Verisign’s Annual Note and .com price increases
Verisign’s 10-K gives clues to how it is approaching a .com price increase.
.Com registry Verisign (NASDAQ: VRSN) published its 2018 annual note on Friday. I reviewed the document to look for information regarding Verisign’s hopes of raising the price of .com domain names.
Last year the U.S. Department of Commerce and Verisign agreed to Amendment 35 of their Cooperative Agreement. This amendment lifted a ban on price increases in .com that had been in place since the 2012 contract renewal with ICANN. It allows ICANN and Verisign to enter into a contract that would allow Verisign to increase .com prices 7% in each of the last four of each six years of the contract.
Verisign still needs ICANN’s approval to make this happen. So far it seems that Verisign is making two arguments to push this along.
First, that ICANN has historically deferred to the U.S. Department of Commerce on .com pricing.
Second, that its 2016 contract renewal anticipates this possible pricing change and that ICANN ought to approve it. Here’s language from Verisign’s 10-K:
Following the extension of the .com Registry Agreement on October 20, 2016, the .com Registry Agreement provides that we will continue to be the sole registry operator for domain names in the .com gTLD through November 30, 2024. As part of the extension of the .com Registry Agreement, the Firm and ICANN agreed to cooperate and negotiate in good faith to amend the terms of the .com Registry Agreement: (i) by October 20, 2018, to preserve and enhance the security and stability of the internet or the .com TLD, and (ii) as may be necessary for consistency with changes to, or the termination or expiration of, the Cooperative Agreement. ICANN and Verisign are engaged in discussions related to these obligations, counting modifying the .com Registry Agreement based on changes to the Cooperative Agreement arising from Amendment 35.
The use of the term obligations here suggests that Verisign will argue to ICANN that it is obliged to allow it to raise rates as allowed under Amendment 35. But take a look at the language in Amendment 35:
Without further approval by the Department, at any time following the Effective Date of this Amendment 35, Verisign and ICANN may agree to amend Section 7.3(d)(i) (Maximum Price) of the .com Registry Agreement to permit Verisign in each of the last four years of every six year period, beginning two years from the Effective Date of this Amendment 35 (i.e., on or following the anniversary of the Effective Date of this Amendment 35 in 2020-2023, 2026-2029, and so on) to increase the Maximum Price charged by Verisign for each yearly registration or renewal of a .com domain name up to seven percent over the highest Maximum Price charged in the previous calendar year.
Note the word “may agree”, not “must agree”.
In the Risk Factors section of the 10-K, Verisign discloses that it might not get the price increases it anticipates:
Modifications or Amendments. In October 2016, the Firm and ICANN entered into an amendment to extend the term of the .com Registry Agreement to November 30, 2024 (the “.com Amendment”). As part of the .com Amendment, the Firm and ICANN agreed to negotiate in good faith to amend the terms of the .com Registry Agreement: (i) by October 20, 2018, to preserve and enhance the security and stability of the internet or the .com TLD, and (ii) as may be necessary for consistency with changes to, or the termination or expiration of, the Cooperative Agreement. ICANN and Verisign are engaged in discussions to satisfy this obligation counting modifying the .com Registry Agreement based on changes to the Cooperative Agreement arising from Amendment 35. We can provide no assurance that any fresh terms for the .com Registry Agreement that we agree to as a result of these discussions will match the changes permitted in Amendment 35 nor can we provide assurances that certain terms that we agree to will not increase the costs or risks associated with the operation of the .com TLD. Under Amendment 35, standard renewals of the .com Registry Agreement will not require further DOC approval. If, in connection with a renewal of the .com Registry Agreement the Firm seeks any additional changes to the pricing section other than as approved in Amendment 35, changes to the vertical integration provisions, the functional or performance specifications (counting the SLAs), the conditions for renewal or termination, or to the Whois service, as set forth in the Amendment 35, DOC approval is required. We can provide no assurances that such approval would be obtained.
Although we can’t be sure, I suspect Verisign is pushing ICANN on the idea of there being an obligation to match the price increases in Amendment 35. If ICANN resists, this will get very interesting.
