I believe the rest of this response (and the accompanying letter) should be up at icann.org soon. ICANN sent this to me in MS Word; I converted it and included an excerpt for space reasons. -Declan RESPONSE OF THE INTERNET CORPORATION FOR ASSIGNED NAMES AND NUMBERS TO QUESTIONS CONTAINED IN JUNE 22, 1999 LETTER FROM CHAIRMAN TOM BLILEY TO ESTHER DYSON The Internet Corporation for Assigned Names and Numbers ("ICANN") is a private, non- profit corporation formed by the global Internet community to facilitate the transfer of various DNS management responsibilities from the United States Government to the private sector. It has no permanent staff, and to date has relied primarily on private donations for partial recovery of its costs. These constraints have made responding in the manner and time required by the Committee a serious challenge. Nevertheless, ICANN believes that the information and material provided here is responsive to, and fully answers, the questions posed by the Committee. All source materials referenced herein can be found at ICANN's website, www.icann.org ,
and are attached as Attachments 1-9 for the Committee's convenience. The Committee's questions, along with ICANN's response, are set forth below in the order in which they were set out in the Committee's letter of June 22, with each question and response beginning on a separate page. Specific questions and responses can be found at the following pages of this Response: Question Page 1(a).
2
1(b).
12
1(c). 15 1(d). 17 1(e). 18 1(f). 22 2. 26 3. 27 4. 28 5. 33 6. 34 7. 35 8. 36 1(a). Before imposing a $1 per domain name registration fee, did ICANN conduct, or have conducted on its behalf, a legal analysis of its authority s not happened. The Committee is free to form its own opinions as to why it has not happened, but the result is inarguable: ICANN is struggling to carry out its responsibilities without as yet any institutionalized method of cost recovery. As a temporary solution to this problem, ICANN has relied on private donations from companies and individuals, and the willingness of many of its creditors to accept delayed collection of money due. Still, the goal should be to develop a stable funding structure which fairly and equitably distributes the costs of ICANN's consensus development and implementation activities among the various entities and segments of the Internet community that benefit from its technical coordination services. With this background, the following describes the ICANN cost recovery structure that has just become effective on July 1. It begins with a description of the historical way in which ICANN functions provided in the past were funded and a description of the additional functions that ICANN has been required to absorb. It concludes with a discussion of the cost-recovery mechanisms currently contemplated by ICANN and the alternatives that might exist. A. The IANA Function ICANN has assumed financial and administrative responsibility for the Internet Assigned Numbers Authority (IANA) and its staff in Marina del Rey, California. In the earliest days of the Internet, the IANA maintained the authoritative lists of assigned domain names and numbers, under research contracts with the Defense Advanced Research Projects Agency (DARPA), a part of the U.S. Department of Defense. As the Internet evolved and grew, the IANA continued its role as a coordinating entity, responsible for coordinating the domain name system (DNS) and the assignment of IP addresses. In addition, the IANA worked with the Internet's standards bodies and protocol developers to coordinate the assignment and publication of the Internet's technical standards. The IANA also administers the delegation of country-code top-level domains to local managers, communicates with TLD managers on a range of issues, and supervises the resolution of disputes over delegations of registration authority when they arise. In addition, the IANA manages the .int domain, which is exclusively reserved for international treaty organizations, such as NATO. The IANA also assigns large blocks of IP addresses to the regional IP address registries, which in turn allocate IP addresses to Internet Service Providers and others for distribution to end- users. There are currently three regional IP address registries: APNIC for the Asia-Pacific region; RIPE- NCC for Europe and North Africa; and ARIN for North and South America and sub-Saharan Africa. The DARPA research contracts paid for the full direct and indirect costs of the IANA, including staff salaries and wages, office facilities and rent, computer equipment and network connectivity, ISI's institutional overhead, and telephone and travel expenses. These costs were assumed by ICANN as of January 1, 1999, and ICANN has received no USG funding support since that time. B. Creation of a Competitive gTLD Registry-Registrar System Consistent with the clear consensus of the global Internet community, and its mandate from the USG in both the White Paper and the MOU, ICANN has begun the process of determining and implementing community consensus views on how to introduce competition into the market for domain name registration services in the .com, .net, and .org