that ICANN is getting a contract here that is good for us that
use the Internet but awfully tough for a registry operator.
That is why the price increase, I believe, whatever it is, is
justified.
Mr. Mitchell. If I may respond to that, again, the
statement of facts are inaccurate. VeriSign is allowed to get a
price increase anytime it wants to if regulation increases its
cost. There is no cap on that. If they come to ICANN and say,
``Your new regulations have increased our cost and here it
is,'' they get a price increase.
This contract, the proposed contract, the existing
contract, all provide for that. I think any American small
business would dearly love to have a guaranteed price increase
and they didn't have to compete with anybody. Perhaps the
ultimate test of a monopolist is when you can call all of your
customers greedy, price harlots, and know they have to come to
you tomorrow and buy at whatever price you charge. I think that
is better than the Herfindahl index test for monopoly. Thank
you, ma'am.
Ms. Burr. If I could just at the risk of being heretical
suggest that this debate about perpetual renewal is a total
sideshow. I think almost everybody at the table would say that
it is okay with them for VeriSign to continue to run .com.
Frankly, for other registries who are coming and hoping to
compete with .com, the security and the ability to raise money
and investment that comes with having a perpetual presumption
of renewal is critical.
The real issue here is every registry is a monopoly for
that registry, and there is no question that VeriSign and .com
has a dominant position in the domain name registration world.
The real question ought to be is VeriSign in a position to
misuse its dominant position and, if so, are the kinds of
checks and balances that we have in place by law adequate? Does
the Justice Department have ability to get at this and look at
it?
If you want to give ICANN the job of being the substitute
Justice Department, do they have the ability and the legitimacy
to be that? I think there is a very important question about
what are the checks and balances on VeriSign's ability to
misuse its market position but I hate to get sort of completely
side derailed by this perpetual renewal issue.
Mr. White. I agree. There are many other issues and these
are all to be taken up. If you would look at the notice that
Commerce has put out on the renewal of the memorandum of
understanding, these are all to be taken up as part of that
process.
My key point is let's give the answer to the policy issue
so that it can do what it is supposed to do which is embody
those in the contract and a contract that doesn't come up for
renewal until November of 2007. The memorandum of understanding
has to be completed by September 2006 so you have 14 between
the two.
Chairman Bartlett. Before turning to our next member for
questions, let me ask for a clarification. I seem to be hearing
two things about the $1.86. One was that it was permissible
price increase during the performance period up to 2012. The
other was that it was a per year increase. Which is correct?
Mr. Mitchell. It is 7 percent per year, Mr. Chairman, which
is a total of $1.86. The first year is 42 cents.
Chairman Bartlett. Okay. So it was $1.86 over the
performance period, not per year. I seem to be hearing two
things.
Mr. Mitchell. They are both correct. One, it is a total
price increase of $1.86.
Chairman Bartlett. But not $1.86 per year.
Mr. Mitchell. Yes, it is $1.86 per year of registration so
that if I go and register a domain name, which many of our
customers do for three years, then you would pay three times a
$1.86.
Mr. White. It is a yearly fee. It is a yearly fee.
Mr. Jeffrey. As a point of clarification, 7 percent per
year is available to VeriSign to increase prices if they deem
it necessary. They have indicated they may not choose to use
that 7 percent increase that is available. That is one thing.
That is four of the six years and that is now it goes to $1.86.
The other two years they can present a 7 percent increase but
only if justified by security and stability infrastructure
changes or requirements.
Chairman Bartlett. So it is $1.86 or 7 percent, whichever
is greater, up to the $1.86 after which you have to justify it.
Mr. Mitchell. Yes, sir.
Chairman Bartlett. Okay. That is a fair statement. Thank
you very much.
Ms. Musgrave.
Ms. Musgrave. Thank you, Mr. Chairman.
Mr. Goren, you indicated a level of comfort with the rate
increase and you don't see anything unfair about it. Probably
one of the reason that you are all here today is because some
small businesses are not happy with it. Could you maybe give me
some insight? You are comfortable. Why are other small
businesses complaining?
Mr. Goren. I have not heard of a single small business
complaining.
Ms. Musgrave. Not a single one?
Mr. Goren. Not a single small business. I have run this by
many colleagues. There is a complicated business relationship
that exist here along with the technology. It is kind of
difficult when I talk to friends and colleagues to explain sort
of in layman's terms but the nomenclature of registry versus
registrant and that sort of thing confuses people. This is the
wholesale fee that we are talking about.
I have the sort of distinct advantage of naiveness because
I don't know what is going on behind the scenes. I just have my
view as a small business and my client's viewpoint. I have no
knowledge of what they pay wholesale prior to me doing a little
bit of research before appearing here today. Typically of the
people that I have informally surveyed, small business pays
about anywhere from $10 to $50 a year for their domain name
services fees from registrant along with some other fees.
