IP: AOL to Compete in Assigning Internet Domains

[Dave Farber <farber@cis.upenn.edu>]

http://www.nytimes.com/library/tech/99/04/cyber/articles/22domain.html

          April 22, 1999


          AOL to Compete in Assigning Internet Domains
          By JERI CLAUSING  
          ASHINGTON -- America Online, the world's largest online service, was 
          one of five companies chosen Wednesday to compete with Network 
          Solutions Inc., which currently enjoys a Government-backed monopoly in 
          the lucrative business of assigning the Internet addresses known as 
          domains. 
          While the surprising choice of America Online introduced a seemingly 
          formidable competitor to the business of assigning Internet addresses, 
          its selection nonetheless raised new questions about the ability of 
          smaller companies to ever effectively compete in this much-coveted 
          marketplace. 

          "It's unfortunate," said Dave Farber, a professor of computer science 
          at the University of Pennsylvania and a board member of the Internet 
          civil liberties group the Electronic Frontier Foundation. "I think it 
          was a good opportunity to spread the wealth. Now you get AOL against 
          NSI, and they can have a ball." 
          The other four companies selected in this first round -- it will be 
          opened to many more companies this summer -- were Register.com, a 
          comparatively small New York-based domain name reseller; a subsidiary 
          of France Telecom; Melbourne IT of Australia and the Internet Council 
          of Registrars, an international consortium that helped lead the 
          movement to break Network Solution's monopoly. 
          The selection of the five registrars was the first major action taken 
          by the Internet Corporation for Assigned Names and Numbers, or Icann, 
          the nonprofit corporation established last year by the Clinton 
          Administration to move management of the Internet from government 
          contractors to the private sector with international oversight. 
          Since 1994, Network Solutions has had an exclusive right to assign 
          companies and individuals Internet addresses in the so-called 
          top-level domains -- those ending in the suffixes .com, .net and .org. 
          Breaking that monopoly was among the top priorities of Icann when it 
          was organized last November. 
          At a news conference today, Icann's interim chairman, Esther Dyson, 
          characterized the move as "a major milestone in the joint efforts of 
          the public and private sectors to bring Internet users the benefits of 
          real competition." 
          But just how much competition the new companies will offer Network 
          Solutions remains to be seen, since the company will retain its hold 
          on the Internet registry, the central database of all Internet 
          addresses already assigned. And under Icann's rules, competitors will 
          have to pay Network Solutions a $9-a-year fee for access to the 
          registry -- far more than the administration costs, critics contend. 
          The companies also will have to pay Network Solutions a $10,000 fee up 
          front to help cover the costs of the software it developed to enable 
          others to add registrations to its database. 
          Commerce Department officials have been wrangling with the company 
          over several difficult issues, including what portions of the 
          databases and software built by Network Solutions as a Government 
          contractor are now public and which are private property. 
          In the seven years since it was granted an exclusive Government 
          contract to build the database and registry system, Network Solutions 
          has transformed itself into a Fortune 500 company, offering a variety 
          of registration services and establishing registry partnerships all 
          over the world. 
          Wall Street was unfazed Wednesday by the threat of competition from 
          America Online. Network Solutions' stock, which had lost half its 
          value over the last few weeks, closed at 92 -- 32 points higher than 
          Tuesday's close, a better than 53 percent gain. 
          "The economic reality is that Network Solutions has all the market 
          movement in its favor, and there's nothing Icann or the Government can 
          do to really unseat Network Solutions," said Keith Benjamin, an 
          Internet analyst with Banc Boston Robertson Stephens in San Francisco. 
          "They have a crucial relationship with essentially every Internet 
          service provider on the planet." 
          And despite the name recognition and wealth of America Online, 
          Benjamin said, "This is a business that AOL is not going to be easily 
          suited for. They cater to a consumer market, so it is a little 
          confusing why AOL is doing this." 
          Dyson said the board intentionally picked a large company, a small 
          company and interests representing different business models and 
          regions of the world to make sure that different companies could all 
          interact and effectively compete. 
          In addition to the five test-bed participants, ICANN announced that 29 
          applicants, including AT&T, had met its accreditation criteria and 
          were expected to be certified to compete when the system is opened to 
          unlimited competition this summer. 
          Network Solutions put a positive spin on today's announcement, noting 
          that it already had more than 5 million customers and millions of 
          still-unassigned names to compete for. 
          Christopher Clough, a spokesman for the company, called the 
          competition "good for everyone," but added: "Obviously, we have a head 
          start. We have the most established company. We have the world's 
          leading experts on the domain-name system," 
          Alluding to the fees competitors will have to pay for access to the 
          registry, he noted that Network Solutions was not only "taking on five 
          new competitors but five new customers." 
          Bill Burrington, America Online's vice president for policy, agreed. 
          He said his company had applied to become a registrar because it saw 
          the opportunity to create a new "value-added service." But he 
          emphasized that "it's too early to say how the process will play out." 

          "This is all new," he said. "We are doing this on the fly -- in 
          Internet time," Burrington said. "We don't know where this is all 
          going."