generic top-level domains (gTLDs). Those services are currently provided by NSI under an exclusive Cooperative Agreement with the USG. Specifically, NSI performs two functions for those generic top-level domains: the registry and the registrar. As registry operator, NSI maintains the authoritative database of registered domain names and the IP addresses to which they correspond. As registrar, NSI interacts with customers, taking registration orders and placing registration information into the registry (the central database). These functions in recent years have been funded by a annual fee levied by NSI on every registered domain name. NSI charges a minimum of $70 ($35 per year) for each registration, which are required to cover an initial registration period of two years. Thereafter, NSI charges a $35 fee for each one-year renewal of each registered domain name, even though the actual costs of renewal are obviously significantly lower than the actual costs of an original registration. These mandatory fees exceed the actual costs of providing those services; they produced revenue of almost $100 million for NSI in 1998 (nearly a 100% increase over 1997), and profits of $11 million (an increase of 175% over the preceding year). This performance has been rewarded by a market valuation for NSI of over $2.5 billion at this writing. Community unhappiness with the level of these fees, and the lack of choice in the services offered by NSI, have been significant elements in the creation of nearly universal demand for the introduction of competition in the provision of name registration services. The introduction of competition into the market for registrar services will undoubtedly reduce (probably quite significantly) the cost to consumers of registering a domain name, improve customer service and generate diverse new options for Internet users. At the current level of name registrations, even just a $2 reduction in the average cost of an annual name registration would save consumers approximately than $20 million annually, and the value of improved service and increased flexibility is obviously significant. Unfortunately, the costs of implementing the transition from sole provider to competition are not trivial. ICANN is required, pursuant to its MOU with the USG (as contemplated in Amendment 11 of the Cooperative Agreement between NSI and the USG) to accredit companies that wish to become competitive registrars in the .com, .net, and .org top-level domains. Accordingly, ICANN staff were (and are) required to draft application guidelines, review public comments and make appropriate revisions, receive and review applications on a ongoing basis, verify application information, communicate with applicants, draft and sign accreditation agreements, and assist successfully accredited applicants with what has proven to be the unexpectedly difficult process of gaining workable access to NSI's Shared Registry System. Because of the inherently legal nature of the accreditation process, ICANN's outside legal counsel is also necessarily heavily involved in this process. This process has resulted in the accreditation of five test bed registrars, and the subsequent accreditation of 52 additional registrars who are slated to begin competing in this space at the end of the test bed phase, now scheduled for July 16, 1999. The complete list of accredited registrars, which includes such organizations as AT&T, AOL, PSINet, RCN and Verio, can be found at www.icann.org and is attached at Attachment 3. The transition to a competitive registration system also requires the execution of a set of technical functions. Foremost among these is the design and management of a registration data escrow function. In order to assure the stability and uninterrupted functioning of the Internet upon the technical or business failure of a registrar, it is essential that accredited registrars escrow their essential registration data daily in a way immediately accessible to ICANN, thus allowing the data to be easily transferred or reconstructed if necessary. This backup function has historically been performed by NSI and funded through its mandatory $35/year registration fee; the similar function in a competitive environment is clearly more complex than it has been in the past, where NSI was both the registry operator and the sole ICANN has also been working with the five accredited test bed registrars to develop a robust and reliable WHOIS service (which allows users to look up domain name registration data) for the new competitive environment with its multiple registrars. The WHOIS service was historically provided by NSI as part of its registry function, funded through its $35/year registration fee. Once it was clear that there would be movement to a competitive registrar environment, NSI decided to eliminate that service from its registry function, thus eliminating a centralized WHOIS service and creating an additional cost both for new registrars and for the consumers and business entities that had relied on that service. Today, in the absence of a centralized WHOIS service, anyone seeking contact information for a domain name must first determine which registrar has registered the