Workshop:  Operating Plan
 ICANN Meeting - Paris
 Monday, 23 June 2008
 
 >>KEVIN WILSON:   Good morning, everybody.
 This is the presentation on the budget and operating plan, the fiscal year 2009 operating plan and budget for ICANN.  My name is Kevin Wilson, I'm the chief financial officer for ICANN.  And I'm pleased to present this to you.  This is actually my one-year anniversary.  I started at ICANN one year ago today.
 [ Applause ]
 >>KEVIN WILSON:   Thank you.
 I'd also like to point out, Raimundo Beca and the board finance committee, if you could just raise your hand, for those who might want to see you.  They've been very instrumental, as well as Doug Brent up here will be helping me and have been instrumental in preparing this document.
 The purpose for this presentation is to describe how we arrived here, to come up with the operating plan and budget, give some highlights, some high-level highlights of the operating plan.  For those who want to read in more detail, there's a 50-plus page document on the Web site that you can read all the details.  And then we'll highlight the impact of the budget and the budget increases.  And then we'd like to talk about some of the community consultation.  This is really an "our" plan, it's not an "I" plan.  It has lots and lots of input and feedback from the community.
 And then describe the next steps.
 In short, this will look familiar to a lot of you, we have a three-year strategic plan process if the first six months of the year.  That culminates in the strategic plan being adopted in December of 2007.  And from that, we start our operating plan and budget process, which is, obviously, finalized this year, and driving to the budget approval on Thursday from the board.
 As I mention, we posted the budget in -- posted the strategic plan in December.  This year, we also did something unique in that, in Delhi, in the Delhi meeting, we posted a high-level budget framework, which tied in with the operating plan, which allowed more time for community consultation.  And from then, we've punched that down into the details, taken the community input, and posted the draft operating plan and budget on May 17th in accordance with the bylaws, and then provided for more additional community input.  And then we have had the final community input this week, and finalize it and approved by the board on Thursday.
 This chart really just highlights what I said in words, that the change in the improvement, the key improvement is that we allowed four months of community consultation to the budget and the operating plan.
 The --  It was a tough act to follow, but as Eric and the video showed and as the two -- Peter and the two "Ps," Peter and Paul, both showed and talked about, there is a lot going on at ICANN and the Internet in general.  And it won't be a surprise, our operating plan this year has a lot of activities planned as well.
 First on the list is completion of the new gTLD implementation, as the policies are being close to finalized, we are completing the implementation process, and then obviously launch and accept applications.
 Making progress on IDN activities, that's a real exciting and very intensive effort as well.
 This year, we'll also be investing more heavily in IANA, as well as the overall ICANN infrastructure, to make it more robust and strong and improve our services and functions.
 We'll also be strengthening more security, strengthening the security and strengthening overall infrastructure for business continuity measures.
 Contractual compliance has been a strong emphasis and strong want and need of the community, the registrants, et cetera.  And so we were -- we'll be spending more money and having more activities in the contractual compliance area.
 And then, lastly, reaching out, translating, interpreting, reaching more audiences, bringing more people under the ICANN tent, into the ICANN fold, is also a significant effort and significant cost expenditure for 2009, fiscal year 2009.
 In short, by necessity, this is -- we need to execute one of ICANN's most demanding operational plans ever.
 This chart, essentially, shows in picture form where the increase in the budget is going to come from.  It's almost a 30% increase in the budget.  And that's largely coming from strategic initiatives that we've been talking about.
 Overall, the budget is based on the following numbers, that the revenue is approaching $61 million.  Most of this is from the increase just in domain names and the transaction fees, as well as some contractual agreements that we have with dot com and other registries.  This also includes the assumption that the add grace period will be reduced, so that although this -- we don't believe this will have a serious impact on the revenue, it's not a financial motivation, it's a motivation on the domain name tasting effort.
 As far as operating expenses, we're planning to grow about 30%, to $51.8 million, to cover those planning activities that we talked about.  We will also have total expenses approaching $59 million.  And that includes the contingency, the bad debt, and depreciation on capital expenditures.  Capital expenditures are expected to be $3.7 million, tying in with the IANA and the I.T. infrastructure buildup that we think we need to do to make ICANN more robust, more secure, and able to handle business continuity more effectively.
 This drives down to the increase in the reserve fund of $2.2 million.  Some of you may know that in the strategic plan, financial security of ICANN is a very key component, one of the key priorities.  And as part of that, the intention is to have an operating -- excuse me, a reserve fund that's equivalent to the operating expenses of one year of ICANN.  That roughly translates into about a $10 million contribution from operations each year to build up to that amount.  And this year, because of the initiatives and just because of the appetite from the revenue side, we thought that two point -- about a $2 million contribution to reserve would be reasonable.
 For those who would prefer the number version of that, that just shows -- this is just a chart that shows the same thing, driving down to $2.2 million increase in the reserve, or about a $7.8 million shortfall from the intention for this fiscal year only.
 This chart shows -- hopefully you can see, it's a little small font -- but this chart shows the dollar amounts associated with each of those initiatives and drives to the $51.8 million operating expense line item.  So we can see the categories of spend.  If you have questions on those, we can cover those.
