The Longest Now


ICANN races towards regulatory capture: the great .ORG heist
Saturday November 23rd 2019, 6:13 pm
Filed under: chain-gang,fly-by-wire,international,Not so popular

Updates: EFF letter, PIR’s update; IGP’s insider take; ICANN resolution;
Ways to act, Reg essay x2Ohashi, Tim Berners-Lee response;
Letters from
ISOC(😇), Ethos(🌈), and a banker (🚩🚩📜)
(See also Part 2: How to Flip .org)

Ethos Capital, a new commercial investment firm founded in the past few months in Boston, has 2 staff and only one pending investment: a deal to acquire the 501c3 non-profit that currently runs the .org domain (valued at a few $B), for an undisclosed sum. This was initiated immediately after ICANN decided in May, over almost universal opposition, to remove the price cap on .org registrations with no meaningful price protections for existing or future registrants.

This seems to run afoul of a range of ethical, ICANN, ISOC, and non-profit guidelines.  It is certainly the privatisation of a not-for-profit monopoly into a for-profit one, which will benefit ISOC and a few individuals by inconveniencing millions of others.  I have questions:

  • Do affected parties have recourse?
  • Other than polite letters, do any responses have teeth?
    • Maybe: Official complaints have been filed, but don’t expect results.
    • Chronic optimists can .. take part in ICANN and ISOC governance
  • Has anyone currently at ICANN + ISOC made substantive comment?
  • Vint Cerf said: ‘Hard to imagine $60/year would be a deal breaker for even small non-profits.
    • How did we get to Net pioneers embracing 99% profit margins?

For more backstory, read on…

A brief history of  .org

Details via the Namecheap complaint to ICANN, Kieren McCarthy‘s excellent series of articles at The Register, the EFF + ICA letters, Jacob Malthouse, the ICANN and original wikis.  

In 1993, Network Solutions was awarded an NSF contract to run the non-governmental top-level domains [TLDs].  In 1998 ICANN was established to develop a competitive marketplace of registrars, and implemented the first version of vertical separation: distinguishing registries from registrars.

Verisign acquired Network Solutions, including both its registry and its consumer-facing registrars, in 2000.  At the time, ICANN required structural but not legal separation between the two.  In 2001, ICANN began requiring legal separation between registry and registrar for all new registries.

The next 7 generic TLDs were also appoved and began to be introduced in 2001.

The original non-profit registry : the Public Interest Registry

In 2003, as part of a deal with ICANN to ensure it could renew its control of the .com registry, Verisign agreed to give up .org.  A public bid and review ensued, which was won by the Internet Society (ISOC), a non-profit dedicated to the open development, evolution and use of the Internet for the benefit of all.  Their winning bid was to stand up a new 501c3 to manage the domain, which they called the Public Interest Registry (PIR).
The non-profit nature of ISOC and PIR was central to their winning the bid.  PIR gave ISOC a portion of every registration; in time this became the dominant source of funds for ISOC — over 90% of ISOC’s current $50MM budget.

The acquisition of a plurality of registries by four people

In 2010, under Rod Beckstrom, ICANN began pursuing an aggressive expansion of generic TLDs, which was eventually reviewed by the US Senate in 2012.  In November 2010, ICANN reversed its policy on vertical separation, allowing new registries to own registrars. Separately, mega-registry Donuts.com was founded by people who had been fighting for this change, with the mission of acquiring new TLDs.

In 2012, the nature of ICANN’s work transformed: the launch of the expanded TLD program quadrupled its total assets under management, by creating a new pool of funds from the Global Domains program. They invested this via their own small investment group, and have gradually moved funds into an ICANN reserve fund.

Beckstrom stepped down, and ICANN COO Akram Atallah briefly took over as interim CEO before his childhood friend Fadi Chehadé joined as CEO from 2012-2016.

Under Chehadé, Atallah became president of ICANN’s Global Domains Division (now their cash cow). From 2014 to 2016, the number of available gTLDs was expanded dramatically, from under 100 to around 1400 in all.

