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    Registrars eNom's response to NSI's letter to ICANN re WLS
    posted by michael on Monday August 18 2003, @11:03AM

    Paul Stahura writes "ENom, Inc writes to express its view concerning Network Solutions’ (NSI’s) letter of August 14, 2003 concerning Condition (c) of the VeriSign proposed Wait List Service (WLS). NSI’s proposal of a marketing restriction limitation during a blackout period will not remove the unfair competition in selling WLS subscriptions and the preference WLS provides that advantages larger registrars."



    August 16, 2003

    VIA OVERNIGHT MAIL, EMAIL, AND FACSIMILE
    (310) 823-8649 (fax)

    Mr. Paul Twomey, twomey@icann.org
    President
    Internet Corporation for Assigned Names and Numbers (ICANN)
    4676 Admiralty Way, Suite 330
    Marina del Rey, CA 90292-6601


            Re: WLS Marketing Restriction

    Dear Mr. Twomey:

    ENom, Inc writes to express its view concerning Network Solutions’ (NSI’s) letter of August 14, 2003 concerning Condition (c) of the VeriSign proposed Wait List Service (WLS). NSI’s proposal of a marketing restriction limitation during a blackout period will not remove the unfair competition in selling WLS subscriptions and the preference WLS provides that advantages larger registrars.

    The ICANN board's stated purpose of Condition (c) is “[in order] to avoid an incumbent registrar acquiring a preference in obtaining a WLS subscription through advance knowledge of or control over the deletion of a domain-name registration, there shall be appropriate limitations on that registrar's ability to obtain a WLS subscription on any domain name that it is concurrently sponsoring in the registry”

    In this letter, I will show that NSI’s marketing restriction proposal (see [1] below) does not maintain the ICANN board’s intent to avoid an incumbent registrar from acquiring a preference and it does not impose any limitations on that (or any) registrar’s ability to obtain a WLS subscription, which is also contrary to the board’s resolution [03.80].

    VeriSign’s originally proposed WLS provides a preference to large registrars. In an effort to remove this preference, the board passed a resolution that would bar the registrar-of-record from obtaining wait list subscriptions on certain names during a blackout period.

    NSI’s proposal attempts to remove the preference by limiting the marketing practices of the registrar-of-record so that even though the registrar has the preference (granted to it by the existence of WLS) it would presumably not be able to utilize it because it would not be able to say it had an advantage. Unfortunately, a registrar does not have to perform any marketing whatsoever to show that it can offer WLS for less risk (and thereby utilize its advantage), it could just lower the price to below cost. For example, to show the consumer that the registrar is certain that a WLS will “ripen”, the registrar will offer WLS for zero cost (in other words, it will assume the risk itself, when it, and only it, knows there is none).

    Since the marketing restriction does not restrict the prices at which WLS can be offered, the registrar could say, “buy WLS on this name for $0, and when it ripens pay $30: that’s how much I believe it will ripen”.

    Due to the zero price, any WLS consumer would know that this particular registrar believes that this name will surely ripen, hence no marketing message is required. To indicate that there is less risk, though not certainty in the name being deleted, the registrar could lower the price to say $5 (proposed WLS subscription cost is $24, then $6 if it ripens), and then if it ripens the WLS holder would pay $25 ($24+$6=$30-$5=$25) (see [2] below).

    Even with a complete and total restriction on information disclosure (marketing or otherwise) by the registrar, the preference still remains if there are no restrictions on obtaining WLS subscriptions during certain periods, and the registrar can disclose the information merely by setting a price. So a marketing restriction, in this case, does not serve any purpose.

     

    So, unless ICANN mandates WLS pricing, any marketing restriction is useless, but still, there are other problems with NSI’s proposal, namely in enforcement and disclosure, which I’ll explain next.

    Enforcement

    The NSI proposal is difficult or impossible for the registry (or ICANN) to enforce. The registry has no incentive to enforce it because at least it will sell the same number of WLS subscriptions both ways (enforced or not), and possibly more subscriptions if not enforced. Besides that, ICANN has no resources to enforce it. It will be very difficult to monitor the marketing messages of each registrar.

