U.S. May Soon End Its Reign as Master of Domain Names

The cost of securing an outpost in cyberspace is expected to fall as a result of an agreement the Clinton administration announced Tuesday that will transfer control of the Internet naming system from the U.S. government to the private sector.

The agreement among the Commerce Department, Network Solutions Inc. and the Internet Corp. for Assigned Names and Numbers (ICANN) is designed to generate competition in the increasingly lucrative business of registering non-government Internet domain names--such as latimes.com--that end in .com, .net and .org.

If it wins final approval in early November from ICANN--the Los Angeles-based nonprofit corporation created by members of the Internet community to oversee the domain name system--the agreement will complete a two-year process of easing the U.S. government out of direct Internet administration.

The Clinton administration decided to exit the Internet business as private corporations and individuals supplanted government-sponsored researchers as the prime users of the global computer network. More than 5 million Internet domain names have been registered so far, and experts forecast even faster growth in the years ahead.

As a result of the agreement, Network Solutions, the Herndon, Va.-based company that for six years was the exclusive registrar of domain names, will share the market with 76 other firms. But the company, which made a profit of $11 million last year, will maintain a registry of domain names that will be shared by all registrars to keep track of which names have been assigned.

Most Web surfers will not feel any direct impact from the deal. But companies, individuals and organizations that register domain names could see their annual domain name registration fee drop as much as 50%. The price cut will be fueled by competition from America Online, AT&T; and other firms that have been accredited by ICANN.

“This is a landmark date for the Internet,” said Commerce Secretary William M. Daley. The agreement will “create robust competition, facilitate global participation and preserve the stability of the Internet.”

The agreement solidifies ICANN’s power to administer the domain name system and break up Network Solutions’ monopoly. ICANN’s authority had been in doubt because the company refused to recognize it. .

But the agreement doesn’t address some of the bigger questions about Internet growth, including whether to add new domain name suffixes such as .web, .biz or .store. Some experts believe that the best way to eliminate Network Solutions’ monopoly is to allow other companies to offer domain names with easy-to-remember endings that can compete with names ending in the popular .com suffix.

“If I can register for a .biz name for $20, it will force .com to drop its price,” said Wayne State University law professor Jonathan Weinberg, who helped formulate the Clinton administration’s Internet policy during a stint at the Federal Communications Commission.

As part of the agreement, Network Solutions will sign a contract with ICANN and prepay the cash-strapped organization $1.25 million in registrar and registry fees that are expected to be approved soon.

“This is a big win for ICANN,” Weinberg said. “It puts ICANN on a firm footing in terms of its political base. It leaves it in a much more secure position atop the system.”

In exchange, Network Solutions will be able to operate the shared registry system for four years and charge a $6 fee to registrars every time they assign a domain name to a customer. The current fee is $9. With more than 1 million domain names registered every three months, that part of the agreement is expected to be worth more than $100 million to Network Solutions.

Analysts expect that in addition to running the registry Network Solutions will retain the lion’s share of the registrar business because of its six-year head start.

The deal sent Network Solutions stock, which has fluctuated wildly during the yearlong dispute, up $12.69 to close at $85.50 in Nasdaq trading Tuesday.

Though observers said the deal would mean lower prices and more choices for consumers--for example, they will be able to register domain names for one year or 10 years instead of being locked into two-year contracts--some of Network Solutions’ competitors grumbled about the lack of competition on the registry side.

Richard Forman, chief executive of New York-based Internet domain name registrar Register.com, said he believes the registry fee could have been as low as $2 if several companies had been allowed to bid for the job.

“This is not a competitive process,” he said. “The government talks about competition and opening this up, and look what happens--they give NSI a four-year monopoly.”

The agreement gives Network Solutions an incentive to exit the registry business. If the registry is sold within 18 months, the four-year contract will be extended to eight years, making it more attractive to a buyer.

Jim Rutt, chief executive of Network Solutions, said the company has not yet decided when it will sell off its registry business. Any decision on that score is at least several months away, he said.

The Commerce Department and Network Solutions have approved the agreement. The ICANN board will solicit public comments for 30 days and vote on the agreement at its next meeting Nov. 4 in Los Angeles. If approved, it would take effect the next day.

Analysts warned that the domain name controversy would remain until the deal is fully implemented.

“The uncertainty has been eliminated, but the ink is not dry,” said George Reed Dellinger, a technology expert for the economics consulting firm Washington Analysis. “The burden will be on Network Solutions to demonstrate it can compete in a real open market.”