[House Hearing, 109 Congress]
[From the U.S. Government Printing Office]




                               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/



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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

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

                  J. Matthew Szymanski, Chief of Staff

          Phil Eskeland, Deputy Chief of Staff/Policy Director

                  Michael Day, Minority Staff Director


                            C O N T E N T S



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


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




                        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. 
    [Chairman Manzullo's opening statement may be found in the 
    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 
    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.


    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 
    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.

                   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 
    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 
    [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 
    Mr. White. We are used to it, though, aren't we, Mr. 
    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.

                         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 
    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 
    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.


    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.


    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 
    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 
    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.


    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 
    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 
    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 
    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 
    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 
    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 
    [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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    [Whereupon, at 3:34 p.m. the Committee adjourned.]
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