Musical chairs

In May 2015, Chehadé announced he would leave ICANN the next March, after completing work to end US oversight of IANA. He started his own consultancy and joined Abry Partners, a Boston-based equity firm (no scare quotes) where Erik Brooks (HBS) was one of 3 managing partners. Both are well connected in academia as in business, and advisors or fellows of the KennedyBelfer, and Shorenstein centers.

In March 2016, Göran Marby became ICANN CEO.
In July 2016, Verisign (via a proxy) purchased .web for $135M.

In May 2018, ISOC appointed three new trustees to PIR, replacing outgoing trustees (a regular occurrence).  Later that month Brian Cute, PIR’s CEO of 7 years, resigned suddenly, with no explanation. One of the new trustees took over as interim CEO.

In June 2018, Andrew Sullivan, former chair of the IETF’s internet architecture board, was appointed CEO of ISOC, starting in September.

In September 2018, Chehadé (then a partner or senior advisor at Abry, depending on who you ask), helped Abry close their acquisition of a majority stake in Donuts. Donuts by then had raised $300M and spent much of it buying some 250 TLDs. Brooks took a board seat at Donuts.

In October 2018, Donuts co-founder and chief counsel Jon Nevett (HLS), stepped down. Brooks replaced the Donuts CEO with… Akram Atallah.

In December 2018, Nevett became the new CEO of PIR, responsible for .org.
The announcement highlighted his commitment to its non-profit ideals.

 

The .org heist

Lifting the price cap

In January 2019, as part of the scheduled renewal negotiations between ICANN and the registries for .org, .biz, and .info, PIR requested that price caps on their domains be removed. ICANN proposed basing a renewal agreements on the new Base Registry Agreement now used with new generic TLDs, which includes ‘Uniform Rapid Suspension‘, PIR agreed to this. (NB: there is disagreement about who first requested removal of price caps here)

The EFF wrote a compelling summary of why these changes did not make sense for the large historical registries.

On March 18 2019, ICANN invited comments on the idea of lifting price caps for .org.  PIR’s non-profit status and history were touted as central reasons not to worry.

They received more comments (3,300) than they had on almost any other decision, uniformly opposed to the change (98% opposed; 2% unclear, 0.2% in support.) Oppositions came from registrars, NGOs, and people across the globe.

On May 1st, comments closed, and PIR responded with an open letter that said [paraphrasing]: ‘We could already be raising prices 10% a year, and have not… You would get 6 months notice of any price change… We are a mission-based non-profit, and would never betray the trust that you have put into .ORG and us.

After the acquisition announcement in November, PIR’s public letter projected “annual price increases of up to 10 percent on average“, which is… not exactly the same.

Less optimistic, the Internet Commerce Association wrote a detailed letter to ICANN summarizing the risks, fragilities, and potential worst-case scenarios involved in lifting the price caps. Registrar Namecheap submitted a strongly principled request for reconsideration to ICANN asking them to change their mind; and updated it in November when the sale was revealed.

Decision

In summarizing the comments later, ICANN constructed its own reality, saying: “there was a group that opposed lifting price caps, but it is not true that ‘the community’ was ‘strongly opposed’ to lifting them.” The Internet Governance Project offers an insiders view of how one might justify ignoring the 99%.

In rejecting Namecheap’s complaint in November, the ICANN board said unhelpfully, “ICANN org’s Core Values do not require it to accede to each request or demand made in public comments“.

On May 7th, Chehadé registered the domain for EthosCapital.com.

On May 13th, ICANN decided to lift the price caps anyway. The decision was made by ICANN staff, not its board, evading the obligation to publicly carry out due diligence and explain board decisions.

On May 14th, Ethos Capital was incorporated as a new Boston-based “investment firm”, founded by Brooks — who stepped down from running the 60-person team at Abry to do so. Ethos Capital has two staff: Brooks and Nora Abusitta-Ouri, a former ICANN SVP who later worked for Chehadé.

In June, Kevin Ohashi wrote about regulatory capture at ICANN, noting that the organization was coming to represent only a few influential registries, not its other constituents.

At the end of June, ICANN and PIR signed the new .org registry contract (renewing PIR’s license, using the new agreement template).

Acquisition and capture

In September, Nevett (by his own account) was first approached about by Brooks about acquiring PIR.

