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Testimony of John Jeffrey Before the House Committee on Small Business United States House of Representatives

Hearing on "Contracting the Internet: Does ICANN Create a Barrier to Small Business?"

Wednesday, June 7, 2006, 2:00 p.m.


Mr. Chairman and members of the Committee, thank you for the opportunity to speak before the Small Business Committee. I am John Jeffrey, General Counsel and Corporate Secretary of the Internet Corporation for Assigned Names and Numbers, also referred to as ICANN. ICANN is a nonprofit public benefit corporation organized under the laws of the State of California. 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 name system and ICANN's role in helping to facilitate a global interoperable Internet, used by American small businesses and small businesses throughout the world.

The limited and distinct mission of The Internet Corporation for Assigned Names and Numbers is clearly set out in Article I of ICANN's Bylaws. ICANN:

  1. Coordinates the allocation and assignment of the three sets of unique identifiers for the Internet, which are
    1. Domain names (forming a system referred to as "DNS");
    2. Internet protocol ("IP") addresses and autonomous system ("AS") numbers; and
    3. Protocol port and parameter numbers.
  2. Coordinates the operation and evolution of the DNS root name server system.
  3. Coordinates policy development reasonably and appropriately as they relate to these technical functions.

At the core of our mission is global interoperability and stability of a single Internet. ICANN has been established to serve the Internet community in maintaining the stability and security of the Internet's unique identifier systems, while at the same time fostering competition in the generic registry and registrar space where appropriate to give Internet users greater choice and service at optimal cost.

Since its origins in 1998, ICANN has helped secure an environment in which well over one billion people can use the Internet daily with universal resolvability. ICANN has fostered greater choice, lower costs and better services to DNS registrants, including over ten million small businesses in the United States alone. The Internet requires a stable and secure system of unique identifiers if it is to serve the global community efficiently and reliably – which is essential for its continuing growth and stable operation.

ICANN's successful overall coordination of the DNS underpins the operation of the global Internet. Each day this system supports an estimated 20 billion resolutions, which is, more than 6 times the number of phone calls in North America per day. Each day more than one billion people use the Internet. 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's Achievements in Fostering Competition

Since 1998, ICANN's self-governance model has succeeded in addressing stakeholder issues as they have appeared, and in bringing lower costs and better services to DNS registrants and everyday users of the Internet.

Among ICANN's main achievements are the following:

- Streamlined domain name transfers. After significant study and discussion, and working with the accredited gTLD registrars, 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. The market competition for generic Top Level Domain (gTLD) registrations established by ICANN has lowered domain name costs in some instances by as much as 80%, with savings for both consumers and businesses. Additional detail on this is provided below.

- Choice of Top Level Domains (TLDs). 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 name round. Additional detail on this is also provided below.

- The Uniform Domain Name Dispute Resolution Policy (UDRP). The Policy has resolved more than 6000 disputes over the rights to domain names, and proven to be efficient and cost effective.

- Internationalized Domain Names (IDN). Working in coordination with the appropriate technical communities and stakeholders, ICANN's adopted guidelines have opened the way for domain registration in hundreds of the world's languages.

ICANN's Achievements in Registry and Registrar-Level Competition

Since ICANN was founded in 1998, as a private California-based, public benefit, non-profit corporation, ICANN has entered into many private arms-length agreements with registries (that run the generic top-level domains), and with registrars (who are accredited by ICANN to sell domain names directly to consumers).

A 2004 report issued by the Organisation for Economic Co-operation and Development (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."

- The Competition Picture in 1998

In 1998, there were only three main generic top-level domain name registries (.COM, .NET, and .ORG) from which domain names could be purchased by American small businesses and other consumers. Only one company was running all three registries, Network Solutions. Most registrations by small businesses were in .COM.

There was a single registrar in 1998. That same company that ran the registries, Network Solutions, was the only registrar from which a consumer could purchase a domain name.

The price of a single domain name in .COM in 1998 was greater than $50.00 per domain name, per year.

- The Competition Picture in 2006

The .COM Registry, now controlled by VeriSign, maintains a significant percentage of the marketplace, but now accounts for less than 50% of the market.

