The move comes after years of fighting with VeriSign, which accuses ICANN of being an illegal regulator of its business and has been suing the California-based non-profit for breach of contract since February 2004.
VeriSign’s new contract with ICANN, which allows VeriSign to run .net for the next six years, caps the wholesale price of a .net domain at $4.25 per year, a 29% reduction on the former industry-standard $6-per-year pricing.
But the contract also completely eliminates the cap come January 1, 2007, meaning VeriSign will be free to raise prices, potentially even above $6, if it wants to.
Prices did come down, and are likely to stay down, VeriSign spokesperson Tom Galvin said. He said the deal gives VeriSign the flexibility to raise prices to invest in its infrastructure if needs be. We will take a prudent approach to any adjustment in .net pricing, he said.
Whether retail prices will come down in line with the reduced wholesale prices remains to be seen. History suggests that they will. The domain market is fiercely competitive, and domains are often a loss leader for other services, such as hosting.
Whether this is a one-off, or whether it indicates that ICANN is softening its management of the commercial aspects of the domain name system and will extend this cap removal to other domain registries, remains to be seen.
ICANN spokespeople, currently preparing for the organization’s quarterly policy powwow, which kicks off in Luxembourg next week, could not be reached for comment. VeriSign reckons the lifting of the cap means ICANN is backing off.
Prices have always been set arbitrarily, and I think ICANN, as a technical coordination body, doesn’t want to be involved in the price-setting business, said VeriSign’s Galvin.
The $6 fee was fixed in the earliest ICANN-VeriSign contracts, and still applies to the far more popular .com registry. Competing registries, such as .info and .biz, have fees in the same ball-park, but are generally on the lower side.
ICANN calls itself a technical coordination body, but VeriSign’s lawsuit calls it a regulator, accusing the organization of illegally preventing or delaying new VeriSign services, such as the controversial Site Finder system.
ICANN disclosed this week that it spent $784,785 in the first quarter of this year on legal fees, including fees arising from defending itself from VeriSign. Its annual budget to June 30, 2005 was only $15.8m.
Of the $4.25 fee that registrars will have to pay to VeriSign for each .net name, $0.75 will actually go to ICANN, to finance its activities (which ironically includes, among many other things, defending itself from VeriSign’s lawsuits).
Given that there are current about 5.9 million registered .net names, for VeriSign the new contract means that its theoretical revenue from .net goes down from about $35m a year to about $20m a year. ICANN gets a cool $4.4m a year from its $0.75 fee.
The loss of up to $15m (depending on how it is accounted for) annual revenue is not material to VeriSign, which reported revenue of $401m in the first quarter this year. The .net deal also has a certain prestige that could drive future business.
VeriSign’s Galvin noted that the new contract requires VeriSign to give six months notice of any pricing changes, which would give customers time to lock in their registrations at the lower prices by taking out multi-year registrations.