At this point, .org had tremendous value to a private owner, that it could not realize for a non-profit:

  • No justification needed for raising revenues dramatically
  • No salary caps or budget transparency: any former PIR or ISOC staff could leave and work for this new group for better pay
  • .org pricing helps set a market floor for other domains. Every price increase will directly benefit all uncapped registries — notably the Donuts portfolio. PIR would have a hard time finding ways to benefit from this, a private equity firm will not.

On November 13, surprising almost everyone (the charitable nature of PIR was a constant talking point, and no one had floated selling .org to a for-profit company for any reason), ISOC announced that Nevett & Sullivan had approved the acquisition of PIR by Ethos, for an unspecified amount (informally projected to be over $1B). Worth noting: this had not been among the modest worst-case scenarios considered by the ICA in their May letter.

An email from Sullivan on the ISOC members list suggested that Ethos raised the money from three large funds: Perot Holdings, Fidelity, and Solamere Capital.

Announcement and responses

Official statements came out Nov 13+14.  A raft of newswire releases, straight reports of the sale (treating Ethos as a legitimate equity firm), and concerned reactions (what does this mean for us?) came out in the tech media.

The announcement went out of its way to note the advisors behind it: ISOC + PIR had counsel from Morgan Lewis + Proskauer Rose; Ethos had counsel from MoFo.

Namecheap updated their previous request for reconsideration. EFF filed their own request.

On Nov 21, the ICANN board met, and reviewed & rejected Namecheap’s request for reconsideration of the .org renewal (no response yet to the EFF’s).

On Nov 22, the acquisition was picked up by the wider media as well.

On Nov 23-24, the ISOC board met.
On Nov 24, PIR published an open letter with a short Q&A to the site keypointsabout.org. It had little new information, noting 4 invisible investments made by Ethos to date (only one had a recent funding round, which did not mention Ethos), and stated stolidly “The removal of .ORG’s price restrictions earlier this year was … in no way motivated by a desire to sell PIR.

Nov 25-26 was the Internet Governance Forum’s 2019 meeting, in Berlin, full of public sessions. Some attendees tried to rally to #savedotorg.

On Nov 27, ISOC Trustee Richard Barnes posted a personal explanation of why he voted to sell .org — a belief that 1) rather than being ISOC’s most visible achievement, the public interest registry was merely a source of revenue from “leasing domain names,” and maintaining it was “distracting from the broader mission” of ISOC; and 2) they should diversify revenue sources.

… by selling the most stable revenue source on the internet and putting the result in a managed endowment?  Maybe the endowment can invest in Ethos.

As of Nov 28, 10,000 people and organizations had signed the #savedotorg letter.

What people are saying: complaints and dismay

Formal complaints:
Namecheap renewed their complaint to ICANN.
EFF filed its own, saying the ICANN board should have made the decision, not staff.
The Internet Commerce Association filed a complaint, with a scathing letter: “ICANN should immediately exercise its right to withhold approval of the sale of the .org registry and terminate the registry agreement in respect of any consummated transaction.

Open letters:
The EFF, Wikimedia, and 24 other major non-profits wrote ISOC asking them to block the sale.
An individual letter-writing campaign was started at #savedotorg.

Marc Rotenberg, founding board chair of PIR, wrote: “We built the .org domain with the specific goal of promoting the noncommercial use of the Internet… transparency and accountability [will be] lost when the Public Interest Registry is acquired by a private equity firm.

Esther Dyson, founding chair of ICANN, wrote: “As founding chairman of #ICANN, I’m appalled… This is not what we were working for.“, pointing out that this is both regulatory and financial capture.

Tim Berners-Lee wrote: “If the Public Interest Registry ends up not being required to act in the public interest, it would be a travesty. We need an urgent explanation.

ISOC’s Netherlands chapter opposed the sale and called on other chapters to do the same.

Financial concerns:

Ayden Férdeline briefly explores what ISOC does with its funds and how it is run. Here is their 2020 plan.

