ICANN Board Blocks The Sale Of The .Org Registry

from the try-again dept

Last fall, we wrote about what appeared to be many of the sketchy details between the non-profit Internet Society (ISOC) agreeing to sell off the non-profit Public Interesty Registry (PIR), which runs the .org top level domain registry, to the very much for-profit private equity firm, Ethos Capital, which had recently been formed, and involved a bunch ex-ICANN execs and other internet registry folks. Even if the deal made perfect sense, there was a lot of questionable issues raised concerning who was involved, whether or not there was self-dealing, and how transparent the whole thing was. On the flipside, a number of very smart people I know and respect -- including some who worked for ISOC, insisted that the deal not only made sense, but was good for the future of the .org domain and the wider internet. In January, we had a long podcast with Mike Godwin, who is on the board of ISOC and voted for the deal, debating whether or not the deal made sense.

In the intervening months, many people and organizations had petitioned ICANN to block the deal, and ICANN had repeatedly delayed its vote -- with the last delay coming a few weeks ago right after California's Attorney General, Xavier Becerra, sent a pretty scathing letter about the deal.

On Thursday, ICANN's board voted to block the deal, saying that it just created too much uncertainty for non-profit organizations who rely on the .org top level domain.

The Board was presented with a unique and complex situation – impacting one of the largest registries with more than 10.5 million domain names registered. After completing its evaluation, the ICANN Board finds that the public interest is better served in withholding consent as a result of various factors that create unacceptable uncertainty over the future of the third largest gTLD registry. Factors that were considered in determining reasonableness include, but are not limited to:

• A change from the fundamental public interest nature of PIR to an entity that is bound to serve the interests of its corporate stakeholders, and which has no meaningful plan to protect or serve the .ORG community.
• ICANN is being asked to agree to contract with a wholly different form of entity; instead of maintaining its contract with the mission-based, not-for-profit that has responsibly operated the .ORG registry for nearly 20 years, with the protections for its own community embedded in its mission and status as a not-for-profit entity.
• The US$360 million debt instrument forces PIR to service that debt and provide returns to its shareholders, which raises further question about how the .ORG registrants will be protected or will benefit from this conversion. This is a fundamental change in financial position from a not-for-profit entity.
• There are additional uncertainties, such as an untested Stewardship Council that might not be properly independent, or why PIR needs to change its corporate form to pursue new business initiatives.
• The transaction as proposed relies on ICANN as a backstop for enforcement of disputes between the .ORG community and the registry operator in an untested manner.

The entire Board stands by this decision. After thorough due diligence and robust discussion, we concluded that this is the right decision to take. While recognizing the disappointment for some, we call upon all involved to find a healthy way forward, with a keen eye to provide the best possible support to the .ORG community.

It will be interesting to see what happens next -- but if ISOC wants to sell off PIR, it's apparently going to need to go down a different path. In the meantime, ISOC's CEO sent out an email and a blog post talking about his disappointment, and (once again) explaining why he felt the deal made sense and was done appropriately, and promises to continue to move forward with helping to make a better internet. He also insists that PIR is not for sale, while taking a dig at ICANN in the process:

Now that we know that ICANN believes its remit to be much larger than we believe it is, we can state this clearly: neither PIR nor any of its operations are for sale now, and the Internet Society will resist vigorously any suggestion that they ought to be.

While most of the focus in these discussions has been specific to the impact on PIR and the .org domain, I do separately wonder if this whole mess will hurt ISOC itself in the very good work that it does. I hope not. Even as I came down pretty clearly against this deal, I can at least recognize that the people on the ISOC side at least were honestly trying to do what they believed made the most sense for everyone. However, a very large swath of the civil society, non-profit, and public interest world disagreed -- and I fear that this ends up damaging ISOC's overall credibility going forward. If that is the end result of this, it would be a huge shame.

Filed Under: .org, non-profits, private equity, tlds
Companies: ethos capital, icann, isoc, pir

The Sketchy, Sketchy Case Of ICANN Execs And Self-Dealing Regarding The .Org Domain

from the this-looks-bad dept

Earlier this month, within the domain name world, there were significant concerns raised upon the news that Internet Society (ISOC), the (perhaps formerly?) well-respected nonprofit that helps "provide leadership in Internet-related standards, education, access, and policy" had agreed to sell off the Public Interest Registry, which is the registry that manages all .org top level domain (TLD) names, to a private equity company called Ethos Capital. Just having a public interest nonprofit selling off a part of its operations to a private equity group would be trouble enough, but the details make the story look much, much worse.

Just a few months ago, ICANN, a different non-profit that is in charge of coordinating and managing the various top level domain namespaces, and figuring out who gets to manage the associated registries (and, which has been subject to years of controversy regarding poor accountability and transparency, along with accusations of self-dealing), had announced that it was eliminating the price caps on the .org TLD. For most of the past decade, the ICANN agreement regarding the .org TLD space had held that .org domains had a maximum top price of $8.25 per year per domain.

ICANN claimed that it was making changes to the .org contract to "better conform" with the base registry agreement that ICANN had with other TLDs, tons of which have come on the market over the past few years. However, seeing as the .org TLD is one of the oldest ones on the web, and which has generally been considered (though, not exclusively) to be used for things like non-profits and community organizations, many people were reasonably concerned about the lifting of the price cap. Indeed, in response to ICANN's request for comment, the comments went overwhelmingly against the removal of the price cap.

But ICANN did it anyway.

And, then, just a few months later, the Internet Society sells off the registry to a private equity firm.

And it gets worse. Remember how I mentioned earlier the years-long concerns about ICANN and self-dealing?

