15 January 2003

By E-mail and Postal Mail

Mr. Chuck Gomes
Vice President, Internet Relations
and Compliance, Registry
VeriSign, Inc.
21355 Ridgetop Circle
Dulles, Virginia 20166 USA

Dear Mr. Gomes:

On 25 January 2003, VeriSign is scheduled to deploy a new release of SRS software, which will allow implementation of two new Registry Services:

• Redemption Grace Period, phase 1
• ConsoliDate

These new Registry Services will involve a charge of fees to registrars, and are therefore subject to approval under the .com and .net Registry Agreements, including Appendix G to those agreements.

Although work is underway on various contractual amendments to reflect the introduction of these services, it appears that those amendments will not be formally approved by the ICANN Board until its February 2003 meeting. To allow these services to be offered to registrars before full Board consideration, it is appropriate to temporarily authorize VeriSign to charge for these services as described below. Accordingly, ICANN is at this time agreeing under Appendix G, third sentence, that VeriSign may charge fees as described below, subject to revision if the Board ultimately approves different fee arrangements. Please note that these arrangements are upper limitations on fees and that VeriSign, by complying with notice and equivalent-access provisions, has discretion to charge lower fees, including not charging for these services.

A. Redemption Grace Period, Phase 1. VeriSign is temporarily authorized to charge for each restore command completed on behalf of a registrar as follows:

As Registry Operator for .com and .net, VeriSign may charge registrars a maximum price of US$ 85.00 or US$ 40.00 for each Registered Name that is restored pursuant to the Redemption Grace Period Policy as described in the descriptions that we have exchanged (text to be finalized in the near future). The applicable price depends on the cumulative total of Registered Names restored:

Registry Operator will waive the fee for restoring any Registered Name that was deleted, contrary to the wishes of the Registered Name Holder, as the result of a mistake of the Registry Operator.

Note: this "Restore Fee" fee for restoring deleted names is separate from, and in addition to, any Renewal Fees that may be charged.

The above maximums are based on a cost-based analysis, taking into consideration of the following factors:

a. VeriSign has chosen to implement the service in a manner allowing restore operations to be accomplished by either (at registrar's option) an RRP command, the CSR tool, or the Registrar tool. VeriSign has submitted an estimate that the one-time cost of implementing these alternatives will be approximately US$ 150,000. Thus, most of the initial investment would be recovered by charges for the first 2,000 names at the higher US$ 85 price (see (c) below).

b. VeriSign has estimated the recurring customer service marginal support cost for this service to be US$ 16.50 per restore. (As noted below, a review of the specification shows that there is a high degree of uncertainty in this estimate as well, with the distinct likelihood that the average recurring cost of handling restore operations could be somewhat higher. Thus, at least until more experience is obtained, it is reasonable to charge a fee that is considerably higher than this marginal cost.)

c. The level of demand for the restore command is highly speculative. Estimates of demand levels range from as low as a few dozen restores per week to many times that number. It is feasible and reasonable that in the initial stages VeriSign be permitted to charge a relatively high fee that allows the one-time cost to be largely recovered over the first 2000 restores. The above maximum pricing accomplishes this goal.

d. This service is being implemented at ICANN's initiative. Speedy implementation of this request requires that the pricing be sufficiently attractive so that Registry Operators will voluntarily accept it. VeriSign has indicated that it is willing to accept the above two-tier maximum pricing structure because that structure requires it to assume less risk of not recovering its one-time implementation cost due to low demand.

e. By establishing a two-tier maximum pricing structure (and partly mitigating VeriSign's risk of not recovering its one-time cost), a lower ultimate price is achieved, assuming the restore command is used over 2000 times in .com and .net.

f. It is desirable for maximum prices for different Registry Operators to be comparable. It is likely that Registry Operators for smaller TLDs will adopt a more manual approach (not having the economies of scale inherent in .com and .net), meaning that they will likely require an ongoing price that defrays the cost of such an approach.

g. Customers with the need to restore their registrations will likely find the Redemption Grace Period at the proposed maximum price levels to provide extremely good value for what they receive. The loss of a web address that often follows the loss of a Registered Name can be catastrophic for many business and highly inconvenient for individuals. Many of those seeking to reclaim an inadvertently deleted Registered Names are now required to pay several thousand dollars to re-acquire the name, or incur the high costs of moving a website often with potentially considerable loss of business if they are unable to re-acquire the name. The proposed maximum costs are roughly similar to analogous types of charges, such as re-connection charges for telephone services (at least in the United States.).

h. It is important that Registry Operators view this service as one for which they are fully compensated, and which it is worth their while to implement efficiently. It is likely, even with automated approaches, that this service will require manual handling, often on an expedited or emergency basis. Indeed, it seems likely that Registry Operators will experience recurring costs in addition to the customer service support costs estimated in item (b) above. To instill confidence in the registration system, Registry Operators should deliver this service in an environment where they are adequately compensated to cover unexpected costs that incidentally arise.

i. It should be noted that there will be no charges for restoring Registered Names that were deleted, contrary to the wishes of the Registered Name Holder, as the result of mistakes of the Registry Operator. Although the economic arrangements between registrars and their customers are matters decided between those parties, it is likely that registrars will take responsibility for the cost of restoring Registered Names deleted through registrar error.

B. ConsoliDate. VeriSign is temporarily authorized to charge for the ConsoliDate service on the basis it proposes, namely: (a) a maximum fixed service fee of US$ 2.00 per registration that undergoes extension of its expiration under ConsoliDate plus (b) a maximum variable fee of US$ 1.00 per month of extension. (Thus, a registration extended forward into the third subsequent month could be charged as much as US$ 5.00.)

The above maximums are temporarily authorized in view of the fact that maximum annual registration fees will remain at US$ 6.00. To the extent that a ConsoliDate extension is offered at a price above US$ 6.00, customers are free to choose simply to extend their registrations for a full year for the standard US$ 6.00 fee. Thus, market mechanisms provide effective protections for consumers.

C. Duration of Authorization. As noted above, the above authorizations are subject to revision by the ICANN Board upon its full consideration of these matters, which is expected to occur in February 2003.

Best regards,

Louis Touton
Vice President and General Counsel

Page Updated 23-Feb-2003
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