The price for a .COM registration today depends upon where you purchase the name from, but in some instances the price of a domain name has been reduced by as much as 80%.

On June 4, 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 that is only partially owned by VeriSign) is $34.99 per year. Other registrars charge various prices, and offer a series of other services in order to compete in the marketplace.

Small businesses can choose from over 688 ICANN-Accredited Registrars, derived from 261 unique business groups (a significant number of the 261 owning interests in multiple registrar companies). 387 of these ICANN-Accredited Registrars and 121 of these unique business groups are American businesses. The others are located in 39 different countries.

As a result of competition, the registration of a domain name is one of the smallest components of the cost of operating a small business cost, comparable if not smaller than the cost of pens, paper, and a stapler.

In addition to the greater choice in registrars, consumers also have a greater choice which top-level domain to use, some specialized for specific areas.

Between 2000 and today, eleven new generic top-level domains have been introduced by ICANN. 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 - a top-level domain reserved for the global aviation community, sponsored by Societe Internationale de Telecommunications Aeronautiques SC (SITA)

- .BIZ - a top-level domain restricted to businesses, operated by NeuLevel

- .CAT - a top-level domain reserved for the Catalan linguistic and cultural community, sponsored by Fundació puntCat.

- .COM - a generic top-level domain operated by VeriSign Global Registry Services

- .COOP - a top-level domain reserved for cooperatives, sponsored by Dot Cooperation LLC

- .INFO - a top-level domain, operated by Afilias Limited

- .JOBS - a top-level domain reserved for the human resource management community, sponsored by EmployMedia LLC

- .MOBI - a top-level domain reserved for consumers and providers of mobile products and services - sponsored by mTLD Top Level Domain, Ltd.

- .MUSEUM - a top-level domain restricted to museums and related persons, sponsored by the Museum Domain Management Association (MuseDoma)

- .NAME - a top-level domain restricted to individuals, operated by Global Name Registry

- .NET - a generic top-level domain operated by VeriSign Global Registry Services

- .ORG - a generic top-level domain operated by Public Interest Registry

- .PRO - a top-level domain restricted to licensed professionals operated by RegistryPro

- .TRAVEL - a top-level domain reserved for entities whose primary area of activity is in the travel industry, sponsored by Tralliance Corporation.

In addition, an agreement for the introduction for .TEL has recently been completed and negotiations continue relating to other top-level domains from the 2004 round.

The VeriSign Settlement Agreement and proposed .COM Registry Agreement

On October 24, 2005, ICANN announced a proposed settlement to end the long-standing disputes with VeriSign, the registry operator of the .COM and .NET registries. The proposed agreements between ICANN and VeriSign provide for the settlement of all existing disputes between ICANN and VeriSign, coordination of planning where appropriate, and a commitment to prevent any future disagreements from resulting in costly and disruptive litigation.

One of the primary issues of dispute has surrounded the proposed introduction of new registry-level services by VeriSign. The proposed .COM Registry Agreement was an essential part of any settlement between ICANN and VeriSign since the introduction of proposed registry services was a central part of the long-standing conflict and had resulted in litigation between the parties.

Taking the ICANN community's lead, ICANN followed the recommendation arising from policy development by ICANN's Generic Names Supporting Organization on the introduction of new registry services. ICANN proposed and VeriSign agreed that new registry services would be subject to ICANN technical review (a topic of long-standing conflict) and agreed to the community's proposed process to resolve this critical area of conflict.

Additionally, through these agreements ICANN and VeriSign committed (where appropriate) to utilize binding arbitration to prevent future disagreements from resulting in costly and disruptive litigation.

Under the current VeriSign .COM Registry Agreement, VeriSign is permitted an automatic renewal of the .COM agreement. That original renewal clause, which was a key factor in the negotiation of the 2001 .COM Agreement, was added in exchange for concessions relating to the yielding of VeriSign's rights in .ORG and an opportunity for a re-bidding process relating to the .NET Registry. Subsequently, .ORG was transferred to the Public Interest Registry in 2001 and .NET was re-bid in 2005. Independent evaluators after a careful review re-awarded the .NET registry to VeriSign, and a new agreement was executed with VeriSign for .NET last year. As part of that re-bid the wholesale price of a .NET domain name registration to registrars was lowered from $6.00 to $4.25. It is noteworthy however, that the reduction in price was not in any measurable way passed through by registrars to small businesses or consumers.