We are talking about the likes of Register.com, GoDaddy,
Network Solutions, that sort of thing. When I buy the services
and I select my vendor, I have no notion of their underlying
cost structure nor frankly do I care. I don't make my
purchasing decision based upon that.
As an aside, to prove that point, if you go to, say,
Register.com to purchase your domain name or GoDaddy or that
sort of thing, you will find that regardless of which kind of
domain name you intend to purchase, and I learned, by the way,
that they have underlying different cost structures, the price
of the consumer, me, the small business, happens to be priced
the same within each registrant, or about the same. I think it
is about $8 to $10 a year for GoDaddy. It is about $35 a year
for Register.com.
Clearly from my perspective whether it goes up--whether
that $1.86 a year gets passed along to me or not compared to
all of the other issues that I have with my registrants and the
DNS issue resolution and mail servers going down, if I give up
the latte I bought this morning in order to ensure that
reliability remains the same, I would do it in a heartbeat.
Mr. DelBianco. Congresswoman, I do have an example of a
small business. It was during the debate, during that public
and very transparent debate that ICANN was conducting and a
small business objected to the whole idea of the price
increase. It was a woman who wrote an e-mail. It is still on
the website at ICANN.
She objected to how much these fees would impact the
ability for her to buy her websites that she uses. It was a
pretty emotional appeal because her website, she said, was a
nonprofit called Catholicpenpals.com. I was too curious to
resist so I went to the website and her website said, ``This
domain name is for sale.'' There were no pen pals there.
If you want to find small businesses that object to even a
minuscule price increase, pay attention to the small businesses
who make their living squatting and parking and snatching
domain names with an effort to catch people unawares, put ads
in front of them and earn revenue or, worse still, to extort
people into paying exorbitant sums to buy a domain name that is
misleading to their consumers and truly belongs to them.
Mr. Mitchell. And I abhor all those practices. I think any
responsible person does. There are small businesses that are
very cost sensitive and I will give you a specific example and
it doesn't have to do with this $2.00 price but it will give
you some sense of what real small businesses feel.
About six weeks ago a young man called me from upstate New
York. His domain was on automatic renewal with us. When we have
that we charge his credit card 45 days before the renewal date
so in case he just forgot to take it off, he can do a charge
back and we won't have renewed the name. Neither of us can get
penalized.
He called me virtually in tears because we had done that
renewal 45 days ahead of when he planned it. He runs his cash
so tight every month to try to keep his business alive that we
had actually pushed him up to the limit of his credit card and
he was having to bounce a payment. We, of course, reversed it.
We wrote the people. There are people out there who care. I
will agree that most people like Mr. Goren aren't going to care
that much about $2.00. I don't think you are buying anymore
stability or reliability with it, by the way. I think you are
just putting money into somebody's pocket. If we are going to
put it in somebody's pocket, let us take what American small
business pays which is over $700 million under this proposal
and put it somewhere that it can be used to increase the
competitiveness of American small business, not to a monopolist
pocketbook.
Mr. White. Mr. Mitchell.
Mr. Goren. Let me speak to that for a second, please. So
you charged this person that was practically in tears $45 for a
service essentially that wholesale you payed $6.00 for.
Mr. Mitchell. No, I didn't charge him $45.
Mr. Goren. You were going to and it put him in a cash flow
issue.
Mr. Mitchell. You are wrong.
Mr. Goren. What did you charge him?
Mr. Mitchell. I said 45 days.
Mr. Goren. What did you charge him?
Ms. Musgrave. Probably for us to understand this, let's go
one at a time. How about it, guys?
Mr. Goren. Let's say you charged him the cheapest I have
seen, $10, and he had a problem with that on his credit card.
Under the example, and this is why the details are important,
not at a macro level but at an individual small business
viewpoint level, that same person, I think, would have objected
to $12.00 just as much as $10 in that scenario. It is not the
cost of that service to that person that is driving whether or
not they want that domain name. It is not that cost. It is
simply not that cost. If that person has a problem being
charged 45 days ahead of time, it is pretty misleading--because
of their credit care issues, it is misleading to suggest that a
$2.00 increase would have made it even worse.
Mr. Mitchell. I didn't mean to suggest that. I said this
was not appropo specifically to the $2.00--
Mr. Goren. If it is not appropo--
Mr. Mitchell. --but to how tight some small businesses run.
Let me say something--
Mr. Goren. No one runs their domain as tight as $2.00.
Mr. Mitchell. Let me say something specifically to what Mr.
