From: Bruce Tonkin Sent: Thursday, 22 March 2001 8:56 PM To: 'jo.lim@auda.org.au' Subject: Melbourne IT response to the Competition Model Advisory Panel report To: Ms Jo Lim Secretariat auDA Competition Model Advisory Panel Melbourne IT response to the Public Consultation Report of the auDA Competition Model Advisory Panel, dated February 2001. Executive Summary ****************** The Competition Panel report describes an industry model that consists of several levels: Policy Authority Registry Registrar Reseller Registrant Competition can occur between organisations operating at each level, and competition can occur between organisations that may operate at different levels. Organisations may also vertically integrate some of these levels. auDA has the choice to open all levels up within ".au" for competition, or attempt to place restrictions on the number of organisations operating at each level. >From a consumer point of view a company wanting a domain name for >commercial activity in Australia typically chooses one of: ".com" ".net" ".com.au" ".net.au" ".au.com" These are already provided by multiple registry operators (Verisign (USA), Melbourne IT, Connect.com, NetRegistry). Within Australia, the quality and integrity of ".com.au" has resulted in it having the largest market share, but there has been rising competition from international registry operators such as Verisign with ".com". These domains also operate under multiple policy authorities. The current policy of ".com.au" was developed by Robert Elz at the University of Melbourne and has had a large part in the integrity and regard for ".com.au" versus its competitors in Australia. ".com" is the largest domain name space in the world. ICANN is the Policy Authority, Verisign is the Registry Operator, there are over 100 Registrars worldwide including Verisign and Melbourne IT, and thousands of resellers. Several of these registrars compete to provide ".com" names in Australia. Melbourne IT alone has registered more than 1 million ".com" names. Registrars have specific expertise in the domain name industry and pass a rigorous accreditation from ICANN to ensure they comply with technical and consumer protection standards, and that they are in good financial standing. Resellers include large IT organisations such as Yahoo, Telstra, and Microsoft that choose to concentrate on their core business and outsource the domain name services to registrars. In this market, Melbourne IT has focused on providing wholesale services to resellers rather than directly selling to registrants. Melbourne IT has invested millions of dollars in software and hardware systems to support this business. It is one of the top three companies in the world in this field. Since the introduction of retail competition in ".com", Verisign's market share has dropped below 50% of the retail market, and ICANN has announced that retail competition has been a success. However ICANN is now introducing new top level domains such as ".info", ".biz", and ".name" to provide consumers with more choice. ICANN has also decided to allow multiple registry operators to compete with Verisign in the provision of these services. Melbourne IT in partnership with Neustar (USA), has been selected as the registry operator for ".biz" globally, with a plan to invest over US$20 million in establishing the ".biz" domain name space as a major competitor to ".com". For ".com.au", Melbourne IT operates some of the registry functions (notably generating the zone file for mapping domain names to Internet physical addresses, and carrying out policy compliance checks). The other key registry functions have been provided by publicly owned organisations; the University of Melbourne has provided the primary nameserver for ".com.au" (the central telephone exchange equivalent), and Telstra has provided the WHOIS domain name directory (the whitepages equivalent) on AUNIC (this function is in the process of being transferred to auDA). The services have been provided on an "as-is" basis to the Australian community by publicly owned institutions at no direct charge to the public. There has been no substantial investment in technical or customer service levels associated with these critical functions, and they are currently a source of competitive weakness in the Australian information economy compared to the USA. This is in contrast to ".com", where Verisign has invested millions to improve the quality of the infrastructure supporting ".com". For ".com.au", Melbourne IT also operates as a registrar with direct sales to registrants. This is not a service that is marketed to registrants, and is mostly used by organisations that have IT departments that know of Melbourne IT through its historic involvement in domain names in Australia. In the past two years, Melbourne IT has actively built up a market amongst resellers to grow the market for ".com.au" beyond the traditional IT companies, and engage small businesses in the information economy. This has been successful with a 38% increase in ".com.au" domain names during 2000, with over 500 resellers now offering ".com.au" services. Melbourne IT now has less than 50% of the ".com.au" retail market, and thus has successfully introduced competition already at the retail level for ".com.au". Most resellers bundle domain names with other services such as website design, trademark registration, and accountancy services. The resellers receive a wholesale price that covers the registry costs. Some of these resellers charge more for domain names than Melbourne IT and some charge less. The price of a domain name has rarely been an issue for consumers, as the price of a domain name is small compared to the price of the other bundled services from a reseller. A significant component of the registry cost is the cost of managing the ".com.au" policy. This cost is comparable to the costs of providing other services with similar policies including business name services in each State, and the cost of providing trademark services. In both cases Melbourne IT provides a registry service at a lower cost, and a turn around of under 2 days to assess a policy issue. Much of the focus on domain name competition in Australia has focused on introducing competition in ".com.au". Much