Andrew Mack, ISOC Business constituent, writes about the many red flags in this deal, and the need for enforceable contracts around any expectations from the buyer.  “As a banker… they taught me to look for “red flags,” and in this deal, I see a lot of them. No public comment or public bid. No clear contractual commitments or in-depth plans to support the sector. A radical change of ownership overnight from a non-profit with a demonstrated knowledge of the sector to a not-quite-sure-who de novo entity with a lawyer-crafted website and no track record with NGOs. Magical timing of the deal following contract renewal. The connection with former (recent) ICANN management … If Ethos Capital is truly interested in supporting the NGO sector, let’s see those commitments in meaningful, enforceable contracts.

What people are saying: no comment

ICANN has the right to withhold approval of the proposed sale, under Section 7.5 of the .Org Registry Agreement; they have 30 days after they receive the last requested information about such a sale to consent or explicitly withhold consent.

ICANN told the Reg they were informed of the deal when it was announced publicly (so: Nov. 13), and are in the process of analyzing the specifics of the deal. They say they asked PIR to share further details, but PIR has refused on grounds of confidentiality.

In that same comment, they were nevertheless supportive of the deal, exaggerating pricing protections written into the current .org contract (registrars must give domain-holders 6 months notice of a price increase for renewals, and have the option but no obligation to offer renewals for up to 10 years at current rates.)

At the Internet Governance Forum meeting in Berlin, panelists avoided asking and answering the question, though it was the most-voted on a public question tool.

What people are saying: puppies and rainbows

Vint Cerf, founding ISOC president and former ICANN chair: “I am looking forward to supporting Ethos Capital and PIR in any way I can.” and “Hard to imagine that $60/year would be a deal breaker for even small non-profits.”

ISOC president Andrew Sullivan, believing furiously: “We believe many in the community see the long-term benefits of this deal.”

PIR itself, in the vaguest plan for a $BB windfall I’ve seen all week, will “Establish a Stewardship Council… Launch a Community Enablement Fund to support initiatives by Internet organisations… Expand .ORG prizes to non-profit organizations”. The latter apparently refers to $30k in small prizes given out last month, for the first time.

Andrew Sullivan wrote a short post, acknowledging the concerns raised by the .ORG community. He thinks everything is “good for all stakeholders“, and he is an honourable man. Ethos “stated their intent to keep prices reasonable“, and they are all honourable people. In his view, ISOC’s work is “connecting the half of the world’s population that does not have, or cannot afford, Internet access… defending the Internet against those who attack it every day” and they wanted the “security and stability” which a “substantial endowment” can provide. 

Ethos’s Nora Abusitta-Ouri restated their private equity group’s warm nurturing goals, pointed to the FAQ in PIR’s public letter, and desribed the .org deal as a passive acquisition and just one of their many projects: “A great example is when Ethos recently agreed to acquire Public Interest Registry (“PIR”) from the Internet Society.

Other mentions in the press

11/19: CircleID: Thoughts of an ICANN public interest stakeholder on the .org sale

11/22: EFF: the nonprofit community stands together to protect .org


18 Comments so far
Leave a comment

[…] ICANN races towards regulatory capture: the great .ORG heist […]

Pingback by popular today 11.25.19 @ 6:26 am

It’s an “interesting” construct to have to pay a private company a yearly amount of money – just to keep the name you have, to keep an electronic identity. Generally the domain names should be run by a not-for-profit registry. The actual services like DNS, hosting etc. is an entirely different beast.

Comment by Ingo vB 11.25.19 @ 8:05 am

[…] of the basic facts about the sale have been reported elsewhere. A good summary from Samuel Klein is here. Not so clear is what should be done about it. We are still debating the appropriate response by […]

Pingback by What to do about .ORG - Internet Governance Project 11.25.19 @ 11:28 am

[…] ICANN races towards regulatory capture: The great .org heist 496 by fanf2 | 85 comments on Hacker News. […]

Pingback by NBS 11.25.19 @ 2:25 pm

[…] .org 域名的注册机构 The Public Internet Registry(PIR) […]

Pingback by Ethos Capital收购PIR被指– NEWS.ALL 11.26.19 @ 12:06 am

[…] Public Internet Registry(PIR),此事引發了廣泛爭議,被認為是一次赤裸裸的搶劫。Network […]

Pingback by 赤裸裸的搶劫行為 – WONGCW 11.26.19 @ 1:55 am

Why are we surprised after Vint became a shill for Google?

