Does ICANN’s New Budget Harm Competition?
ICANN’s preliminary budget for 2004-2005 proposes to almost double expenditures from the level was approved for 2003-2004. The text accompanying the budget proposal stresses ICANN’s commitment to carrying out the objectives contained in their Memorandum of Understanding (MoU) with the Department of Commerce. ICANN goes so far as to use the MoU as a justification for at least part of the planned budget expansion. As the budget document explains, “A significant portion of the budget will be dedicated toward achieving the objectives set forth by the MoU between the Department of Commerce and ICANN.”

Despite the stated commitment to meeting their obligations to the government, ICANN’s proposed budget may potentially breach the MoU. Specifically, the MoU commits ICANN to “perform as an organization founded on the principles of competition...” However, an alliance of at least 50 Registrars claims that the new Registrar fee structure contained in the proposed budget would significantly harm competition.

The ICANNBudget.org website states that the proposed budget would increase “the yearly fee of Registrars from around $5000 to around $24000 ” and would increase “the per domain name fee of every Registrar to around $0.25 per domain.”

One of the key concerns cited by the ICANNBudget.org, is that the proposed fee increases and the planned changes in fee structure would have a substantially disproportionate impact on mid-size and small Registrars. According to the website, while the approximately $19,000 fee increase would have a negligible effect on major Registrars, the increased cost per domain would be 38 cents for a Registrar with 50,000 domains, $1.90 for a Registrar with 10,000 domains with even higher per-domain costs for smaller Registrar companies. It should be noted that the ICANN budget document does state that “in certain cases” ICANN would provide a mechanism to “forgive 2/3 of the” Variable Registrar Support fee and that they will “publish a procedure for relief application and the criteria to be satisfied...”

The ICANNbudget alliance of Registrars claims that by creating the new Registrar fee instead of maintaining the current pricing structure and simply increasing the per domain fee, ICANN is shifting a disproportionate share of costs from large to small registrars. According the website, this “results in significant savings of money for the larger Registrars at the cost of the smaller Registrars.”

The impact of the proposed budget, according to ICANNBudget.org, would be “disastrous.” The website states that, if the budget the proposed fee increases were to take effect, “A lot of Registrars will go out of business. A lot of new applicants will get discouraged. In effect the number of ICANN Registrars will reduce considerably to a small set of large monopolistic registrars, entirely against the principles on which ICANN was originally founded - ie to foster competition, globalization and growth.”

Should ICANNbudget.org’s analysis of the proposed new ICANN fee structure prove correct it would raise serious questions regarding ICANN’s adherence to the competition requirements of the MoU. NTIA has primary responsibility for assessing ICANN’s compliance with the agreement. The Agency should fully analyze the impact of the proposed budget on competition as part of their “general oversight of activities conducted pursuant to this Agreement.”