of this has been driven by the "tall poppy" syndrome, where Melbourne IT has actively grown the value of the ".com.au" market through significant investments in customer service and technical infrastructure. It has also sought to implement the ".com.au" policy with a high degree of integrity with independent arbitration. On the basis of its work in Australia, Melbourne IT has grown to be one of the leading companies in domain name services in the world. Melbourne IT has been constrained by the current historic environment from improving the overall ".com.au" infrastructure, and providing the same interfaces for resellers that it provides for ".com". However Melbourne IT has shown above that it thrives in a competitive global environment, and has in fact already introduced retail competition for ".com.au". Melbourne IT believes that introducing more organisations at the registrar level of retail competition is unlikely to significantly improve retail competition for ".com.au". In fact for ".co.uk" there is one organisation that provides both Registry and Registrar services, and has a large number of competing resellers. There is however no retail competition in other parts of ".au". The second level domain spaces ".net.au", ".org.au", "asn.au" are all operated by single organisations, with a set retail price. Given the existence of retail competition at ".com.au", the more important step forward is to open up competition for registry operators within ".au" at the level of the second level domains. Melbourne IT has advocated in the names panel, that auDA should introduce additional second level domains such as ".name.au", ".biz.au", and ".pro.au" as has been done internationally. auDA can either put the operation of these new second level domains out to tender, or could call for proposals from potential registry operators. There are also existing second level domains such as ".info.au" that have never been marketed, and could be made available to different registry operators that commit to marketing and supporting them. The proposal 4.3A to use a single registry operator for all second level domains within ".au" has been shown to be deficient on an international basis. Verisign is a single registry operator for ".com", ".net", and ".org". Verisign has focussed its efforts on marketing ".com" to the detriment of ".net" and ".org", and also Verisign has gradually removed all differentiation in policy between these three domains. Single registry operators at the level of a country code are only appropriate where the country code has direct registration at the level of the country code (e.g ".ca", ".tv", ".la"). Thus Melbourne IT strongly supports Proposal 4.3B for multiple registry operators. These registry operators should operate to a minimum standard set by auDA, but be allowed to innovate and provide improved services beyond the minimum. Organisations that want to establish a new second level domain, for example the indigenous community, would then have a choice of registry operators to provide the infrastructure for that domain and also assist in marketing the domain. A useful analogy is to consider radio stations. It is technically possible to have a single radio operator that provides transmission services for all FM radio stations. The different stations could have different policies for the content on the radio station. This is generally the case in communist countries such as China and Russia. However in Australia we have a range of radio operators that provide different coverage in the cities and service levels. For example the ABC operated radio stations provide a very wide geographic coverage but use the same standards as all other radio operators. It is also relatively easy to add new radio stations to the FM band, however a regulator ensures that new radio stations have a sufficient audience to justify their use of spectrum and the radio operators need to meet certain standards. A particular radio operator (e.g ABC) may decide to operate multiple radio stations with different target audiences. A consumer group that wants to operate a new radio station can approach a radio operator to provide transmission services. Thus Melbourne IT favours an environment where the regulator sets standards for the operation of radio transmission, and allows multiple organisations to compete. Some of the organisations maybe publicly owned and other organisations may be privately owned. There are already several organisations in Australia that would like to compete and offer domain name registry services. Melbourne IT believes that auDA should not constrain the current environment of multiple registry operators, nor should it constrain the ability to add new registry operators. Melbourne IT would like to leverage its international investments in the next generation ".biz" domain name registry, to provide a next generation ".com.au" registry. Melbourne IT accepts that other companies will operate in the same market (e.g Verisign) to operate other registries (e.g "name.au") at a similar high level of service. However there will still be room for registries that focus on the hobby market at a much lower level of service, and price. Melbourne IT could also provide registry services to community groups (e.g ".museum.au) that may be provided at a lower cost for a lower service level. Terms of reference of the competition panel ******************************************* The following are specific comments on the terms of reference relating to ".com.au": (1) Foster business efficiency, especially where this results in improved international competitiveness Melbourne IT believes that the quality of the ".au" infrastructure needs to be raised to the same level as ".com" for the ".au" names to compete in the long term with new top level domains at the international level such as ".biz", ".info", and ".name". For ".com.au" this can be done by bringing all the ".com.au" registry functions into one organisation (the ".com.au" registry), and setting strict service levels for the operation of that second level domain. There are also likely to be long term costs savings in operating this infrastructure by one organisation. Encouraging competition between registry operators (e.g ".com.au", ".biz.au", ".net.au") will