The Great British domain name rip-off: Overcharged .uk customers help pay for cheaper .vodka
Time for competition authorities to take a hard look at Nominet
We'd love to tell you but...
"Under the confidentiality agreement we signed, I can't go into the mechanics of the deal," Hawarth told attendees – an explanation he went on to use repeatedly when probed on any detail of the deal. "But over the full term of the contractual period, the deal makes sense."
Of course, as anyone who has spent any time in business will tell you, "over the full term of the contract" means that you make loss at the beginning in the hope that the deal will turn profitable by the end. Neither Nominet nor Minds and Machines will reveal the length of the contract.
On the question of profitability, Haworth skirted: "Whether it is profitable on day one, year one, year three, I don't really want to get into the agreements that we've got with Minds and Machines."
The issue with hiding behind confidentiality agreements, however, is that at the same time Nominet is offering what appears to be below-market rates to win contracts, the company has significantly increased the cost of .uk domains with seemingly no real justification.
In March 2016, Nominet increased the cost of .uk domains by an extraordinary 50 per cent, claiming that unspecified "cost increases" meant it had to push the wholesale price of .uk domains up from £2.50 per year to £3.75 per year.
At the same time, the company awarded itself the ability to increase costs further in future without having to either go through a public consultation or justify the increase in terms of cost-recovery. That price increase also came despite the fact that Nominet's financial figures showed an 11 per cent drop in operational costs.
In addition to raising prices, the company also embarked on a contentious plan to open up registrations under .uk, in addition to the previous third-level .co.uk.
Nominet introduced the change against fierce opposition and gave any .co.uk owner the right to their .uk equivalent for two years – after which anyone could grab it. Millions of companies decided they needed control of both: a fact that was later heralded by Nominet as evidence of the program's success.
In just one year, then, Nominet managed to get a significant percentage of its 10 million domain name holders to pay three times what they were previously – from £2.50 to £7.50 – for the exact same service.
How was this possible? Because, under Nominet's frequently criticised corporate governance rules, voting rights are handed out proportional to the number of .uk domains that a member has, meaning that just three companies – all large registrar companies which sell direct to consumers – are able to effectively control Nominet's policies, and its board.
The end result has been an increasingly commercial entity that retains a monopoly over .uk domains because of its non-profit, public-benefit status. That monopoly looks increasingly as if it is being used as a cash cow to fund other activities.
Under pressure to explain the company's activities, Nominet's CEO and staff have drawn up what many feel is a false distinction: the company is only contracting to run other companies' back-end registry services, whereas with .uk it also runs the registration services.
According to Haworth's thinking, Nominet receives income from the .uk registry and then "invests that money" in new business. "We look at each new business on a case-by-case basis," he argued at the AGM. "Does .uk subsidise these efforts? No. We wouldn't take on a commercial agreement if we didn't think it makes commercial sense."
In a later follow-up to that question, Howard pushed the point again: "I would again stress the distinction between running back-end services and the full-service registry operation we run for .UK domains. For the latter, in addition to the technical infrastructure and registration systems, we are responsible for many additional services, including marketing, promotions, our DRS, customer service for registrants and outreach with the international internet community. Our pricing reflects this."
But other answers provided by Nominet board members appear to show that there is a significant degree of creative accounting going on inside Nominet to justify the low price it is offering to other companies to win contracts.