Ethos Capital is a new private equity firm lead by Erik Brooks. Brooks was at Abry Partners until earlier this year. Abry Partners acquired Donuts and installed former ICANN President of Global Domains Akram Atallah in the top spot there.

Donuts co-founder Jon Nevett left to be CEO of Public Interest Registry.

The other person at Ethos is former ICANN Senior Vice President Abusitta-Ouri.

Ethos appears to have just been founded. It acquired the domain name EthosCapital.com at the end of October through Afternic.

Oh, and it gets even worse:

Despite stating that Ethos Capital “understands the intricacies of the domain industry” its founder and CEO Erik Brooks has no experience within that industry. The firm’s website lists only Brooks and one Nora Abusitta-Ouri – who joined the outfit last month as its “chief purpose officer” – as employees.

But there is a common thread between those two and it is Fadi Chehade, a former CEO of ICANN, the organization that oversees the domain-name system and awards the contracts to run internet registries.

It was under Chehade that ICANN radically changed its approach to internet registries, including a massive expansion of the internet namespace and a move toward a free market approach to internet addresses.

Oh, and it gets even worse. While Ethos Capital does not list Chehade as an employee, it appears that he started the organization:

On May 7 this year, Fadi Chehade appears to have registered EthosCapital.org. He is listed as the owner in Whois. That was just before a Delaware company by the name Ethos Capital, LLC was formed.

May 7th, eh? the timing is notable:

That date is significant because it is one day after ICANN indicated it was planning to approve the lifting of price caps through its public comment summary.

In case you were wonder about the "thread" that ties Brooks, Abusitta-Ouri and the CEO of Public Interest Registry:

The founder of Ethos Capital is Erik Brooks. He left ABRY Partners this year after spending two decades at the investment firm.

Does the name Abry ring a bell? That’s because it’s the company that bought new top level domain name company Donuts last year.

That deal involved Abry Senior Advisor Fadi Chehade. Chehade is the former CEO of ICANN, the group that oversees the domain name industry.

Now we have a twenty year veteran of Abry, who worked on the Donuts deal and was (or still is) a member of Donuts’ board, leaving this year to form a new entity that buys a registry, much like how Abry bought Donuts.

And the CEO of Public Interest Registry is Jon Nevett, one of the founders of Donuts.

Oh, and:

The other person listed on Ethos Capital’s website is Nora Abusitta- Ouri. She worked for Chehadi at ICANN as SVP, Development and Public Responsibility Programs.

In other words, the folks involved here are all very closely connected, and it happened right after ICANN, going against the public's clearly stated interests, suddenly made the .org domain space much more open to profit exploitation. The whole thing is incredibly sketchy.

And while Ethos Capital has put out a meaningless statement promising to keep the .org domain space "accessible and reasonably priced for all" and to "live within the spirit of historic practice when it comes to pricing," though admitting it might start adding in "annual price increases of up to 10 percent on average."

Even if everything is aboveboard, the entire sequence of events sure looks incredibly sketchy, and no one involved has done anything to address the concerns about how this all went down. Internet Society insists that Ethos Capital only just approached it about buying PIR a couple months ago, but given the dates and activities described above, it's reasonable to infer that Ethos was planning this out from about the time that ICANN decided it was going to drop the price cap on .org domains.

As more and more anger rose about this whole mess, ISOC is trying to calm the waters by (somewhat hilariously) launching an entire website called KeyPointsAbout.org in which it tries to defend this mess:

Under the new ownership, PIR’s operation of .ORG will continue as usual with the same excellent management team and reliable backend registry operator. There will be no disruption of services to the .ORG Community.

Both PIR and Ethos Capital are committed to ensuring a smooth and seamless transition, and to continuing the community orientation and strong social purpose of the .ORG and PIR. Ethos is enthusiastic about developing new services and support to serve the .ORG Community.

It also insists that the lifting of price caps had absolutely nothing to do with this, and that this wasn't all planned out in advance, but in September -- a claim that almost no one believes. The one "new" fact in this statement is finally admitting what everyone already suspected, that Chehade is associated with Ethos Capital as an "adviser" though it downplays that role and tries to talk up how he advises lots of companies. Thing is, mere "advisers" aren't usually the people registering the domain names...

Separately, it's now been revealed who is financing this whole thing:

... the bulk of the money would come from the investment vehicles of renowned US Republican billionaires: Perot Holdings, tied to former presidential candidate Ross Perot; FMR LLC, closely associated with the Johnson family, one of the Republican Party’s biggest backers; and Solamere Capital, tied to Republican senator Mitt Romney.

Congrats, Senator Romney, on buying up the public interest part of the internet.

That same article, from the Register notes, disappointingly, that Vint Cerf, is supporting this move and even insisting that if Ethos raised the prices of .org domains to $60/year that's not such a big deal:

Asked on the ISOC members list about the risks of .org domain holders facing domains as much as $60 a year, Cerf surprised many when he responded: “Hard to imagine that $60/year would be a deal breaker for even small non-profits.”

[....]

That comment prompted [co-founder of the .eco top-level domain Jacob] Malthouse to point out that $60 is the equivalent of two weeks’ wages in sub-Sahara Africa, where a large number of non-profits rely on their internet presence for awareness of their efforts.

All in all this is a bad look from an organization and individuals with a history of questionable deal-making and accusations of self-dealing. It's disappointing to see Cerf support this deal.

Filed Under: .org, akram atallah, erik brooks, fade chehadi, jon nevett, nora abusitta-ouri, private equity, self-dealing, top level domains, vint cerf
Companies: ethos capital, icann, isoc, pir, public interest registry