In the matter of:
HEARING OF THE U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON SCIENCE
SUBCOMMITTEE ON BASIC RESEARCH
SUBCOMMITTEE ON TECHNOLOGY

Subject:
"The Domain Name System: Where Do We Go From Here?"

Honored Committee Chairpersons and Members:

I wish to clarify two matters mentioned in the Hearing Charter for the above proceeding:

1. Stakeholder Representation in the CORE Model

From the Charter, section entitled "Internet Governance":

"However, the one criticism of the CORE proposal is that the POC is too exclusive and does not properly represent all the key players in terms of governing the Internet. An additional complaint is that the CORE proposal does not address the functions of IANA."

The perceived lack of representation of the POC is a matter that has concerned the POC greatly, and for some time they have been developing an alternative that will strongly address this issue. This proposal has been available for public comment since Dec 16, 1997, and may be seen on the gTLD-MoU web site at

http://www.gtld-mou.org/docs/rfcs.html#97-04

Briefly, the proposal is to substantially increase the membership of the POC to about twice its current size, and for half of the total membership to be chosen by election. The elections will be conducted by the members of the gTLD-MoU Policy Advisory Body (PAB), but anyone may be nominated. Membership in PAB is very open -- there are no dues, and organizations of any size or composition may join. Currently it is a requirement that an organization must sign the MoU to become a member of PAB, but, as part of this proposal, that requirement is being relaxed, and a signature on a non-binding statement of principles will be sufficient to become a member of PAB.

The net effect is that an open assembly of Internet stakeholders will elect half of the POC, and that anyone who is interested may participate in this election.

It is true that the MoU does not address the functions of IANA. It is believed that the IANA is autonomous from the POC, and should remain that way. In the MoU model, IANA remains in charge of the root zone of the DNS, and delegates to POC policy oversight over the generic TLDs only.

In this model it would be inappropriate for the MoU to dictate structure for the IANA, or to propose how it should be managed. IANA has been preparing on its own to transition from US Government funding -- the POC believes that IANA is capable of doing this on its own.

 

2. Competitive Issues and the FTC Paper

From the Charter, section titled "The Registry Issue":

"The CORE proposal, however, would establish one non-profit shared registry containing all the individual registries. Under their proposal, NSI would lose the .com, .edu and .org registries (these registries would become part of the non-profit shared-registry) and NSI would compete, as a registrar, for business against all the other registrars (approx. 100) without the benefit of controlling a registry. The CORE group argues that registries are largely administrative, back-office operations that offer little in added value for customers, and therefore there is no need for competition at the registry level. The Green Paper argues that only through the profit-motive and competition among various for-profit companies will the money be generated to maintain the registries that will allow the Internet to succeed."

"The Administration acknowledges that under its registry-scheme, 'switching costs and lock-in issues' could arise in instances in which users wish to change from one registry company to another. Once it becomes widely known, for example, that a certain business can be found under the .store Domain Name, the operator of that register could increase the price charged to the locked-in company. Moreover, the cost of switching to a different company may lead to a situation in which it is difficult to move from one registry to another. On balance, however, the Administration believes that the benefits of competition among the registries outweigh the possible burdens caused by this issue. The Federal Trade Commission is working on this issue and has submitted comments to the Commerce Department on this topic."

Indeed, the FTC did present comments to the Green Paper. Unfortunately, the issues are complex and time was short; and consequently those comments leave significant gaps.

1. The FTC document does not describe the CORE registry model, and instead speaks of a model of "competing non-profit registries". Consequently, much of its analysis is at an oblique angle to the actual proposals under consideration.

The CORE registry model is not, as is commonly supposed, a monolithic entity. Instead, the CORE model has three components: CORE itself, which is a non-profit association open to any entity who meets modest financial and technical requirements, whose function is primarily operational; POC/PAB, which together control policy; and one or more database operators (DBOs), who operate under competitively bid contracts to CORE.

Each DBO operates a database for one or more gTLDs. These databases run the CORE Shared Registry System (SRS). The SRS is explicitly designed so that it is straightforward to move the data for one gTLD from one DBO to another.

Currently there is one DBO, Emergent. Emergent is a special case, because their operation of the registry is a phase of their development contract for the SRS. It is not intended that they run the database indefinitely.

Having multiple DBOs is desirable from several perspectives: First, it allows multiple dispersed small entities, each of which can take over for the other, in case it is necessary. This is generally considered a superior model technically, when compared with a single monolithic entity. Second, there are the obvious benefits that accrue from having several entities competing to provide service. And third, there are undeniable political advantages to having DBOs located in different countries.