name, and then seek contact information from that registrar. Since a comprehensive and complete WHOIS service is such a valuable resource for the Internet community, ICANN is working to replace that service now that it is no longer provided by NSI. In sum, NSI's current mandatory registration fee of $35/year has historically funded NSI's registry and registrar operations, including data backup and WHOIS services. Accredited post-test bed registrars will have to similarly have to fund their operations (including data backup and WHOIS services) from whatever registration fee the market will bear, which is highly likely to be $35 or (more probably) less. In addition, they will pay NSI some fee for every domain name registered that is approved by the USG for registry access, and provide their share of ICANN cost recovery at the rate of no more than $1 per domain name registered. Even with the relatively limited amount of competition that has begun for name registrations, no accredited registrar has yet to offer services at a rate higher than the $35 charged by NSI, and thus both NSI's $9 registry fee and the $1 cost recovery fee due to ICANN are being absorbed by the registrars, not paid by users, and presumably being reflected in lower operating margins than might otherwise exist. In this sense, at least, even the minimal competition that has been introduced into the registration services market is already having a positive impact, although since NSI is not paying either fee it continues to enjoy a significant and unfair competitive advantage over all other name registration providers. Thus, the likely result of the replacement of a situation where there is a single monopoly registrar with one where there are more than 50 competitive registrars offering name registration services will be to reduce the cost to consumers of domain name registration services, and to produce a profit margin for all registrars (including NSI) which is lower than that enjoyed today by NSI. This expected drop in registration fees itself appears likely to translate into millions of dollars of savings for Internet users, and to be far greater in the aggregate than the administrative and technical expenses incurred by ICANN in carrying out its role in helping to introduce and sustain a competitive market in registration services. In any event, those expenses will certainly be far less than the cost imposed on consumers for those services in the past, and will far exceed the contractual cost recovery fee paid by accredited registrars to ICANN. C. Coordination of the Root Server System As called for in the U.S. Government's White Paper on "The Management of Internet Names and Addresses," ICANN has entered into a Cooperative Research and Development Agreement with the USG to develop and implement improvements in the management of the root server system. The root server system is a set of thirteen file servers, which each contain authoritative databases listing all TLDs. Currently, NSI operates the primary root server, which maintains the authoritative root database and replicates changes to the other root servers on a daily basis, under a contract with and the control of the USG. Different organizations around the world, including NSI and ICANN, operate the other 12 root servers. To carry out its responsibilities under the CRADA, ICANN has established a Root Server System Advisory Committee chaired by Prof. Jun Murai, an ICANN director and the operator of the "M" root server in Japan. Though populated by volunteers, including the operators of all 13 root servers, the Committee's work will entail some staff costs and expenses to be funded by ICANN. ICANN is also working with the existing root server operators on plans to enhance the already- impressive security of the present root server system, with the goal of reducing even further the risk of disruption or outside corruption of this important directory information. These various efforts, which include consideration of the structure of the root server system, the location and operation of the primary root server, and related issues, have generated ICANN staff and equipment costs, and will likely require additional costs in the future. D. Operation of the "L" Root Server ICANN has recently assumed responsibility (but has received no government funding) for the "L" root server, formerly operated by the University of Southern California's Information Sciences Institute ("ISI"), and previously funded by the USG through a contract with ISI. It has received no government funding for this. E. The Process of Consensus Development and Implementation While the substantive functions being assumed by ICANN all have roots and antecedents in the Internet's technical administrative structures, the process that ICANN was established to facilitate constitutes an unprecedented experiment in private sector consensus decision-making on a global scale. Global consensus is a difficult goal to achieve in the best of circumstances; in the contentious atmosphere that exists today, where the transition of important management responsibilities from government to private-sector mechanisms has been combined with a simultaneous effort to move from a