encourage each registry operator to innovate in its provision of services to provide the lower cost and best quality registry solution. (2) Industry rationalisation resulting in more efficient allocation of resources and in lower or contained unit production costs As above. (3) promotion of industry costs saving resulting in contained or lower prices at all levels of the supply chain The improvements here are to improve the ".com.au" policy to remove subjective judgement and assist in policy automation thus lowering costs, put the ".com.au" registry function out to tender every few years or audit the costs of the current operator to agree on a registry price, and encourage competition between registry operators within ".au" to ensure that the ".com.au" registry is provided at the most effective service level and cost. (4) equality of access and a level playing field Encourage "ring fencing" between an organisation's registry (wholesale) and registrar/reseller (retail) business, to ensure that all retail participants have equal access to the wholesale service. Allow multiple registry operators to compete at the level of providing second level domain registries, with a common set of minimum technical standards (5) improvements in the quality of goods and services and expansion of consumer choice Introduce new second level domains that meet consumer demand (ie similar to adding radio stations) and provide more consumer choice. Encourage multiple registry operators to run these second level domains. Require these operators to provide wholesale services at the retail level to ensure retail competition. Enforce a level playing field at the retail level. Raise the technical standards for registry operators to an international level to improve the quality of the domain name space in Australia. Ensure sufficient consumer protection for the services provided at the retail level. The following comments address the specific proposals: 4.2 Policy Authority ******************** Melbourne IT agrees that auDA should have oversight of domain name policy in ".au", and that this can be delegated to another body. Melbourne IT strongly believes that there should be full separation between the policy setting body and the registry operator. Melbourne IT accepts that auDA could play a role in operating a basic WHOIS service for ".au" and all second level domains as a central whitepages, and that auDA could operate top level ".au" registry in the same way that the USA Government has oversight of the "." root registry. However other operators should also have access to the bulk WHOIS data to operate their own registries, often as part of more advanced bundled services. However for all second level domain name registries, Melbourne IT believes that auDA should either put them out to tender or accept proposals from outside organisations to operate the second level registries. auDA should licence the registry operator, and its independence will allow it to revoke the licence should the operator fail to comply. Experience has shown that where an organisation like auDA is responsible for operating the major registry such as ".com.au", service levels drop. It is important to maintain a separation between the watchdog and the operator. 4.3 Registry ************ Policy compliance checks - Melbourne IT believes that policy compliance checks should be done at the registry to ensure the integrity of a particular second level domain is maintained. This is very important to maintain the current value of ".com.au" for Australian businesses. Providing an environment for multiple organisations to provide different interpretations of policy is likely to cause major disruption and disreputable practices. The cost function at the registry can be reduced by setting policies that can be fully automated, without the need for human intervention. An automatable, and objective process, will allow registrars/resellers to accurately advise customers on the eligibility of a particular domain name, and substantially reduce their customer service costs. It will also reduce the costs of disputes arising between the registry and registrars/resellers. Proposal 4.3A - Multiple registry ************* Melbourne IT strongly supports this proposal. It is consistent with the current multiple registry environment in Australia, and the introduction of multiple registries in the market for generic top level domain names (".com", ".biz", ".info" etc). It should be noted that a single registry operator may provide registry services for multiple second level domains to gain some economies of scale. Multiple registry operators will compete for new second level domain registry business, as new second level domains are created by auDA. Melbourne IT believes that it would be time consuming to go through this process again to create a multiple registry model after the failure of any improvement in retail competition by relying on registrar competition alone. This would be repeating the ICANN experience. The cons against proposal 4.3A are easily discounted. The poor substitutability of the current 2LDs will partly be alleviated by adding new 2LDs, and partly by encouraging commercial operation of some of the existing second level domains (e.g "info.au" and ".id.au" have substantial potential as domain spaces if properly marketed). Registry operators primarily work through registrars and resellers to create an overall value proposition for a second level domain. Melbourne IT has already done this successfully for ".com.au" which was initially registered via word-of-mouth, and is planning to do this with ".biz" as well. It is in the registry operator's interest to create differentiation between the second level domains, and also between these domains in ".au" and other international domains. Again Melbourne IT has been successful in retaining market share for ".com.au" as a registry operator, despite intensive efforts by competitors like Verisign. The problem with different procedures for accessing registries is easily solved by setting minimum standards. An extensive international standardisation effort in the Internet Engineering Task Force is working towards this goal for all registries around the world. Melbourne IT is contributing to this