Comment by NQ 11.26.19 @ 4:10 am

[…] ICANN RACES TOWARDS REGULATORY CAPTURE: THE GREAT .ORG HEIST – The Longest Now […]

Pingback by .Org Deal: Esther Dyson is Appalled 11.26.19 @ 1:26 pm

[…] of the basic facts about the sale have been reported elsewhere. A good summary from Samuel Klein is here. Not so clear is what should be done about it. We are still debating the appropriate response by […]

Pingback by What to do about .ORG 11.26.19 @ 10:43 pm


The decision makers at ICANN, ISOC etc. operate in their personal self interest to maximise the amount of money they manage and I understand that.

What really infuriates me is some lower level staff who buys into it and says things like “we do good work around the world and that this will allow us to continue” or “focusing better” (reminds me of https://meta.wikimedia.org/wiki/Narrowing_focus ).

That’s exactly what thousands of learned societies and universities thought in the 1960s, when academic journals were a money-losing activity and it seemed innocuous to sell them to a private monopoly like Robert Maxwell’s Pergamon (now Elsevier). It didn’t take long for the serials crisis to come, and 60 years later we’re still busy trying to clean up that mess while the profiteers extract billions of dollars from the educational system in return for nothing.

It won’t take long for the new owner to do the same, once there is no gTLD left with a price cap. In 30 years of 10 % increases the price becomes 170 $/y. Multiply by a few hundred thousands orgs unwilling to spend resources on a costly migration, and you get a nice flow of tens or hundreds of millions per year to the bank account of the new billionaire owners.

In the next 30 years, the “open access DNS” movement works tirelessly for people to wise up. Fewer and fewer orgs use an .org domain, but the costs to handle the legacy identities are invincible. Victory is declared in 2120, when a .org domain costs 140 k$/y but most entities using one have already died: the successor of Ethos Capital returns .org to ICANN and files for liquidation. The CEO notes gleefully that in its relatively short history the company has distributed tens of billions of dollars to shareholders at 2020 values, more than anybody had imagined in 2019, which surely means the management worked very hard and well, providing immense value to humanity.

Comment by Nemo 11.28.19 @ 5:13 am

[…] The .org registry has been sold to a private equity firm, and there is a whole lot of suspicion about how that deal went down. We’ll unpack it a […]

Pingback by 2×60: Thanks Given | Bad Voltage 11.28.19 @ 5:53 am

I also wonder who else will benefit if the .org prices are allowed to increase. If price caps are lifted on .com and .net, competition from .org might reduce the appetite for price increases. If .org increases prices, this gives more room for others to profit off gTLD.

Would Verisign be a major beneficiary? Who are its main owners and stakeholders? I see a 1.42 % stake from Renaissance Technologies, whose previous CEO is Robert Mercer.

Comment by Nemo 11.28.19 @ 2:05 pm

I think we should oust Andrew Sullivan, President of ISOC, and other high level staff. We cannot accept questionable practices to impede the integrity of the mission, not to mention that the internet is continued to be shaped by people living on a shoestring and IETF already showed ISOC management the door.

We should let the Danish government take over ICANN as the hobbits we all trust and rebuild ISOC. ISOC should be like NLNET Foundation. Mission focussed, without the excessive staff expenses and non-action.

Comment by Andy 11.28.19 @ 5:54 pm


[…] the connections between current and former CEOs at Ethos Capital, ICANN, and the .org registry in the lead up to […]

Pingback by Powerful internet authority says it’s powerless to stop billion dollar .org takeover - EaDo Storage News 12.01.19 @ 5:44 pm

Can you/somebody make a diagram of these connections haha. OR hopefully, the mainstream media will pick this up (unlikely)

Comment by Daniel 12.02.19 @ 12:31 pm

[…] They don’t care what the founding chairman of ICANN, Esther Dyson, thinks of the current ICANN board and this mess. […]

Pingback by Let's sue ICANN - OnlineDomain.com 12.02.19 @ 2:57 pm



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