single monopoly provider of services to a competitive market, that task is extremely complicated. To achieve a policy-making process that is open and transparent, based on Internet community consensus, bottom-up in its orientation, and globally representative has required the establishment and operation of a number of bodies, organizations, and committees through which this process can occur. Board of Directors. ICANN's Board of Directors currently consists of ten individuals, and will be expanding in the very near future to nineteen. Though unpaid volunteers, future Directors will be entitled to reimbursement of their ICANN-related expenses, such as travel, lodging, and other costs related to attending ICANN meetings. Board expenses also include the costs of teleconferences, written briefing materials, and staff support. ICANN Staff. In addition to the IANA and technical staff discussed above, ICANN plans to hire a small executive staff to handle legal and policy matters, provide support to the President and Board of Directors, manage internal networks and systems, handle the corporation's financial affairs, organize meetings, foster communications with and discussions among the global Internet community, and support advisory committees and supporting organizations, as appropriate. ICANN also contemplates hiring outside consultants on specific technical and policy matters from time to time, as needed. To the extent these expenses relate to the IANA staff (such as financial accounting, payroll administration, network services, fringe benefits, employment taxes, and legal support), they represent a transfer of financial responsibility from ISI, which formerly funded this overhead through DARPA research contracts. The remainder are the additional resources needed to undertake the very significant new responsibilities required of ICANN if this experiment in private sector management is to be successful -- including global consensus development and the introduction and promotion of competition.
ICANN Meetings. If ICANN is to truly function as a global consensus-development entity, it and its processes must be accessible to the entire global Internet community. To help meet this objective, ICANN holds its periodic meetings in different regions of the world. While this is a important contribution to global access to consensus policy development, it is a significant expense to plan, organize and hold each year four three-day sequences of Board, Committee, and Supporting Organization meetings in different cities around the world, including meeting room rental and travel and lodging expenses. In a further effort to make its processes available to as much of the global Internet community as possible, ICANN provides real-time broadcasts of its meetings over the Internet, including video and audio and the ability to send real-time comments and questions from anywhere in the world visible to those in the meeting room. This obviously requires significant technical facilities, which limits the number and type of meeting facilities available. In addition, enabling real-time broadcasts and online participation requires at least $25,000 per meeting for the needed equipment, high-bandwidth net connectivity, and technical staff. In addition, ICANN provides real-time scribing of its meetings projected onto large screens, to assist non-native English speakers to understand what is being said. Advisory Committees and Supporting Organizations. ICANN has established four Advisory Committees to provide focused input: the Root Server System Advisory Committee; the Independent Review Advisory Committee; the Membership Advisory Committee (now disbanded following the production of a set of principles to guide the establishment of a membership); and the Governmental Advisory Committee. Each of these committees is populated by volunteers, but requires staff support and entails some expenses relating to teleconferences and face-to-face meetings, when necessary. ICANN's three Supporting Organizations are intended to be self-funding, but the process of establishing them has required substantial staff time. Corporate and Office Expenses. In addition to the direct staff costs identified above, ICANN is a start-up corporation that must pay for all the usual expenses of a small business: rent, insurance, office equipment, network services, accounting, and basic legal services. F. Possible Cost Recovery Mechanisms As a non-profit, ICANN is required to cover its costs, but to take in no more money than is necessary to fund necessary costs and establish reasonable reserves for future expenses. The White Paper assumed that these funds would come from "domain name registries, regional IP registries, or other entities identified by the Board." Unfortunately, in a circumstance where the most significant name registry is refusing to fully participate in the development of community consensus through ICANN and indeed has now become loudly critical of ICANN's very existence after publicly supporting the creation of ICANN throughout the USG policy development process, the simplest approach -- to allocate ICANN's costs to the various registries in some
appropriate way -- is not feasible.
