Dec 022012
 

Image courtesy of www.readwrite.com

On Friday VeriSign (NASDAQ: VRSN) announced that it had secured renewal of its contract to run the .com registry for another six years. However, the stock immediately feel by 13 percent, after revealing that the Department of Commerce removed the right to raise wholesale prices. This came after the stock dove 20 percent near the end of October when it was announced the Commerce Department was extending its review.

It’s important who runs .com, and I’m a  VeriSign stockholder and a former employee of the company back in the early aughts. To understand the back story here, you need to go back to the beginnings of the Internet Age, when a small company called Network Solutions owned a government monopoly on the registration of domain names. That company was sold to VeriSign by SAIC in 2000 for $21B in stock, the largest Internet transaction in history.

At one time VeriSign had three different business lines – the naming/registry business, telecom and security/authentication. The 60,000 foot story then was VeriSign was going to be the directory in the sky that sent any type of communication — phone call, html query, email — to its proper destination securely. It was a good story, but the business execution didn’t materialize and the Great Recession didn’t help either. By 2009 the telecom business was sold to TNS and in 2010 the security and PKI businesses were sold to Symantec.

Which brings the story back to the .com franchise. The company in many ways has all its eggs in one basket, albeit also with a lot of cash in the bank. (The company also has a small online threat mitigation managed service business.) Keeping the .com contract is an existential necessity, and by all indications the renewal should not have been this dramatic. Earlier in the year, VeriSign completed a renewal agreement with ICANN, the corporation set up to administer certain technical aspects of the Internet.

That agreement allowed for four increases in the six year term to the wholesale price of .com registrations, currently at $7.85. However, the Department of Commerce has ultimate authority over the contract and decided to step in, setting off the recent chain of events. VeriSign would keep the contract through 2018, but there would be no price increases over the six year term unless the company could demonstrate “extraordinary expenses related to security or stability threats.”

There are many in the Internet community who have always distrusted VeriSign’s ownership of .com. When I worked there we used to call this the “religious argument” – anything the company did with .com was suspect. There was resentment about the former monopoly status, and a relationship with ICANN that was perceived  as overly cozy despite frequent litigation between the two organizations.

There are 105 million .com registrations today, still almost 44 percent of the total universe of domain names globally. So whoever runs this domain casts a big shadow. Putting aside my perspective as a stockholder, who were the winners and losers here?

Some are already very apparent. Where VeriSign falls depends on your perspective — a winner in the sense that the company keeps the contract, a loser in light of the pricing terms that were stricken by Commerce. Registrars and end user registrants have to be called winners, since they will be paying a wholesale price that in all likelihood won’t change for six years. Stockholders like me have taken a hit to date, but the longer term story remains to be seen.

I think a big loser in all this is ICANN, in a way underreported to date. This move by Commerce highlights how ICANN is still beholden to the U.S. government for truly important decisions about Internet infrastructure. The Commerce Department and the NTIA really call the shots, not ICANN. In fact, ICANN’s contract was just recently renewed earlier this year, after the government made the organization sweat a bit.

This rankles the rest of the world, and gives rise to calls that the United Nations (through the ITU) would be a better authority for Internet governance. ICANN can certainly be opaque and bureaucratic. But whatever your views on VeriSign or the .com agreement, the UN scenario would be worse than the current model for the continued health of the Internet.

It’s unfortunate that to protect the public interest vis-a-vis .com, the government had to publicly undermine the multi-stakeholder administrative model ICANN was created to implement.

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