VeriSign Agrees to .Com Price Freeze as Agreement Renewal Condition

VeriSign and the Department of Commerce (DOC) announced this morning that the Agreement allowing VeriSign to remain in place as the .Com registry operator had been approved with one major alteration -- .Com wholesale prices will be frozen at $7.85 for the six-year length of the Agreement absent extraordinary circumstances. The version of the Agreement approved by ICANN’s Board in June had allowed four price increases of seven percent each during its term without VeriSign being required to provide any justification, which would have allowed .Com prices to be raised to as high as $10.29. The price freeze will save current .Com registrants approximately $600 million.

ICA is taking half a victory lap over this welcome news. DOC went further than we had urged on the price freeze front, as we’d suggested that VeriSign be permitted to adjust wholesale prices to reflect increases in the Consumer Price Index. But it did not take up our suggestion that the .Com base price be reduced to $5.86, the current wholesale domain price for the .Net registry that VeriSign runs out of the exact same facilities. We are under no illusions that our letter to the Departments of Commerce and Justice was the spur to their extended review of the Agreement’s pricing provisions, as we were as surprised as everyone when VeriSign announced last month that the Agreement was under price provision review that might require a six-month extension of the current Agreement. However, we do hope that the compelling arguments contained in our letter played some role in VeriSign’s decision to accept this deal rather than have discussions go into overtime and risk other parties chiming in for the type of price restrictions and rollbacks we advocated.

VeriSign tried to put the best face on the announcement in its official press release (https://investor.verisign.com/releaseDetail.cfm?ReleaseID=724216):

"This is an important event that provides certainty and sets a clear direction for the Company," said Jim Bidzos, executive chairman, president and chief executive officer for Verisign. "This certainty, combined with our strong portfolio of assets, which includes broad DNS expertise, a combined total of more than 200 unique patents and patent applications in the U.S., the world's most reliable registry, and over $1.4 billion in cash, positions us well to participate in the growing global market for Internet registry and infrastructure services."

The Department of Commerce’s statement (http://www.ntia.doc.gov/press-release/2012/department-commerce-approves-verisign-icann-com-registry-renewal-agreement) stressed the consumer benefits from the price freeze:

“I'm pleased the Department of Commerce was able to find that renewal of the agreement is in the public interest,” said Lawrence E. Strickling, Assistant Secretary of Commerce for Communications and Information and NTIA Administrator. “Consumers will benefit from Verisign's removal of the automatic price increases. At the same time, the agreement protects the security and stability of the Internet by allowing Verisign to take cost-based price increases where justified.”

DOC’s amendment to the ICANN-approved Agreement (http://www.ntia.doc.gov/files/ntia/publications/amendment_32_11292012.pdf) consists of five basic elements:

  1. 1.    The revised .Com agreement is approved
  2. 2.    The wholesale price of .Com domains is capped at $7.85 with VeriSign allowed to raise prices only with written DOC approval based upon compliance costs for new ICANN consensus policies, or cybersecurity justifications
  3. 3.    VeriSign can petition DOC for approval of the price cap if it can demonstrate that .Com no longer has market power
  4. 4.    The .Com registry Agreement is extended through November 30, 2018
  5. 5.    DOC’s approval of the Agreement continues to confer no antitrust immunity on VeriSign

While VeriSign could theoretically go back to DOC and ask for the price cap to be lifted during the term of the new Agreement, we think it’s extremely unlikely that the same Administration that insisted on a price freeze would conclude that .Com has lost market power any time soon. We also doubt that the introduction of new gTLDs will do much to erode that market power in the foreseeable future. So our guess is that VeriSign won’t broach this subject until the next round of discussions in 2018.

VeriSign held a conference call with stock analysts this morning and stressed – as ICA had pointed out in our letter – that VeriSign has ample room to grow its business through additional registrations in .Com and the other registries it operates; through its new gTLD applications for IDN variants of .Com and .Net (which are not subject to any price constraints); and as back end technical provider to 220 new gTLDs. It also noted that it planned to continue its share repurchase program, having redeemed 1.4 million shares during the past two months and with $584 million of its cash hoard earmarked for that purpose going forward. And it clarified that changes in its operating margin or capital base would not be sufficient justification for DOC approval of a price hike.

While it had been our impression that any material change in the Agreement would require ICANN to put it out for another round of public comment, CEO Bidzos stated on the call that ICANN had already approved it and the new Agreement would take effect tomorrow.

During the analyst call CEO Bidzos noted that VeriSign hadn’t yet “exploited” its extensive patent portfolio and that “patents themselves are an opportunity for VeriSign”. Such exploitation might involve the introduction of new registry products and services, and he noted that VeriSign had established a lab devoted to turning patents into products that would start entering the market next year. Of course, it might also involve attempts to claim that it owned the rights to critical registry operational processes and the extraction of licensing fees from other registry operators – only time will tell.

Today’s announcement was déjà vu all over again, with a happier outcome for .Com registrants, as ICA was formed in the aftermath of the widespread consternation over the .Com litigation settlement that ICANN agreed to in 2006 and that is the basis for today’s expiring Agreement.

ICA plans to send a follow-up letter to DOC and DOJ, thanking them for protecting registrants and raising some technical issues related to today’s announcement. In particular, we think it’s important that the public be given notice and opportunity to comment if and when VeriSign petitions DOC for a price increase, and especially if it claims that .Com no longer has market power and price restrictions should be removed altogether. But for now .Com registrants can count on the certainty of stable pricing for the next half dozen years.