    Disclosure

    NSI proposed a carve-out so that the marketing restriction does not apply to “computer-generated responses resulting from an end-user accessing Registrar's Web site independent of Registrar's targeted Wait List Service specific advertising and promotional efforts”. Even if the rest of the proposal was not worthless, with this carve-out the registrar could then simply place any marketing messages in such computer-generated responses, which would totally negate the purported purpose of the entire proposal.

    Also, there is no need for the registrar to mention (or market) the exact deletion date, as the NSI proposal restricts. Registrars just need to relay that it will be deleted, and what better way to do that than assume the risk that it will be deleted? So having a restriction on mentioning deletion dates serves no purpose. If the price is zero, the purchaser has a pretty good idea that the registrar is sure the name will be deleted, because the registrar is putting its own money at risk if it does not ripen.

    Also, as written, the registrar of record can disclose the information of which names have been renewed (a simple difference will tell you which names will be deleted, since the set off all names is known for each registrar), since NSI’s marketing restriction does not prohibit disclosure of domain names not subject to the Black Out Period (NSI’s definition), and the ones that have been renewed would no longer be in the Black Out Period.

     

    Next, I also wish to point out that there are two dimensions to the board’s ratified WLS restriction, and then discuss both in relation to NSI’s proposed marketing restriction:

    1)    Registrar application: Does any restriction apply fairly across all registrars? Does it apply to only the registrar-of-record or to all registrars?

    2)    Period: What is the period? What is the start time, end time, and in relation to what other date, deletion or renewal?

    Fair across all registrars?

    NSI rightly points out in their letter in section I.b and I.c that any restriction that only applies to the registrar-of-record in obtaining WLS on its own names (or, I assume, restricting its marking practices) would be unfair to that registrar. This is one reason why the blackout period must extend to all registrars equally. Another reason is that if the rule applies only to the registrar-of-record, the registrar-of-record could disclose or sell the information to other registrars and thereby benefit from the preference granted to it by a restriction-less WLS. An appropriate blackout period that applies to all registrars evenly would eliminate the preference entirely from the WLS system.

    What is the Period?

    If NSI’s proposal passes, NSI, for many names (sometimes more than 20,000 .com and .net names per day, and on average many thousands per day), can say to its customers:

    “The WLS on this domain costs $0, you pay me $30 if it is deleted (which I, and only I know it will be) and you obtain the name”

    During the 45-day auto-renew period, it can then delete the name the instant the WLS is purchased, and then collect $30 risk-free when the name is assigned to the WLS holder. Obviously, NSI, or any other registrar, would not make this offer on all possible names, only on names that it knows it will delete. Just as obviously, if NSI made this offer, rational consumers will flock to NSI as it would be the registrar that offers the most wait list subscriptions at zero up-front prices, and no risk of losing $24 if the name does not delete.

    Sure its possible for the other registrars to offer WLS for $0, but they would be taking a huge risk in doing so, because only NSI knows that the name can be, and will be, deleted. If the other registrars made that same offer for the WLS on that same name, they’d be stuck with a $24 loss to the registry when the name did not delete. Since no other registrar knows it will delete for sure, no other registrar will make the offer and therefore WLS gives NSI, or any large registrar, a preference on re-registering the names for which it is the registrar-of-record. A preference it does not enjoy today.

    The Period Before Expiration

    NSI or for that matter, any registrar, can make this offer on its names that are before expiration because it (and only it) knows which names have already been renewed, and therefore which names have not. Those that have not been renewed have a much higher likelihood of being deleted; therefore it can offer WLS on those names at less risk, though not zero risk, than another registrar can. Therefore before expiration the registrar with the larger number of names has an advantage over those with lesser number of names.

    So, if the current date is just before the expiration and the name has not been renewed, the registrar knows that very likely the registrar will be able to delete it on the day of expiration. Here are two examples to illustrate:

    ·         At 1 day before expiration, 99.9% of the eNom names that are not renewed the day before expiration are not renewed by the day of expiration (the next day in this case), and can therefore be deleted.