DelBianco said. He talked about the comments and the open and
transparent nature of the comments. After the deal was cut they
put it out for comment. That is quite true. Here is the
interesting part. Every constituency of ICANN that spoke other
than the one that VeriSign is a member of spoke vociferously
against this. VeriSign's own constituency, the registry
constituency, didn't come out for it. What they said is, ``If
they are going to get that deal, we want it too.'' Yet, with
complete opposition ICANN went forward. That is how much good
transparency has been in this particular exercise.
Mr. White. Just so we do find out, how much did you charge
this person for the domain name?
Mr. Mitchell. I think we charged the person $35.00.
Mr. White. $35.
Mr. Goren. So it would have been $37.00 if you--
Ms. Musgrave. Thank you, Mr. Chairman.
Chairman Bartlett. Thank you very much. As Chairman I have
stood aside because this is exactly the kind of hearing I like.
I have known ever since I came here that the great wisdom of
this country was not inside the beltway but outside the beltway
so thank you very much for making this a very interesting and
informative hearing.
Before I yield again to my colleagues for a possible second
round of questioning, I would like to go down the list of
witnesses. It was my anticipation that the primary purpose of
this hearing was to get information on the record because there
are a lot of people out there who had some questions about
exactly what was going on.
If, in fact, there was something that we as a Committee
ought to be doing, I would just like to go down the list
starting with our first witness and go on down if, in fact,
there is something we as a Committee ought to be doing other
than just having this kind of a hearing that gets the
information out on the record so it is available to people. If
there is something specific we ought to be doing, now is the
time to tell us what that is. Let's just start down and go down
the list.
Ms. Burr. I think that getting the information out and on
the record is an important task.
Chairman Bartlett. Thank you. Okay.
Mr. Jeffrey.
Mr. Jeffrey. We agree. We applaud you for having the
hearing. We are not hiding the information about this
agreement. There have been two public comment periods and we
certainly think that this hearing is a good thing because we
want people to understand what the agreement is about.
Chairman Bartlett. Okay.
Mr. White.
Mr. White. I think this hearing has been fine. I wouldn't
do anything else. I think you are treading on dangerous
territory if you do.
Chairman Bartlett. Mr. Mitchell.
Mr. Mitchell. Well, I think I will put aside whatever it is
they told me I was supposed to say and just talk to you all. I
am sure that somebody will chide me afterwards. First, Mr.
Chairman, thank you. Thank you, Congresswoman Kelly for your
time and your patience with us. You have been very kind.
Yes, there is something the Committee should do, I believe.
We believe a couple of things. No. 1, that the Committee should
reach its own decision on whether this is good, bad, or
indifferent for small business and tell the Department of
Commerce what it thinks whatever your decision is. And second,
if you want me to, I will tell you what I think it should be,
but otherwise I will leave it to you, Mr. Chairman.
The second thing would be, and I think this is vitally
important, we have heard today many issues come out about how
the Internet is governed, how ICANN is run, and they are very
important, and there are legitimate arguments on both sides.
These are all going to be aired between now and September
of this year in the memorandum of understanding review. Those
should be settled before anybody tries for a new registry
agreement that is not due until November 2007. I would urge the
Committee to so say to the Department of Commerce. Thank you,
Mr. Chairman, so much for letting me be here.
Chairman Bartlett. Thank you very much. Mr. Mitchell has
volunteered that he would make a judicial statement for the
record. We will hold the record open so that all of you can do
that. We want this to be a full and complete a hearing as
possible and encourage you if there is something that could be
amplified on to please make that available to us. The last two,
Mr. DelBianco.
Mr. DelBianco. Thank you, Mr. Chairman. What I will do
right away is we just finished the analysis of the poll we did
on 1,200 American small businesses that have websites. Those
are the results I quoted in my testimony and I will just put
that into the record and make it available to anyone else here
who would like to have it.
Mr. Mitchell. May we be allowed to review it and comment on
it in the record?
Mr. DelBianco. Of course.
Mr. Mitchell. Okay.
Mr. DelBianco. I think the record stays open. I did want to
suggest this. The Government needs to act with caution that
intervening at what ICANN is trying to do in its private
contracts. As Mr. Mitchell said, the UN and other governments
are hiding in the grass and they will look for any excuse to
pounce on ICANN for lacking the independence it needs so we
need to be cautious about messing with what ICANN has set up.
Thank you, Mr. Chairman.
Chairman Bartlett. Thank you.
Mr. Goren.