effort through its partnership with Neustar. A standard data model is easily enforced as part of a registry licence agreement. Again there are international efforts to standardise this model. Not-for-profit registry models are easily accommodated in a multiple registry model. If a registry is put out for tender, both for-profit and not-for-profits can participate in the tender. In fact it is a better competitive outcome for both types of registry operator to exist. Generally a for-profit operator will invest heavily in the infrastructure to continuously improve the service. Not-for-profits often struggle with complex Boards where it is difficult to get decisions to invest in future infrastructure. However not-for-profits may be very suitable for running specific second level domains (e.g museum.au, community.au, etc) where the service levels and performance are not so critical. In a competitive tender situation it is very unlikely that there would not be multiple competing bids. There are many international registry operators that specialise in operating registries, and there are already multiple operators capable of tendering in Australia. Proposal 4.3B - Single Registry ************* Melbourne IT is strongly against this proposal, as it is a step backwards for Australia. The international community is moving towards a multiple registry model with appropriate regulation. Australia has a multiple registry model that is operating imperfectly. It makes more sense to improve the current model and address issues such as standards, then to revert back to an old model that is inefficient and limit the benefits of competition. The detail provided in the proposal 4.3A should address the issues of improving the current environment. Most of the pros listed for Proposal 4.3B have actually been covered in Proposal 4.3A. Appropriate technical standards as discussed in proposal 4.3A can provide for most of the features listed for 4.3A, so that the end user would not be aware of the issues. A look up service can easily be provided from a central site for all second level domains along the lines of the current AUNIC service. As this is a read-only site, and not the primary site, the cost of operation would be low. In fact registrars/resellers may wish to offer the service as part of a general portal solution, in addition to any auDA operated service. Updating of records can also be provided via links from a single site. This is the case anyway for the general domain spaces around the world (ie many companies with ".com.au" also have ".com", and ".co.uk"). It is possible to share access to "user" records where these users operate domains in more than one registry. In fact registrars and resellers often provide such service for users, so that the user need only update records once at the registrar/reseller, and the registrar/reseller provides such services. The application of general ".au" rules will be enforced via licence conditions, and provided these are not subjective should not be difficult to implement in a multiple registry model. e.g a restricted list of offensive words can easily be implemented across all registries, and easily enforced by auDA. The services of a single registry model are often at the level of the lowest common denominator, and are not of commercial standard for businesses. This will result in few businesses registering names within ".au" in future, as the market strength of ".com" and ".biz" with their mission-critical infrastructure grows. A profitable registry in a competitive environment will invest substantially to continuously improve their systems to compete both in Australia and internationally. For example an organisation providing ".com.au", may also operate registries for countries such as ".nz", ".cx", and East Timor. For example Telstra invested in fibre-coax systems in the metropolitan areas, after the threat of competition from Optus in its fibre-coax cable TV and telephone services. 4.4 Registrars ************** While competition is possible at this level, Melbourne IT believes that this is of lower priority compared to enhancing competition at the registry (wholesale) level. The strongest level of retail competition occurs at the reseller level. Internationally the number of ".com" registrars is consolidating, while the number of resellers is increasing. The market for registrars is reducing to a few companies with very specialised IT skills that specialise in providing services across multiple domain names across the world. A pure registrar primarily provides services to resellers, which sell directly to the public. Its business is based on very high volumes and meeting the needs of resellers. A registrar will need to pass through a licencing process that assesses domain name expertise and technical expertise in directly interfacing to a registry database. 4.5 Resellers ************* Most of the active competition in the provision of domain name services around the world occurs at the level of the reseller. Resellers can have the choice of using simple email services to a registry/registrar, branded website services from a registry/registrar, or more advanced programming interfaces customised for their operation. There is active competition amongst resellers in ".com.au", however there is no reseller competition for the other second level domains. Melbourne IT would like access as a reseller or registrar to the other second level domains existing in Australia. It will be important for the registry/registrar functions in the other second level domains to meet minimum service levels. Competition at the reseller level has a great impact on choice for end users. Most resellers bundle domain names into a range of business services. Resellers range from IT companies such as Telstra, to organisations with limited IT expertise such as advertising agencies, accountants, and lawyers. Competition at this level should be encouraged, and there should be low barriers of entry for resellers to enter the market. Melbourne IT believes that resellers should be bound by agreements to registrars that relate to consumer protection. auDA could specify certain text be included in reseller agreements. Melbourne IT does not believe that auDA needs to directly license resellers.