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The ICANN-VeriSign Agreement: A Sweetheart Deal

Copyright © 2001 Ellen Rony [1]

Those attempting to comprehend the antics of the Internet Corporation for Assigned Names and Numbers (ICANN) and the impending changes in registry services might find several cardinal themes in play: control, Machiavellian politics, semantic gymnastics and a zero-sum game. The latest ICANN-VeriSign Agreement manifests all these in certain measure.

On April 2, 2001, ICANN's Board of Directors approved proposed revisions to the 1999 agreement under which VeriSign, Inc. operates registries for .COM, .NET and .ORG. VeriSign would give up its .ORG and .NET registries to keep long-term control over the lucrative registrar and .COM registry operations. The proposed revisions have been forwarded to the U.S. Department of Commerce (DoC) for final approval.[2]

ICANN says the revised agreements would significantly restructure the contractual relationship between the Internet's technical coordinator and the operator of the world's largest domain name registries.[3] Few could argue with this assessment.

On June 8, 2000, VeriSign acquired Network Solutions, Inc. (NSI), which has administered those three top level domains since 1993 through a cost plus fixed-fee Cooperative Agreement awarded by the National Science Foundation.[4] NSI signed an agreement with ICANN in 1999 to divest either its registrar or registry operations by May 10 , 2001 to promote competition among ICANN accredited registrars.[5] The divestment would extend VeriSign's right to be sole operator of the .COM. .NET and .ORG registries until November 10, 2007. In February of this year, VeriSign announced its intention to spin off its lucrative registrar business.


The proposed new ICANN-VeriSign Agreement was posted on March 1, 2001, only 12 days before ICANN's quarterly meeting in Melbourne. Although ICANN counsel and management had been engaged in negotiations with VeriSign for months, the agreement came as a surprise to the Internet community and generated considerable dysphoria among ICANN watchers, stakeholders, and members of its own board.

ICANN's structural hierarchy includes a Domain Name Supporting Organization (DNSO) established to advise the Board on substantive policy issues relating to the Domain Name System. It consists of a Names Council of representatives elected by seven self-organizing constituencies and a General Assembly of interested individuals.[6] The constituencies were united in their call for more time to weigh the merits of the proposal. The ICANN board obliged and extended the deadline for comments on the substantive merits of the proposal for two additional weeks.[7]

While the constituencies were pressured to assess the proposed agreement on a fast track, ICANN's outside counsel, Joe Sims of Jones Day Reavis and Pogue, advised that the proposed agreement was not subject to negotiation and constituted only operational changes, not substantive new policy. The public and the ICANN Board had to make an unambiguous binary choice: accept Plan A or Plan B.

Plan A is shorthand for the current agreement under which VeriSign was required to legally separate its registrar and registry operations in order to extend its dominion as .COM, .NET and .ORG registry for another four years. That agreement was signed on November 10, 1999 after extensive and contentious negotiation.

Plan B, the revised agreement posted on March 1, refutes the 1.5 year old agreement. VeriSign would not be required to sell off its registrar or registry business. Instead, it would be divested of the .ORG registry by December 31, 2002 and .NET would be competitively rebid at the end of 2005.

Plan A or Plan B; no modifications, additions, amendments or no time extensions would be considered by ICANN.

"Neither choice is perfect," ICANN's outside counsel, Sims told the board.[8] Sims had crafted the November 1999 Agreement which he now eschewed as containing flaws that afforded substantial market advantage to VeriSign.

DNSO constituencies scrambled to respond. Their Names Council representatives told the ICANN board that they were concerned about the lack of earlier consultation on the proposed agreement, which conceptually "represents a substantive policy change and involves a fundamental shift in the structure of competition."[9] Forced to choose, a majority of the NC members said they found no compelling reason to abandon the existing agreements and adopt the new proposal between ICANN and VeriSign. The DNSO General Assembly, disturbed by the short notice provided to prepare adequate evaluation of the deal, conducted a straw pool which reported that the financial advantages for the Internet community of the revised agreement were not balanced by its drawbacks.[10]


Despite concerns expressed from many quarters, the ICANN Board voted on April 2, 2001 to approve a modestly revised ICANN VeriSign Agreement. (2 members for, three against, 1 abstention). Given the crimped deadline and unequivocal insistence on an either/or-Plan A/Plan B choice in this squeeze power play, there was, surprisingly, enough wiggle room to craft Plan C, which incorporated "technical amendments required to correct errors and clarify meanings."[11]

The landmark change voted by ICANN is the separation of the single agreement covering the three registries now operated by VeriSign into three separate registry agreements. If DoC ratifies the change, VeriSign/NSI would permanently relinquish its right to operate the .ORG registry by the end of 2002, and an appropriate sponsoring organization from the non-commercial sector would be sought as a successor. A competitive process in 2005 would be established to determine the future operator of .the .NET registry. VeriSign would not be prohibited from competing for that role.