Mr. Goren. I guess what I would like to see done is really
what I would like to see not done and that is I would like to
see small businesses represented properly and I don't believe
that $2.00 a year for a domain name is something that small
businesses really care about. On the other hand, I am very
concerned that people and parties with other specific big money
interest in economies of skill in terms of tens of thousands of
domains use small businesses to misrepresent their interest in
terms of gaining other types of advantages that would come at
the expense of small businesses like stability and all the
other complex things that are going to happen with the Internet
should we decide to change registries and the Government may
not be exactly aware of all the kinds of technical issues and
trouble and additional buried cost that would come along with
such a thing.
Chairman Bartlett. Thank you very much.
Mrs. Kelly, you have additional comments and questions?
Ms. Kelly. I just would ask unanimous consent that this
dialogue that has been proposed be allowed to be in the record
and hope you will so move. That is the first thing. So moved?
Chairman Bartlett. I don't think we have to move. I think I
saw the clerk taking it down and I don't think we have any
option but that it is part of the office record. Am I correct?
Thank you.
Ms. Kelly. But it will be coming back to the Committee. I
think you are right, Mr. Goren, in the fact that $2.00 isn't
really that big a deal for the average person. What is
important that there be somebody watching to make sure we don't
foul up somewhere in the way this is being handled. That is the
overriding. I think that is what Mrs. Burr was talking about.
It is important if it is not broken, we are not going to need
to fix it.
I know from having been in this position for a little while
that the best way to make sure it doesn't get broken is to keep
a good handle on the oversight. That is really where we are
coming from, I think, to make sure that nothing is going to
harm our ability for the Internet to grow and to grow our
economic base by letting our small businesses get in and get
active. Is that a correct statement and would you agree with
that?
Mr. Goren. I would agree with that, Congresswoman. The
point that I was trying to make to clarify that is that the
only argument I have actually heard brought up in what I
thought was an oversight process that has been going on both
privately and publicly, the only concern that was brought up,
and particularly with this Committee, the House Committee on
Small Business, was the cost issue. If that is the only
concern, then I can't see anything else. As a small business
owner who started two small businesses, I would be happy to
comment on other potential issues but the only issue I have
heard on the table is this $2.00 a year.
Ms. Kelly. I have started a couple of my own small
businesses and run them, too, so I understand that there are
things out there. In general I feel very strongly that we in
Government can do the best job by not getting involved in
things that are working. On the other hand, I also know that
when you talk about an increase in cost, if my costs increase,
I have to pass those on to the customer.
If my costs increase, I want something for my money. I
didn't hear anything here that said I am going to get more
safety or higher quality for an increase in cost. I would be
very interested, Mr. White, my friend, if you would answer more
specifically if you would like to add to what you are saying to
address that in particular.
Mr. White. Absolutely. I will because I tried to make the
point but we will try to send you some additional information.
The challenge of running this is orders of magnitude greater
even than the increase in traffic because people like Mr.
Mitchell have gotten very sophisticated at using the system to
maximum the revenue they can get which is what they should be
doing but it puts a lot more demands on the registries--
Mr. Mitchell. I--
Mr. White. Mr. Mitchell, you have had a lot of
opportunities to talk. Would you mind if I said something?
Mr. Mitchell. Well, you just kind of cast--
Ms. Kelly. One second, Mr. Mitchell. Let him finish.
Mr. White. I just wanted to say that it has become a lot
more difficult and they have done a great job and they are
going to have to continue to invest to make sure that it stays
at the level of performance that we've had. That is something
that we shouldn't underestimate. We will make sure we get you
all that information so that becomes clear.
Ms. Kelly. Thank you.
Thank you very much, Mr. Chairman, for doing a second
round.
Chairman Bartlett. Thank you.
Mr. Mitchell, you had a comment or observation?
Mr. Mitchell. Yes. Mr. Chairman, thank you. These little
asides about how we are profitable and we are the big business
are getting just a tad old.
Mr. White. You should be in my seat then.
Mr. Mitchell. There are things that are done on the
Internet, one of them that Mr. White mentioned, the ad game
that goes on. We don't participate in that. So people ought to
be a little bit careful about throwing aspersions at folks. As
for who has gotten the big money here, I wish I had VeriSign's
revenue and VeriSign's size or VeriSign's profits. I think we
need to follow the money, too.
Thank you, Mr. Chairman.
Chairman Bartlett. Thank you.
Ms. Musgrave, do you have additional questions or comments?
Mr. Mitchell. No, thank you.
Chairman Bartlett. Okay. I want to thank you all very much
for a very good hearing. We will hold the record open for two
weeks and we really hope that you will contribute additional
observations to the record. Thank you all very much for a good
hearing and we stand in adjournment.
Mr. Mitchell. Thank you, Mr. Chairman, and thank you
members.
[Whereupon, at 3:34 p.m. the Committee adjourned.]
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