Internet world despairs as non-profit .org sold for $$$$ to private equity firm, price caps axed

ICANN responds

ICANN for its part claims to have had no knowledge of the deal when it approved the lifting of price caps.

“We were notified about the PIR/ISOC/ETHOS announcement at the time of their public announcement,” ICANN chair Maarten Botterman told The Register in a statement. “There was no consideration of this in the recent changes to the .org registry agreement, as we were not notified of such proposed changes by PIR.”

ICANN is “in the process of analyzing the specifics” of the deal, it told us while noting that it had asked PIR to publish the details though PIR has refused, citing confidentiality.

In a sign that ICANN is unlikely to challenge the sale of the registry – as some have formally urged it to do – the organization says in its statement that the new contract requires the operator of the registry to “provide registrars at least 30 days’ advance written notice of any price increase for initial registrations and 6 months’ notice for any price increases of renewals” while allowing domain owners to renew a domain for as much as 10 years in advance “thus enabling a registrant to lock in current prices for 10 years in advance of a pricing change.”

It is debatable whether even a small number of the 10 million .org domain holders would be aware of price increases until they are required to pay them, or whether the ability to register a domain for 10 years is equivalent to a 10-year price freeze.

Having failed to carry out any economic analyses of the multi-billion-dollar market that is oversees, ICANN continues to make the argument that domain name holders are free to move between registries easily. But those in the market know that the opposite is in fact true.

Printing money

All the data demonstrates that organizations are actually very resistant to moving from an established internet address and with domain names costing very little in real terms – between $10 and $15 a year – there is enormous inherent value in established registries because companies will pay many times the value of their domain in order to keep their current website, online presence, and email systems in place.

That is why the most established registries – .com, .net and .org – have long had price caps placed on them, limiting the amount they can increase renewal fees.

One recent example shows the enormous in-built value within these registries: when the US government said last year that it was planning to lift a price freeze on dot-com domains and allow the operator, Verisign, to increase prices by seven per cent a year, Verisign’s share price jumped 16 per cent as the market calculated the value of that price increase: $1 billion.

The .org registry is in a very similar situation with large organizations long established with .org domains willing to pay dozens or hundreds of times the current renewal cost of their domain.

As to why ISOC made the decision to abandon .org’s non-profit status in agreeing to the sale, the organization did not address our question directly but instead pointed to its benefits.

“We believe many in the community see the long-term benefits of this deal,” it said in a statement, arguing that it will “promote long-term financial security and more diversified funding for years to come to support the Internet Society’s vision that the Internet is for everyone; and PIR will be able to expand its mission to engage in purposeful work to advance important issues and further strengthen its commitment to the .org community.”

Committed but not open

ISOC also implies that it has a series of commitments from Ethos Capital over how it will run the registry, although neither it not Ethos Capital have been willing to share them with us.

“Ethos Capital is committed to ensuring continuity of PIR’s operations and maintaining the strong community relationships PIR has established over the years,” according to a statement from ISOC. “All three parties – the Internet Society, PIR and Ethos Capital – are in full alignment that this transaction will protect and enhance the interests of the Internet and .org communities for the future.”

As for the pricing, and the risk of hugely inflated .org renewal prices in future, all parties are providing vague statements about making “reasonable decisions on pricing” but without any commitments and, notably, refusing to provide any financial details of the deal – details that would enable us to analyze how much money Ethos Capital plans to extract from the 10 million holders of .org domains.

Questions

Despite the lengthy statements provided to us by ICANN and ISOC/PIR there are a few notable questions that they have refused to answer or have overlooked.

We asked ICANN to clarify this point and it pointed us to its conflict of interest policy. The policy makes no mention of holding shares or being required to disclose holdings. Nor does it include any "cooling off" periods as suggested repeatedly by others. The policy requires board members and staff to self-report any conflicts and notably contains no method to sanction or penalize someone found to have failed to disclose a conflict of interest.

We have also asked ICANN:

• If there a case for it to insist on maintaining non-profit status for the .org registry as part of the contract.
• If it intends to investigate what happened, particularly if ISOC was in negotiations and failed to say anything while pushing for price caps to be lifted.
• Whether ICANN should have required an economic analysis of the contract renewal terms before it agreed to them. And whether it will commit to such analyses in future.
• If it will acknowledge that community feeling was so strongly against lifting price caps for good reason. And if this was an occasion where ICANN's management and board should have listened.
• If the Board recognizes that it should have made the decision to lift price caps rather than just staff and whether it would introduce a process for ensuring proper consideration is given to such matters in future.

We have asked PIR/ISOC:

• For fuller details on how and when the negotiations happened and between who.
• For more information about the deal itself, including how it is structured and how much it is worth.

We have asked Ethos Capital – which has so far failed to respond to questions despite several days of notice:

• How much it paid for the rights to the .org registry.
• How the deal with ISOC/PIR is structured.
• When negotiations started.
• Where and from whom Ethos Capital receives its funding.
• If the company will provide any comment and/or commitments to pricing.
• What the connection is between Ethos and former ICANN CEO Fadi Chehade.
• If it has any plans to change the management of .org and/or the team at PIR.

We will update this story if and when they respond. ®