ICANN's Economic Reports:
Finding the Missing Pieces to the Puzzle
Progress Snapshot
Release 5.4 April 2009
by Michael Palage*
View as PDF
The global business community and a number of national governments have expressed significant concerns about ICANN's proposal for processing large numbers of applications for new Top Level Domains (gTLDs) such as .BLOG, .NYC or .WEB.
[1] The community has been especially concerned about the economic reports used by ICANN to justify its decisions as to whether, and how, to implement applications for new gTLDs.
[2] Among the greatest sources of concern has been the failure of ICANN staff to issue a complete public response to the ICANN Board's October 2006 demand that ICANN Staff:
commission an independent study by a reputable economic consulting firm or organization to deliver findings on economic questions relating to the domain registration market, such as:
whether the domain registration market is one market or whether each TLD functions as a separate market,
whether registrations in different TLDs are substitutable,
what are the effects on consumer and pricing behavior of the switching costs involved in moving from one TLD to another,
what is the effect of the market structure and pricing on new TLD entrants, and
whether there are other markets with similar issues, and if so how are these issues addressed and by whom?
[3]
To date, no proper "study"—based upon real facts and not the mere opinion of "experts" retained by ICANN—has been released. Instead, ICANN has published three "economic reports" that respond only in part to the Board's demand for an economic study of the "full market" (as ICANN President and CEO Paul Twomey put it):
The "CRAI Report" by CRA International (CRAI or CRA):
Revisiting Vertical Separation of Registries and Registrars (October 2008);
[4]
The "Carlton Report I":
The Preliminary Report Of Dennis Carlton Regarding Impact Of New gTLDs On Consumer Welfare (March 2009);
[5] and
The "Carlton Report II":
The Preliminary Analysis Of Dennis Carlton Regarding Price Caps For New gTLD Internet Registries (March 2009).
[6]
These reports address some, but not all, of the questions ICANN Staff was required to answer by the ICANN Board's 2006 resolution. In many ways, these reports have raised more questions than they've answered: The scope of their findings is much more limited than required by the original mandate of the Board, and the reports fail to adequately address some of the fundamental questions raised by the Board.
A timeline of events relevant to these economic studies is included as an appendix to this article. This timeline reveals a number of anomalies and potentially inconsistent statements that ICANN needs to address properly, specifically:
When CRAI initially began reaching out to registrars for its report, it listed two areas of research: new gTLD demand and vertical (registrar/registry) separation. It appears that, over time, CRAI's priority was reversed with, vertical separation becoming the focal point of their research. The CRAI Report makes no reference to new gTLD demand. So where is this research and when will it be published?
In June 2008, ICANN staff communicated to a third party that CRAI had produced two reports that were pushed back for revision. How many reports, including both drafts and proposed final versions, were pushed back to the report's drafter by ICANN Staff? Can these various versions be made available?
Kurt Pritz (ICANN's Senior Vice President for Services) indicated to the GNSO Council on its 7 August 2008 meeting that a draft of CRAI Report would be available in a couple of weeks. During this same meeting he indicated that Paul Twomey would be involved in a call with CRAI the next day to discuss specific issues. What were those specific issues and how did a report that was to be released in two weeks, well before Cairo, get delayed by approximately two months? What role if any did Paul Twomey have in this delay?
During ICANN's 11 December 2008 meeting, Pritz stated: "CRA [has] also been retained to undertake a study of the wider TLD marketplace and report on aspects of that and also give insight into new demand gTLD might be, this is piece to a large engagement with Charles River." Where is this other study?
ICANN has not provided the community the ability to directly interact with the authors of these reports, either in person or via a teleconference, to question their conclusions/statements. Why not?
The two Carlton reports, but not the CRAI Report, are labeled "Preliminary." Given that at least two drafts of the CRAI report were pushed back due to incompleteness, should the CRAI report not have included the same caveat?
Answers to these questions would provide important insight into the development of the new gTLD process. The ICANN community deserves the benefit of a full and detailed study of the economic implications of ICANN's plan for new gTLDs prior to its implementation. Such a study should address the questions raised by the ICANN Board in its October 2006 Resolution, as well as issues raised in subsequent Board deliberations as outlined in the timeline set forth in the Appendix below. The issue of how, and even whether, to launch a new gTLD application process is too important to proceed without ICANN giving the community the opportunity to review and consider the implications of the economic reports behind ICANN's decisions.