    ·         At 30 days before expiration, about 50% of eNom’s names have already been renewed. ENom’s total renewal rate is about 60%; therefore more than 80% of the eNom names that are not renewed 30 days before expiration are not renewed by the day of expiration, and can therefore be deleted on the expiration date.

    Therefore, for any names that are within the period 30 days before expiration, eNom can say with at least 80% certainty that the name can and will be deleted at expiration. eNom is not a unique case; all registrars have just about the same profile, because all registrars have a financial incentive to get registrants to renew well in advance of expiration. To put it in another way, any registrant that has not renewed 30 days before expiration, in all likelihood, won’t renew at all, and those names will be free for the registrar to delete a short time later.

    Eighty percent means 1 in 5 will renew, therefore, at any time after 30 days before expiration eNom can offer WLS knowing that 1/5 of each $24 will be lost to the registry, so during this period, it can offer the WLS for $4.80, and the name for $30 when it ripens (total in=5*$4.8+4*$30=$144 equals total out=5*$24+4*$6=$144, again see [2] below). After expiration, without a restriction in place, we’d be able to offer WLS for $0 and the name for $30 when it ripens. NSI can offer the same low prices but on more names, even with NSI’s proposed marketing restrictions, which is the crux of the problem. A registrar with no deleting names cannot offer low price wait list subscriptions (with the same risk of ripening) at all.

    Its true, as NSI says in their letter, that for names where the current date is before the expiration date of the name, that the registrant knows first whether or not the name is to be deleted, but the point is that the registrar knows second, and before any other registrar. No matter what the registrant’s wishes are, since the registrar-of-record performs all deletes, the registrar-of-record knows before any other registrar which of its names will be deleted. And certainly for names where the current date is after the expiration date, the registrar knows even before the registrant the date the name will be deleted. There is no way around this. Even if the registrar was forced to disclose this information, the registrar of record knows it first. It knows first for any and all the names it deletes. Therefore, once the registrar knows this information first, a claim concerning knowledge of the deletion date in any registrar's marketing material is very much valid, contrary to what NSI implied.

    The Period After Expiration

    After expiration, the registrar’s job is even easier. Any registrar, including NSI, can offer WLS on those names with certainty that the name will be deleted, because as soon as a WLS is placed on the name, the registrar can delete it. There will be no chance for the registrant to renew the name after the WLS is placed on it because the deletion will be instant. And even if it wasn’t instant, there is little chance the registrant will renew anyway, because very few names are renewed after expiration as it is.

    Also, the risk that the registrant will redeem the name after deletion is so small as to be negligible. Of all the names for which a registrar sends the delete command, only a very small percentage of them are subsequently redeemed during the redemption grace period. Also, there is no requirement for a registrar to actually redeem the name, or at what price to offer this service to its customers. The registrar could choose to offer that service at a very high price for names that have had wait list subscriptions placed on them by the registrar. It could choose not to offer that service at all. So contrary to NSI’s letter, that would make it 100% beyond-a-shadow-of-a-doubt certain that the name will actually be deleted and go to the WLS holder if the delete command is sent to the registry by the registrar. Since during the 45-day auto-renew period the delete command will be sent immediately after the WLS is sold, it is then absolutely certain at WLS purchase time that the WLS purchaser will be awarded the name.

    NSI can make both of these offers (before and after expiration) even with NSI’s proposed marketing restriction simply by adjusting the price to some level below cost and making up the difference when the name ripens.

    Conclusion

    These are the reasons why the board wisely chose to restrict the registrars from obtaining a WLS during a blackout period relative to the name’s deletion. One issue, though, with the original condition (c), which VeriSign pointed out in their reconsideration request, is that it is difficult for the registry to ascertain before a WLS is purchased if that name will be subsequently deleted. Therefore, if the registry desires to offer a more straightforward customer experience, the blackout period must be centered on the scheduled expiration date, which is well known by the registry, the registrars, and the public, so there will be no confusion.