On the other hand, there are natural economies of scale that are involved -- the incremental cost of adding a new TLD to an already existing database are very small. It is unlikely, therefore, that there would be a large number of DBOs -- a balance will be struck between the economies of scale and the various advantages mentioned above.

To summarize, CORE (that is, an open cooperative association of any registrar who wishes to participate) operates a registry that can be segmented on gTLD boundaries, and can also be distributed on that basis. Each segment is run by a DBO, under contract to CORE. Those contracts are let on a competitive basis, and thus the DBOs definitely compete. Each segment (database) is run on a non-profit, cost-recovery basis, as far as CORE is concerned, but the DBOs can be for-profit companies. The DBOs profit comes from their contracted operational expertise, and not from the fact that they control a unique resource.

In addition, explicit and direct control over CORE policy comes from POC/PAB. These bodies are not composed of CORE registrars, have no financial interest in CORE, and are explicitly designed to give representation to users and stakeholders in the DNS. Thus the goals of POC and PAB, especially as far as pricing and service are concerned, are far more likely to be aligned with the end-users of the DNS than they are with the DBOs, or even the CORE registrars.

2. Instead of dealing with the CORE model, the FTC paper makes a strawman contrast between "competing non-profit registries" (non-profits) and "competing for-profit registries" (for-profits).

In this hypothetical and theoretical context the paper first argues that the competitive environment surrounding registries may be sufficient to avoid "lock-in" effects, and then draws two conclusions:

• First, that competing for-profit registries would be more likely than competing non-profit registries to bring the "potential benefits to customers from enhanced competition -- such as price reductions and quality improvements..." There is essentially no argument given, however, to support this conclusion, and, given that competition would be operating in both cases, it isn't clear why the benefits of competition should not apply to both.
• Second, that competing non-profit registries would be just as likely to exploit "lock-in" as competing for-profit registries. This is a curious argument, given that the first part of the paper goes to some lengths to minimize the probability of "lock-in". More than that, however, the paper gives no explanation of why, if competition can mitigate lock-in, it wouldn't mitigate it for competitive non-profits.

However, neither of these conclusions is really germane to the CORE model.

3. The FTC paper, understandably enough given the FTC's mission, makes in implicit assumption of a regulatory regime that remains under the control of US law. However, this clearly will not remain the case -- the Green Paper itself is operating under a mandate to internationalization, and promises that the US Government will be completely out of the picture in the year 2000.

This assumption is most clearly spelled out in the following sentence from footnote 14: "If significant lock-in problems develop, NTIA may wish to revisit these technical issues and consider means for enhancing portability." Since lock-in by definition is a long-term problem, the NTIA will long be out of the picture by the time it becomes a major problem in practice, and will be in no position to revisit the issues.

While the FTC paper minimizes concerns about lock-in, it concedes that it may indeed be a problem. It seems fairly clear, therefore, that the international regulatory issues must be explored by the NTIA before it puts anything in place. Note that the CORE model, with the contractually enforced oversight of the POC/PAB, does address this issue.

4. The FTC paper considers switching costs and lock-in as a "plausible" theoretical possibility. However, its analysis vastly underestimates the extent of this problem. As has repeatedly been pointed out, domain names are parts of the hyperlinks that make up the World Wide Web, and those links can be embedded in tens and hundreds of thousands of web pages all over the world. A presence on the web is valuable to precisely the extent that the site is reachable. A change in domain name invalidates all the links to the page, and thus destroys almost all the value of the web presence. For a web-based business this is not an inconvenience, it is a catastrophe.
5. The FTC paper properly focused only on a narrow set of economic issues, and did not address other issues that may have overriding significance. For example, the FTC did not address the very real costs to consumers of inconsistent policy (for example, in dispute resolution) that multiple competing for-profit registries would engender. (It is of course also true that this cost would be born in the hypothetical case of competing non-profits -- the CORE model explicitly addressed this issue by providing a consistent policy framework for all registrars and database operators.)

In summary, the FTC paper does an excellent job describing several theoretical economic results. However, it does not compare the actual competing proposals, it ignores the problem of regulation in an international context, and gives only a cursory analysis of the monopoly problems inherent in DNS.

 

 

Thank you very much for your consideration

Kent Crispin, Chair
gTLD-MoU Policy Advisory Body