The ICANN Board continues to believe that it is highly desirable for the name and address registries to participate in the funding of the costs of consensus policy development, as part of a stable cost-recovery structure that is fair and equitable to all concerned. Nevertheless, given the current circumstances, it was clear that some alternative mechanism would need to be developed, at least for the immediate future. As an initial matter, the largest portion of the time and energy in consensus development today is directed toward introducing and sustaining registrar competition in the .com, .net, and .org top-level domains (which are by far the largest and most profitable of the approximately 250 top-level domains, accounting for 75% of all domain name registrations). Since NSI and ICANN have been unable to reach an agreement on a contractual relationship, relying on the NSI-operated registry was not a practical option. The next best alternative source of funds was the registrars that interact with that registry. For any funding from registries, the simplest way to allocate cost recovery would seem to be by volume. Because domain name registrations will be marketed by registrars in the first instance, ICANN proposed that these costs could be borne by the registrars directly, thus eliminating the registry as a conduit (and possible bottleneck) for the recovery of costs. Assuming a competitive market, the volume of registrations is some measure of the benefits that consensus coordination are providing to an individual registrar (and ultimately to users). Based on this principle, ICANN proposed that its first-year transition funding be structured on the basis of a fee to be paid by each registrar, calculated by multiplying the number of registered domain names by a variable fee equal to no more than $1 per domain per year. Because ICANN is a cost-recovery non-profit entity, this variable would likely decrease over time as either or all of three likely events occurs: (i) reduction of overall costs as startup tasks are completed; (ii) the addition of new funding sources, and/or (iii) a continued increase in the number of registered domain names. In order to ensure an ongoing source of operating revenue, ICANN proposed that the fee be transmitted from the registrar on a monthly basis. This proposed formula was posted for public comment earlier this year; it generated very little comment, and even less opposition, either in principle or on the details. Indeed, the domain name and address registry communities have expressed broad support for the principle of a fair and equitable distribution of ICANN's costs among all registries with access to the root, taking into account the variations in usage and ability to pay. Thus, it seems clear that this approach, which seems to fairly allocate the costs of consensus policy development, enjoys broad support from the Internet community, notwithstanding rhetorical attacks from some quarters. Nevertheless, the approach described above is explicitly designed for the first full fiscal-year budget cycle of ICANN (July 1, 1999 - June 30, 2000), which takes place during the continuing organizational efforts of ICANN and during the transitional period set forth by the USG for this privatization effort. Thus, it includes some significant one-time expenses associated with that initial organizational effort, including costs that result from the inability to structure an appropriate contractual relationship with NSI. These costs will presumably not continue into the future, and thus at least to that extent ICANN's costs for consensus development should go down. In addition, if NSI were to finally decide to fully participate in the consensus-development process through ICANN, that would affect the practical options available for cost recovery. In any event, this particular cost- recovery mechanism is obviously subject to improvement or change at any time that an alternative captures consensus support. ICANN certainly welcomes any comments or suggestions on future cost-recovery mechanisms based on the principle of fair and open distribution of costs among the registries that make up the DNS 1(b). Has ICANN conducted, or had conducted on its behalf, a legal analysis of its authority to terminate NSI's authority to register domain names? If ICANN has conducted such a legal analysis, please provide all records related to the aforementioned legal analysis. If ICANN has not conducted such a legal analysis, please provide a detailed legal analysis of the source and limits of ICANN's authority to terminate NSI's authority to register domain names. ICANN has no statutory or regulatory "authority" of any kind. It has only the power of the consensus that it represents, and the willingness of members of the Internet community to participate in and abide by the consensus development process that is at the heart of ICANN. It is required under the MOU with the USG to accredit competitive registrars before they may access the .com, .org, and .net registries, but the effect of this accreditation is governed by Amendment 11 of the Cooperative Agreement between NSI and the USG and the USG's inherent control over the operation of these registries. Given these facts, ICANN has undertaken no such legal analysis, nor has it had any reason to create one. If the Committee has been told that ICANN has the power to terminate NSI^вs authority to register domain names, or has asserted that it does, the Committee has been misinformed. To clarify this point, the following description of the process for accrediting registrars may be helpful. [...]
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