    Because 1) most names renew before expiration, and 2) the registrar has the foreknowledge and near certainty of deletion of any names not renewed during that period, and 3) after expiration the registrar has the foreknowledge and absolute certainty of deletion of those names that have not renewed, and 4) to be fair across all registrars, then ICANN must not allow any registrar to obtain a WLS on a name during a “blackout period” and that the blackout period must begin at least 30 days before expiration and, to maintain perfectly even competition, extend all the way through redemption, the RGP, and the “pending delete” periods, for a total of 80 days after expiration. Otherwise, if the ICANN board ratifies a marketing restriction instead of a limitation on obtaining wait list subscriptions, since NSI has the most names, NSI will be granted the greatest advantage in selling WLS.

    This proposal is absolutely the most targeted, narrowly, and well-defined period that removes the preference, and provides exactly even and fair competition among registrars. This proposal is not overly broad. A WLS can be sold on any name for which there is little or no advanced knowledge of its deletion (any name outside the blackout period), which on any given day, is the vast majority of all the names in the registry. The proposal is simple. It is not confusing. It is very easily enforceable since the registry would, simply and easily, block the sale of WLS on names in the blackout period, much the same way as it blocks the sale of registrations for names that are already registered or would block wait list subscriptions for names that are already subscribed. Third party enforcement is not required. And incidentally, a blackout period that applies equally to all registrars (not only the registrar-of-record) removes 1) any consumer confusion regarding a registrar’s ability to obtain WLS while another registrar cannot and removes 2) the inequality of large registrars in selling WLS on their own names (NSI’s objections I. b and I. c are both removed if the blackout applies to all registrars).

    A “marketing restriction” does not work. The original board intent, which is to place appropriate limitations on registrars in obtaining wait list subscriptions, does.

    Sincerely,


    /signature/

    Paul Stahura
    CEO

    eNom, Inc.

    [1] NSI’s proposal is:

    “Registrar agrees that during the Black Out Period for a domain name, Registrar shall not engage in Active Marketing specifically targeted to selling a Wait List Service Subscription for such domain name. For purposes of this Agreement, Active Marketing means the distribution, dissemination, posting and/or circulation by Registrar, or its agent(s), of advertising or promotional material that (i) references the domain name subject to the Black Out Period and claims to offer a superior Wait List Service, or purports to have an advantage in securing a Wait List Service Subscription for an end-user; or (ii) includes the date that Registrar will delete the domain name subject to the Black Out Period. For the avoidance of doubt, the Parties agree that Active Marketing shall NOT include computer-generated responses resulting from an end-user accessing Registrar's Web site independent of Registrar's targeted Wait List Service specific advertising and promotional efforts.”

    [2] Time value of money, waitlist subscriber credit risk, and profit are left out, to keep the examples simple.


     
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    This discussion has been archived. No new comments can be posted.
    eNom's response to NSI's letter to ICANN re WLS | Log in/Create an Account | Top | 2 comments | Search Discussion
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    The Law of Unintended Effects
    by jberryhill on Thursday August 21 2003, @03:43AM (#12104)
    User #3013 Info
    "Also, the risk that the registrant will redeem the name after deletion is so small as to be negligible. Of all the names for which a registrar sends the delete command, only a very small percentage of them are subsequently redeemed during the redemption grace period."

    This is a prediction in the category of "things which assume that a change here won't cause a change there".

    If the WLS becomes the only drop-catching method, then you can certainly expect to see an appreciable increase in redemptions. With multiple methods available, drop-catchers are more willing to use competing methods than they are to attempt to contact the soon-to-be-non-registrant and work out a deal to induce that registrant to exercise its redemption right. But, reader, seeing that a name is in redemption status, and also seeing that the WLS slot is taken, what would *you* do if you really wanted that domain name?

    (And, if you are one of the folks who still believes that "normal people" will have a better chance at playing the WLS game than they do under the current system, then sit on your hands. You are disqualified from attempting to predict rational economic behavior.)
    [ Reply to This | Parent ]
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