At first look, it may seem that VeriSign/NSI is relinquishing vast future profit potential and significant control within the gTLD pantheon, particularly when coupled with two new financial concessions. Under the proposed agreement, VeriSign will establish an endowment of $5 million to fund the operating expenses of .ORG for one year when the as-yet-unnamed non-profit organization takes over its management. In addition, VeriSign will invest up to $200 million over a ten-year period for research, development, and infrastructure improvements including the creation of a universal WHOIS for .COM, .NET and .ORG registries.[12]

Run the numbers, and it is clear that the strategic trade-off of the .ORG registry for continued registrar accreditation is a sweetheart deal for VeriSign. Approximately 76 percent of the gTLD market is in .COM domains.[13]

ICANN's President and CEO, Stuart Lynn, assured the Department of Commerce that these new agreements will eliminate most vestiges of the unique treatment afforded to VeriSign resulting from its legacy activities, and "there is little public benefit, and some significant potential for disruption, in regular changes of a registry operator."[14] Many registrars disagree. They argue that the deal changes the rules mid-game and threatens to undermine competition in several significant ways:

1) The revised agreement allows presumptive renewal of the .COM registry in perpetuity.[15]

This predictability will over the long term enable VeriSign to fund and develop new services that increase its competitive advantage. By holding onto the .COM registry, VeriSign continues to receive $6 per .COM name each year, even if a competing registrar handles the registration. With 22.37 million .COM domain names to date, the registry portion of VeriSign's business is compared to a license to print money. It generates more than $100 million annually for VeriSign's corporate coffers.

2) VeriSign divests its weakest earnings producer.

Comparatively, .ORG is a low revenue top level domain. Even NET is growing at a brisker pace than .ORG. Registrations in .COM outpace .ORG nearly eight-fold and hold an insurmountable lead over all other TLDs.

3) The revised agreement collapses the boundary between registrar and registry,

ICANN's earlier insistence upon the structural separation of VeriSign's registry and registrar operations was designed to protect registrar competition and prevent VeriSign from subsidizing its registrar promotions from the revenues it derives as a registry. Registrars were patient with VeriSign's dual registrar/registry role because they believed that the special relationship would end in May 2001. ICANN's departure from this distinction began when ICANN licensed Affilias as registry operator for the new .INFO top level domain, which awaits DoC approval. Affilias is a consortium of 19 ICANN-accredited registrars, including NSI. Thus, ICANN has already annulled the obligation for legal separation between registry and registry.

4) VeriSign is granted the unilateral right to raise the prices it charges all registrars for every domain name registration, renewal and transfer on 30-day notice.[16]

This proviso has antitrust implications, as many registrars charge barely more than they pay the registry. Incremental increases in registrar fees could have a trickle-down effect, impacting registrar industry and registrants alike.


VeriSign president and CEO Stratton Sclavos says the market today is far more competitive than it was when the Plan A agreement was signed.[17] Unquestionably, the domain name industry has changed, but NSI enjoyed a monopoly franchise during a long run of prime Internet growth.

NSI Registrar had 91.7% of the gTLD market in December 1999 (Table 2), when fewer than half of the 88 ICANN-accredited registrars (Table 1) were operational. A year after deploying a Shared Registration System required by DoC to advance competition among registrars, NSI's market share dropped to 52.9%. By the end of 2000, ICANN had added 71 new rookie registrars worldwide; 79 were accepting registrations for domain names in gTLDs that were once the sole province of NSI.

Announcement Date
Number Accredited

April 21, 1999

5 (testbed)


April 21, 1999

29 (post testbed)


May 25, 1999



July 6, 1999



August 11, 1999



September 21, 1999



October 26, 1999



November 4, 1999



December 21, 1999



January 25, 2000



May 11, 2000



July 10, 2000



November 10, 2000



Sources: ICANN Announcements -

ICANN says the goals of the original agreement to bring new competitors into the domain registration market place have been met. But the devil is in the details. Second place was still waaaaay back with the rest of the pack in December 2000, with 11.91% market share (Table 2). Aside from NSI, only six registrars captured more than 2% of the market; collectively those half dozen had achieved 31% share. VeriSign/NSI remains a formidable competitor.


Although NSI's registrar market share has dropped precipitously since the SRS was fully enabled, (Table 3), cumulative registrations, for which the VeriSign registry receives $6 apiece, have grown almost four fold. A smaller share of an exploding market has brought record revenues and earnings to the world's largest registrar.


