08th Jan 2009
VeriSign Stays Whole, Could Win Name Game
Good until 2007, the deal inked between ICANN and VeriSign, which holds the world's coveted list of major domain names in addition to a digital certificate business, would result in three separate Internet registries to replace the current single one.
More importantly, it means VeriSign will remain whole.
In what some may call the "New Deal" of the New Economy because of its monumental importance to businesses and individual registrants alike, VeriSign would continue to operate the .com Registry until at least 2007 and the .net Registry until at least 2006. Editor's Note: Further details of the proposition are posted at the end of this article.
The agreement came as a shock to many insiders because it seemingly overturns an October 1999 deal with ICANN and the U.S. Department of Commerce that required VeriSign to divest ownership of its registry or registrar businesses to extend the agreement to operate the registry for .com, .net and .org for another 4 years beyond November 2003.
Those with the inside track on the ICANN/VeriSign dealmaking have speculated that increased competition in the Web address market was a catalyst for the deal.
Indeed, VeriSign now sells between 40 and 50 percent of the world's 28.2 million Web addresses ending in .com, .net or .org -- a far cry from the disturbing monopoly it enjoyed up until 1999.
That VeriSign would have had to spin off its domain name business was a stipulation put in place because of rival registrars' perceptions that if VeriSign served as both a registry and registrar, it would get a significant advantage over competitors, according to VeriSign Executive Vice President of Corporate and Business Development Robert J. Korzeniewski.
"There was a concern that the so-called Chinese Wall between the two businesses wouldn't work," Korzeniewski told InternetNews Radio Thursday. "But I think in the community, other registrars have complimented us on what an exceptional job we have done and really putting a very, very serious Chinese Wall between those two businesses so that our registrar gets no advantage out of our registry."
Again, because of the increased competition, registry opportunities have opened up for other registrars.
Korzeniewski pointed to the fact that because of the awarding of new top-level domains at the November ICANN meeting in Marina Del Ray, Calif., a handful of VeriSign rivals, including Register.com (.pro) and Melbourne IT (.biz), have also gotten registries.
"The competition has been successful earlier and to a deeper extent than ICANN thought it would be and the community thought it would be, so it's a very competitive environment, one that we have a substantial business in, but certainly but it's been easy for entrants to come in and a number of them have been successful in that business," Korzeniewski said.
One registrar was pleased with the proposed plan -- Tucows Inc., the third-largest seller of domain names and a potential bidder on .org and .net.
In an e-mail sent to InternetNews.com, Tucows President and CEO Elliot Noss, who is decidedly pro-ICANN and believes "what's good for ICANN is good for the industry" said the proposition is fair.
"We expect a more level playing field," Noss said. "This agreement has not given the NSI Registrar business to someone else, nor has it introduced a new competitor. The only alternative to this deal that would be better for us would be if Tucows got the business. So we see this as a pretty good second choice."
But VeriSign's chief rival register.com doesn't see the proposition in as bright a light. Elana Broitman, director of policy and public affairs for register.com, said her firm is very concerned about the proposition.
"We viewed the break between the registry and registrar that VeriSign had as fundamental to the new TLD process," Broitman said. "I don't know how it's going to move forward, but I thought, at the least, the new TLDs needed to be rethought. It looks like they're going to be controlled by a behemoth. What [VeriSign] gets is to keep the registrar and registry and it's patently unfair."
Broitman also disagrees with Korzeniewski's assertion that cracking into the registrar and registry business is as easy as it seems.
"At the very least, they should be giving up the .net registry when the initial 4 years is up," Broitman continued, musing about ways that might make the deal open to competition. "Now they've got this monopoly and these struggling new registries are trying to get into the business and they've still got one company running two registries.
Broitman said new registries have to invest significant resources in building themselves up to compete.
"ICANN should give them the benefit of new competition," Broitman said. "Let's have more competition, let's let those flowers bloom."
Like Broitman, Ellen Rony, co-author of "The Domain Name Handbook," agreed that the proposition was not only shocking in its content, but for the fact that it was so "fully formed" even before the landmark decision is actually made.
Rony said ICANN seems to be talking through both sides of its mouth because, she said, though ICANN asserts that "'it will largely eliminate the vestiges of special or unique treatment of VeriSign based on its legacy activities,' in fact the agreement does precisely that."
Rony said that despite currently owning less than half the market share that "[VeriSign] still has more than five times as many customers as the next one based upon relative invoices from ICANN to the registrars," po sted here.
"Today's announced proposed agreement ICANN and VRSN provides a virtual lock-in for VRSN as the leader in the .COM registration marketplace," Rony said. "That arrangement is market manipulation, not technical coordination, and I hope that our Congress critters will not go down that road."
As for ramifications in the stock market, analysts are extremely bullish on the potential the deal could have for VeriSign.
To be sure, while the whole matter is suited for hours of debate, some analysts see the agreement as a slam dunk.
Jon Feeney, an analyst who covers Verisign for CS First Boston said the proposed agreement, if implemented, will not affect near-term revenues. However, he said it does remove uncertainty about Verisign's ability to upsell to its retail registrar customers. Incidentally, Feeney gave VeriSign a "buy" rating.
"The potential spinoff of the DNS registrar represented a key piece of uncertainty that they announced on Jan. 31 that has been hanging over the stock directly or indirectly for months now because people know the 2003 deadline is coming," Feeney told InternetNews Radio Thursday.
"This agreement, if it's approved, is giving up very little to get a lot to relieve a lot of uncertainty. It's not going to affect near-term revenues but it removes an uncertainty. We believe VeriSign has a unique infrastructure. The long-term upside is selling these high-margin services to these customers; if you're a dot-com you are directly or indirectly doing business with VeriSign."
Another potential value-add for VeriSign, would come to pass if it retained its $6 domain fee for registries as the company believes it will.
Bill Whyman, president of market research firm Precursor Group, told InternetNews Radio Thursday that if VeriSign does indeed lock in the $6 per domain fee it receives for each domain added to the registry, it would pose another slam dunk.
"If it stays at $6 it's a gold mine for VeriSign," Whyman contended. "Everywhere else throughout technology and communications prices are going down and if you have fixed prices and volume is going up it's just a cash machine."
Further attenuations of the proposed deal between VeriSign and ICANN include:
- VeriSign will give up .org addresses for good by December 2002, as well as create an endowment of $5 million toward future .org addresses It also pledged to spend $200 million in research over 10 years to improve the functionality of Internet registries.
- VeriSign said it would cede control over .net Web addresses by January 2006; the company can bid on the rights for .nets in the future.
- Furthermore, VeriSign has an unofficial invitation or "presumption" to continue operating .com suffixes thereafter.
- Both ICANN and VeriSign said the changes should not advertently affect consumers because they will be made within the organizations.
- ICANN will officially vote on the agreement by April 1. The deal also must be approved by the Commerce Department.
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