1. Show me the money. ICANN originally planned to have its draft contracts ready for public discussion on January 1, 2001. This would have left more than two months for public scrutiny before an ICANN meeting. Text and annexes continue to dribble out at this writing, so we still don't have the whole picture five days before Melbourne (heck we don't even have a Board agenda!). Touton blames the "dot-bomb phenomenon" for this delay, suggesting that the prospective registries are in financial trouble. In part, that accusation is clearly false, since the three specialized registries, with whom he chose not to negotiate, cannot be blamed for either lack of finance, or for ICANN's decision to cold-shoulder them. And, again according to Reuters, the prospective operators of the large registries blame ICANN for the delay. But let's suppose Touton is right, and that some of the prospective registries are having financial troubles. It follows from this, that the great big deal ICANN made about only accepting the most financially sound applicants was, er, somewhat fictitious. Indeed, alert observers will recall that after the LA meeting there were allegations that the staff did not treat applications equally as regards the necessary financial support. In addition, in LA the staff were asked if they had actually investigated applicants' claims as to financial backing, and they admitted they had not.
Bottom line: This demonstrates, if demonstration was needed, that ICANN is not competent to make regulatory judgments regarding the finances and business models of applicants. But you knew that.
2. Policy on the Sly. The decision to negotiate only with large commercial operators so they can go online first, and to leave the smaller and non-commercial operators behind, sure sounds like a policy decision to me. If ICANN had a resource constraint (not that it did, of course – the delays were all the applicants' fault, see above), I could see randomizing or going alphabetically, but the decision to say the Internet is first for commercial users is not one that I recall the Board making, or being the result of any consensus-based policy. Once again, the staff makes policy on its own.
3. Divide and Conquer. Lest you think that point two above is just some niggling lawyer's process fetish, consider the consequences of this little tiny sequencing decision combined with the decision to negotiate the contracts in secret. By negotiating only with the commercial registry operators in secret meetings that the non-commercial operators (not to mention losing bidders, or us, the public) were not allowed to attend, ICANN managed to divide and conquer, and thus has produced model contracts that are nothing less than a regulator's charter (I'll have more to say about this once the whole set is published and I've had time to digest them, but the trend is already clear.). The large commercial gTLD application victors have incentives that are unique, and are in fact opposed to almost everyone else in the Internet community. Their incentives are,
- First, to reach a deal as fast as possible - especially if they are having money troubles (see point one above). The non-profits can afford to take a longer time horizon and hold out against unfair contract terms; the for-profits are under the gun and have a much stronger incentive to cave to ICANN. And cave they did.
- Second, they want to block subsequent entrants into the gTLD market to preserve their oligopolistic position. Perversely, entering into onerous contracts partly serves this goal, since it will scare off investors from subsequent rounds of applications - why buy a poisoned chalice?
- Third, the new commercial gTLDs want a pricing regime that puts no pressure on them to have to cut prices. ICANN was fine with that, and they got it - even though that's not good for consumers.
- Fourth, once satisfied that they won't be exposed to much downward pressure on their prices, the new commercial gTLDs have no incentive to resist ICANN's demand that they pay it. Prior funding mechanisms had ICANN getting the lion's share of its revenues from the now increasingly competitive registrar market. By shifting funding to registries ICANN finds a much more compliant group of funders. And indeed, in addition to greatly increasing the base level of payment, ICANN asked for and received agreement that it could raise its levies on them by as much as 15% per year. (The domain name tax returns, but don't expect tax cuts).
We've already seen how the ICANN staff's proposed supplanting of the RFCs relating to .org was an attempt to buy off the non-profit community, but it may be that ICANN's divide-and-conquer strategy goes a lot deeper than it first appears.
[To respond, click the "Send Your Comment" button in the yellow box to the right.]