US anti-trust division tells ICANN to slow down on vertical integration

The United States Department of Justice (DoJ) has told ICANN its plan to remove existing restrictions between those that run Internet registries and those that sell domain names is “misguided” and needs more work before it goes ahead.

The letter sent today from the DoJ’s Anti-trust Division warns ICANN that it needs to carry out a “more thorough examination” of the potential harm to consumers before it moves ahead with its plans to remove current cross-ownership restrictions.

That warning over ‘vertical integration’ comes despite three economic studies commissioned by ICANN in 2008-2010, and in fact quotes from the first of them to back up its conclusion. It also puts another question mark over whether ICANN will be able to approve the rules for the introduction of hundreds of new Internet extensions at its meeting in Singapore next week.

James Tierney, Chief of the Networks and Technology Enforcement Division at the Department of Justice, acknowledges that a full analysis of the market is beyond the scope of the letter, but nonetheless recommends that ICANN not allow vertical integration in all the main existing Internet extensions, saying that such a move “would lead to substantial price increases” in dot-com, dot-net and dot-org, and “price increases” in dot-info and dot-biz.

He does however suggest cross-ownership should be allowed with the smaller top-level domains due to their limited market power, but only after consultations with stakeholders and independent analysts.

Perhaps most significantly for ICANN, given its desire to approve the Applicant Guidebook next week, the letter recommends that ICANN “address competition issues” before it allows for cross-ownership rules to be lifted in new gTLDs.

It also slams ICANN’s “apparent belief” that competition agencies will effectively address the negative impact of lifting the rules as “misguided” and questions the effectiveness of such an approach.

Mind the GAC

The DoJ response comes through the Department of Commerce (DoC), which has repeatedly asked ICANN to consider the vertical integration issue in greater depth, including as part of a “Scorecard” of issues that governments overall have with the new gTLD process.

The ICANN Board has repeatedly rejected that approach and instead produced a rationale document explaining its decision, which has subsequently been described as insufficient by members of the Governmental Advisory Committee (GAC).

In its cover letter to ICANN’s chairman, DoC Assistant Secretary Larry Strickling stops short of telling ICANN to halt its new gTLD plans (something he did in December), but nevertheless makes its plain that the US government views the advice as needing serious consideration.

“We recommend the ICANN Board carefully consider the concerns raised by competition authorities before taking action on proposals to make wholesale changes to restrictions on cross-ownership of registries and registrars for existing and new gTLDs,” Strickling wrote.

Intriguingly, Strickling also refers to a similar letter sent to ICANN by the European Commission on 14 June, which has yet to come to light.

If the EC has also weighed in on the vertical integration issue, it looks increasingly like the result of the high-level consultation between the Strickling and EU Commissioner Neelie Kroes last month in Brussels.

That bilateral meeting was specifically called to allow the two parties, who represent the most powerful forces in ICANN’s GAC, to discuss their concerns over actions by ICANN’s Board and management in the past year, in particular the approval of the dot-xxx extension for adult material online.