ICANN Bylaws clearly require that ICANN "shall operate to the maximum extent feasible in an open and transparent manner and consistent with procedures designed to ensure fairness." Unfortunately, some important pieces seem to be missing from the economic study "puzzle" that the ICANN Board mandated to get a better understanding of the "full market" before making critical policy decisions. The only way the ICANN Board can assure the community that the actions of ICANN Staff on new gTLDs have been—or, at least, will be—based on objective factual analysis is for the Board to investigate any unpublished economic studies, reports, opinions that might have informed ICANN Staff's decision-making. Any such studies should be published to allow maximum transparency and to facilitate a dialogue with the community about gTLDs.
18 October 2006
The ICANN Board held a special meeting via teleconference; one of the major topics of discussion was the pending approval of the .BIZ, .INFO and .ORG registry agreements.
[7] However, before addressing this issue, the Board engaged in an "extensive discussion" concerning the dynamics of the domain name marketplace. Unfortunately, the public record of this "extensive" discussion is
de minimis at best. The minutes only reflect a high-level summary:
There was an extensive discussion among board members regarding the concerns relating to the changing domain name marketplace and specific concerns were raised regarding potential abuses of ICANN rules as it relates to consumer interests. Accordingly the board discussed commencing a study to provide additional insight into the domain name market.
Two anomalies appear in the Board's minutes and voting transcript:
The title of this section of the Board minutes is "Review of .BIZ, .INFO and .ORG" and appears to incorporate two separate resolutions, although the bifurcation of the separate resolutions is not clear and is potentially further muddied by the inclusion of an HTML line break in between the two resolutions and their accompanying whereas clauses; and
The detailed voting transcripts for this portion of the Board meeting (available in a separate HTML file) are entitled "Economic Study of Proposed Registry Agreements."
The official voting transcripts of the 18 October 2006 Board meeting appear to indicate that the Board intended to commission an economic study in connection with the "proposed registry agreements." Further supporting this plain reading of the ICANN minutes is the statement from the minutes that "a reference to how a study such as the one contemplated would benefit the process of negotiating similar agreements in the future."
8 December 2006
The ICANN Board held its annual meeting in conjunction with the ICANN regional meeting in San Paulo, Brazil. On the Board's agenda for this meeting was, among other things, approval of the new .BIZ, .INFO and .ORG registry agreements. Paul Twomey provided the following summary of the background behind the negotiation of these contracts:
On the 18th of October, the board, at its meeting, considered those public comments, considered the responses from the registries, and then gave directions to staff to try to renegotiate the proposed agreements relating to several terms that the board were uncomfortable with: Competition-related concerns, in particular, price increase restrictions, looking for price increase restrictions; traffic data; and review mechanisms resulting from the direction of new studies or additional information.
The board also at that—at that meeting culminated a series of discussions that the board has been having for quite some time about the need for—the board felt, for a much broader understanding and a broader study of the economic marketplace, the marketplace around domain names.
The board has had a long discussion about—which reflects a lot of the discussion that the community itself has been sharing concerning workshops on the domain name market, on issues like the five-day redemption grace periods, extensions of those—of new players in the marketplace.
And so there's been quite a discussion about that.
And in building upon that discussion, the board at the time also then said it wanted to commission an independent study by an economic organization to get findings on economic questions concerning the domain name registration market.
But I want to emphasize, that was a product of a very broad discussion and a long discussion inside the ICANN board about having a much better grasp, looking for a much better
economic analysis of the full—the full market.
[8]
5 March 2008
In the fifteen months following the Board's October 2006 meeting, there had been no public sign of any action on the Board resolution adopted on that date concerning "economic questions relating to the domain registration market." Finally, on this date, ICANN staff appeared to reach out to a select group of registry operators via email to inform them that:
ICANN has engaged a firm that is providing some economic expertise on an analysis of the projected demand for new gTLDs under various conditions. This research is conducted in framework of the new gTLD project.
6 March 2008
The ICANN GNSO Council held a meeting
[9] during which Kurt Pritz and Karla Valente (then ICANN's New gTLD Program Manger) provided the Council with an update regarding the new gTLD process. Slide No. 2 of their PowerPoint presentation stated that "CRAI studying registrar-registry separation & TLD."
[10] The Council minutes provide a little more detail in into the work of CARI where it states: "CRAI an ICANN retained economist, is studying the issue of registry-registrar separation and TLD demand that will facilitate planning, pricing, scoping."
[11]19 March 2008
CRAI, as part of its research, sent an as-yet-unpublished questionnaire to at least one registry entitled
New gTLD Demand and Vertical Separation.
[12] This two-part title and the document's grouping of questions under two separate headings clearly suggests that CRAI was engaged to report on
both aspects of the domain name marketplace.