In the VeriSign settlement negotiations, which were unrelated to the .NET re-bid, VeriSign set out a case to ICANN, that security and stability of .COM was more important than a reduction in price. 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 .COM Agreement to allow VeriSign to increase the price of a .COM registration by up to 7% per annum. Following public comment, ICANN and VeriSign renegotiated a number of terms, and agreed to limit those proposed increases to 7% in four of six years.

Additionally, VeriSign could only raise their rates in the two other years, if VeriSign was able to show a need to do so, to support the .COM infrastructure in support of security or stability. Effectively, VeriSign can only raise the price of a .COM registration $1.86 (to $7.86) before 2012 without providing further justification. We do believe that there may be an impact to the "domainers" (speculators that have registered tens or hundreds of thousands of domain names), but it is difficult to determine what the long-term impact will be to even that small number of impacted businesses, particularly when weighed against the potential benefit provided to all Internet users from a stable and secure Internet.

On 29 January 2006, an additional 21-day public comment period was commenced to obtain feedback on the revised terms. On February 28, 2006, ICANN's Board of Directors weighed the factors involved with continuing the conflict and lawsuits with VeriSign, against the proposed terms; and, voted in favor of the settlement. Subsequently, ICANN submitted the .COM Registry Agreement to the Department of Commerce and we await the results of the Department of Commerce's review.

Based upon the reduction in the price of registrations to small businesses and consumers since 1998 (in some cases by as much as 80%), if the agreement is approved, the proposed increases, if VeriSign elects to make them, are likely to be an insignificant increase to most small businesses operating a website. This is particularly true when measured against the countless other services that are part of building a web presence, including web hosting, web site construction, email servers, and other tools offered, in many cases, by the registrars as part of their services. It is also a small amount when measured against the potential benefit relating to a well managed, secure and stable .COM registry.

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 better choice than requiring them to cut costs for the benefit of a few parties.


In conclusion, Mr. Chairman, ICANN supports the small business community through its actions. Due to the universal DNS resolvability secured and coordinated by ICANN, the Internet works in the same way for every user of the Internet. ICANN remains committed to the stewardship of a stable and globally interoperable Internet, and is committed to fostering competition in the domain name marketplace. Through private agreements, ICANN has acted to enhance competition in the registry and registrar industry, without undermining ICANN's commitment to the overall stability and security of the Internet.

Domain Name System
Internationalized Domain Name ,IDN,"IDNs are domain names that include characters used in the local representation of languages that are not written with the twenty-six letters of the basic Latin alphabet ""a-z"". An IDN can contain Latin letters with diacritical marks, as required by many European languages, or may consist of characters from non-Latin scripts such as Arabic or Chinese. Many languages also use other types of digits than the European ""0-9"". The basic Latin alphabet together with the European-Arabic digits are, for the purpose of domain names, termed ""ASCII characters"" (ASCII = American Standard Code for Information Interchange). These are also included in the broader range of ""Unicode characters"" that provides the basis for IDNs. The ""hostname rule"" requires that all domain names of the type under consideration here are stored in the DNS using only the ASCII characters listed above, with the one further addition of the hyphen ""-"". The Unicode form of an IDN therefore requires special encoding before it is entered into the DNS. The following terminology is used when distinguishing between these forms: A domain name consists of a series of ""labels"" (separated by ""dots""). The ASCII form of an IDN label is termed an ""A-label"". All operations defined in the DNS protocol use A-labels exclusively. The Unicode form, which a user expects to be displayed, is termed a ""U-label"". The difference may be illustrated with the Hindi word for ""test"" — परीका — appearing here as a U-label would (in the Devanagari script). A special form of ""ASCII compatible encoding"" (abbreviated ACE) is applied to this to produce the corresponding A-label: xn--11b5bs1di. A domain name that only includes ASCII letters, digits, and hyphens is termed an ""LDH label"". Although the definitions of A-labels and LDH-labels overlap, a name consisting exclusively of LDH labels, such as"""" is not an IDN."