The U.S. Department of Commerce expects to complete its review of the controversial agreement by mid-May.[18] However, a bipartisan group of U.S. Congressmen see a bad moon rising here and seek formal investigation of ICANN's procedures. On behalf of the lawmakers, W. J. "Billy" Tauzin (R-Louisiana), Chairman of the House Committee on Energy and Commerce, asked DoC Secretary, Donald Evans, to conduct a thorough review of the contract negotiations between ICANN and VeriSign. Without taking a position on the propriety of the revised agreement, he wrote, "We want to ensure that any actions by ICANN support and encourage strong, vibrant competition."[19]

U.S. Senator Conrad Burns (R-Montana), who chairs the Senate Commerce Subcommittee on Communications, also urged the Department of Commerce to refrain from taking any "hasty actions" and "any major steps to further empower or delegate authority to ICANN."[20]

In the parlance of politics, the proposed revised agreement represents a seismic shift in Internet administration. The ball is now in the DoC's court. Statistics cannot shield the fact that the Congress, and the Internet community, need more time to scrutinize this sweetheart deal with VeriSign.

In my humble opinion.

By Ellen Rony
© May 1, 2001


[1] Ellen is co-author of The Domain Name Handbook: High Stakes and Strategies in Cyberspace, published by R&D Books in July 1998. She maintains a website with extensive links to domain name policies, disputes, Congressional testimony and the activities of ICANN at In March 2001, she was qualified by Federal Court in California to testify as an expert witness in domain names. This article reflects only her personal views.

[2] Letter from Stuart Lynn to Karen Rose Regarding Proposed Revisions to VeriSign Agreements (16 April 2001)

[3] Revised .COM/.NET/.ORG Agreements Forwarded to Commerce Department (16 April 2001)

[4] Network Information Services Manager(s) for NSFNET and the NREN: INTERNIC Registration Services, NSF Cooperative Agreement No. NCR-9218742 (1 January 1993)

[5] ICANN/NSI Registry Agreement (10 November 1999)

[6] ICANN Amended Bylaws, Article VI-B, Sections 1-4 (16 July 2000) -

[7] Preliminary Report: Meeting of the ICANN Board in Melbourne (13 March 2001)

[8] Melbourne Public Meeting Archive (12 March 2001)

[9] Names Council Resolution on the proposed revision to the ICANN/Verisign (NSI) Agreement (28 March 2001)

[10] Names Council Resolution on the Proposed Revision to the ICANN/Verisign (NSI) Agreement: 8. General Assembly (28 March 2001) General Assembly participants also noted that: "horizontal" separation between Registrar and Registry, is a better safeguard against a monopolistic position, and the revised agreement constitutes a change in policy, done without previous consultation of the DNSO and on strict, inappropriate deadlines.

[11] Letter from Stuart Lynn to Stratton Sclavos regarding proposed revisions to VeriSign Agreements (31 March 2001)

[12] Revised VeriSign .COM Registry Agreement: Appendix W: Additional Covenants of Registry Operator (16 April 2001)

[13] The gTLD domain count on 18 April 2001 was 29,415,351. Of these, .COM registrations total 22,374,229; .NET total 4,293,519, and .ORG, 2,734,719. See Domain Name Counts

[14] Letter from Stuart Lynn to Karen Rose regarding Proposed Revisions to VeriSign Agreements (16 April 2001)

[15] Revised VeriSign .COM Registry Agreement, 25. Procedure for Subsequent Agreement (16 April 2001)

[16] Revised VeriSign .COM Registry Agreement: Appendix F (16 April 2001)

[17] Letter from Stratton Sclavos to Vint Cerf Regarding Proposed Revision of ICANN-VeriSign Agreements (28 February 2001)

[18] Letter from Alden Abbott, U.S. Department of Commerce to M. Stuart Lynn (24 April 2001) -

[19] Renegotiation of a 1999 Contract Between Verisign and the Internet Corporation for Assigned Names and Numbers (30 March 2001). The letter was signed by Reps. W.J. "Billy" Tauzin (R-Louisiana), Chairman, Committee on Energy and Commerce; John D. Dingell (D-Michigan), Ranking Member; Fred Upton (R-Michigan), Chairman, Subcommittee on Telecommunications and the Internet, Edward J. Markey (D-Massachusetts), Ranking Member

[20] Senator Burns Queries Legality of ICANN-DoC Relationship (ICANNWatch - 21 March 2001)


Other articles, editorials and domain-related comments by this author:

At Large Membership: ICANN's Ultimate Tarbaby

Whither .ORG?

The Divine Right of Names: New TLDs Prep for Start-up

The Envelope, Please: New Top Level Domains on the Horizon

Procter & Gamble Bids Adieu to SINUS, THIRST and FLU

Words First!

Sunrise+20: The Numbers Tell the Story

Famous Marks

Clicks or Mortar: Are Domain Names Property?

Res Ipsa Loquitur

RDND: Reverse Domain Name Denigration

IIR: Internet Impact Report

The Devil is in the Details

An Alternative to ICANN?

Comments on the WIPO Interim Report RFC-3

















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