5 June 2008
CRAI sent another questionnaire to at least one additional interviewee. The email accompanying the questionnaire states that "ICANN has hired CRA International to investigate the impact of eliminating the ownership separation of registries and registrars in the domain name marketplace." There is no mention in the cover email about the other issue CRAI had been charged with addressing: "new gTLD Demand." While the questionnaire does include a reference to gTLD demand, the priority of the two parts of CRAI's study has suddenly been reversed in the title: "Vertical Separation and New gTLD Demand."
6 June 2008
In a teleconference with one third party, ICANN staff stated that CRA had completed two drafts of its report, which ICANN had pushed back due to incompleteness.
[13]7 August 2008
At a GNSO Council meeting, Kurt Pritz provided the council will an update on the new gTLD process. Included in this update was the following summary of the CRAI report, as recorded in the GNSO formal minutes:
Kurt stated that within a couple of weeks there would be draft report of the international economic study about the structural and organizational separation between registries and registrars that have been enforced in ICANN agreements, and whether that separation should be maintained in the face of apparent interest of registries and registrars to apply for a new gTLD.
[14]
The audio recording of the Council meeting includes the following exchange:
Kurt Pritz: "Paul Twomey is involved with it, we are having a conference call with CRAI … tomorrow to discuss specific issues in preparation for a release of a draft that we expect within two weeks after that. Seriously, we committed to having the paper well before the Cairo meeting."
Chuck Gomes: "So the draft in two weeks would be an internal draft, not a public draft?"
Kurt Pritz: "There is not much ICANN will do once a draft is published, you really do not want to be iterating it, so it would be very close to publication, a review for private information and stuff and or some redaction … not much iteration of what we get from CRAI."
[15]
25 September 2008
At a subsequent GNSO Council meeting, Kurt Pritz provided the Council with yet another update on the new gTLD process. Included in this second update was the following summary of the CRAI report, as recorded in the GNSO formal minutes:
ICANN is working very actively with CRA to publish a report regarding separation of registrars and registries: reviewing portions of report, (this version of the report is not yet concluded). The report is expected to be published before the Cairo meeting.
[16]
But in the recording of the Council meeting, Pritz states that:
"We (ICANN) have been working with CRAI… very actively reviewing portions of the report. So the work to date… really has been the report without a conclusion. The report necessarily went through several reiterations because it gets, you know, aspects of the marketplace wrong that might lead to wrong conclusions or needed additional material in order to understand the market or need to go back into history to understand.…"
[17]
8 October 2008
CRAI was still soliciting more information from some registries about bulk pricing and discounts
[18]—two months after Kurt Pritz declared that ICANN expected to publish the CRAI report within two weeks of the day after the August 7 GNSO Council meeting,
i.e., by August 23.
24 October 2008
ICANN issued a press release about the release of the CRAI report shortly before ICANN's annual meeting in Cairo, Egypt that November.
[19] In explaining the basis of the report, the release states:
ICANN requested CRAI to perform economic research pursuant to two resolutions of the ICANN Board of Directors: 1) the 18 October 2006 resolution of ICANN's Board of Directors seeking more information relating to the registry and registrar marketplace; and, 2) the 26 June 2008 resolution of ICANN's Board, directing the development and completion of a detailed implementation plan for the new gTLD Policy.
2-7 November 2008
ICANN host its thirty-third regional meeting in Cairo, Egypt. During this week-long event, ICANN hosted several sessions about the original Draft Applicant Guidebook, which had been released on 24 October 2008.
[20] The CRAI report's findings were incorporated into the DAG's discussion of registrar-registry separation. Unfortunately, no CRAI representative was made available to answer public questions at any of the numerous events held at ICANN'S Cairo meeting in November 2008.
11 December 2008
ICANN hosted an in-person meeting with remote participants to discuss CRAI report.
[21] Some of the more interesting exchanges in the audio recording include the following:
Tim Ruiz, when responding to a question about switching costs, stating that "If you want to move GoDaddy .com to GoDaddy something else it will cost a huge freaking fortune, that is the problem;"
[22]
When Eric Bruner Williams asked about where the CRAI Report came from, Kurt Pritz responded "CRA [has] also been retained to undertake a study of the wider TLD market place and report on aspects of that and also give insight into new demand gTLD might be, this is piece to a large engagement with Charles River;"
[23] and
When Williams asked whether the CRAI Report was, either in whole or in part, a response to the ICANN Board Resolution of Oct 2006 and June 2008, ICANN General Counsel John Jeffrey responded: "That's right: [a response] in part, not the entire response."
[24]
19 December 2008
ICANN held a second in person meeting at Marina del Ray, allowing remote participation.
[25]4 March 2009
ICANN published the Carlton Reports.
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