 One question that continues to come up is, how are we going to fund the new gTLD program.  And this -- since there's so many uncertainties in that program as far as implementation, how many applicants there will be, et cetera, the way we've approached this is to handle it in two parts.  The -- this fiscal year, '09 budget that we're looking at right now, accommodates all the expenses that are needed and required to complete the implementation work, as well as essential staffing that's required to be put in place once the applications do come on board.
 So revenue from the applications, or registry fees are not included in this budget.  Make that really clear.
 In addition, application and other operational expenses associated with the new gTLD are not included in this budget.  So those are taken out.  We haven't factored those in.
 After the policy is approved, hopefully soon, and after the draft RFP is posted, sometime in that period, about 90 days before the launch, we will have another budget, a supplementary, separate budget, that will account for the new gTLDs.  And that will be processed as this is, too.
 This budget will cover all the relevant revenue from application revenue, as well as ongoing fees, and then also, it will include the costs associated -- the variable costs that are factored into those application fees.
 So, anyway, that's how the new gTLD budget will be approached.
 This year, the new gTLD application -- new gTLD program does have significant costs in the budget that we've presented that the board will be voting on this week.  And the types of activities it includes is complete the implementation of the new gTLD policy.  There's a lot of activity and a lot of decisions that need to be made to finalize that.  That includes the dispute resolution processes, includes developing the RFP, the request for proposal that will be posted in the next few months.  It also includes the global communication, those outside of the ICANN world who need to know about the new gTLD application in time to participate, as well as those in the ICANN world to know the details on how to do that.  That's a significant effort.
 There's also a lot of I.T. support, and we'll also have to scale up, moving up from the handful of registries that we have now to the -- potentially, a lot of registries.  We need to be prepared for that.
 And this really has dramatic impacts on all parts of our organization, every department is affected by that.
 In addition to that, although that's a mouthful, in addition to that, there's a lot of other significant operating plan activities at ICANN.  That includes launching IDNs in the root, as Minister Besson and Peter and Paul shared, that's a -- we're on the, you know, strong efforts on that.  There's a lot of efforts at ICANN to get ready for that.
 Broadening participation is a large area of spend, and planning activity.  And that includes more translation, more transcription, more -- more remote access, improving and extending that, and also outreach to more parts of the globe, Asia in particular, to make sure that we're covering all four corners of the globe.
 We've been talking a lot about the GNSO improvements this week already.  And that's obviously a significant amount of spend to make sure the policy development process is efficient and represents the communities.
 And then we'll also be providing new support for organizational reviews to make sure that we're running efficiently.  I mentioned earlier about the compliance activities.  There's significant dollars spent on that.  And we'll also be carrying out more security initiatives, including training for ccTLD operators.  And I mentioned the business continuity or disaster recovery planning efforts.
 For those who had read and digested the Delhi presentation, this is a chart that shows the -- how we presented the high-level Delhi presentation as compared to what the budget is now.
 Essentially, it follows the same thing.  If you read the detailed 20-page document then, you won't be shocked when you read the 40- or 50-page document that's in there now.  It's just more detail, more estimates, and that sort of thing.
 A lot of that effort we've made this year, as I mentioned, has been getting community consultation and lots of community input into the process.
 Here -- this chart really highlights, just really highlights -- and I want to emphasize "highlights," because there's much more community input than even this -- but as far as formal calls that we had during the Delhi meeting and after, we had meetings with the registrar constituency, the registry constituency, ALAC and the GNSO.  Afterwards, we actively pursued and were put on their docket to meet with the intellectual property constituency, the ccNSO, ALAC, SSAC, registrar constituency and registry constituency, and GNSO.
 Many of these for the first time we actually had formal calls with, many of them extensively, and many of them posted onto the Web site or provided formal comments and suggestions, which was really helpful, and were implemented and factored into the final budget and operating plan.
 Also planned for Paris is the ISP constituency as well as the other constituencies this week.  And I mentioned there as well as, Raimundo and others made special presentations at special constituency meetings around the world for the -- over the last couple of months.
 Just real briefly, to highlight some of the feedback in the constituency.
 One of the core themes was that they appreciated the feedback, they appreciated the process.  They appreciated the extra time and effort and the accessibility.  There were some that are still new into the fold, and I'm sure that will continue.  So we'll be addressing that, and we're aggressively seeking out input from those folks to make sure that their input -- I emphasize, this is an "our" plan and budget, not a locked-door type thing.
 There were lots of questions about specific expense items.  I highlight a few of those, bad debt, contingency, travel expenses.  As you can imagine, they -- some people feel the travel is too high, and others feel that the travel is too low.
 Allocation of costs and benefits among constituencies.  This is an central theme that different constituencies have mentioned.  And so we'll -- we're continuing to work with that.  It's a balancing act on meeting the needs.
 Travel support, mentioned that previously.
 Improved reporting.  This is a central theme as well, that although we're reporting on the dashboard, and although our document is getting longer, we still need to report more and more, more clarity on large spend increases, and we continue to do that.  We're answering questions.  And next year, we're putting on our goals to make sure that those are answered proactively as well.
 The transaction fees, that registrars, in particular, suggested some registrar fee activity, including possibly incentivize the RAA adoption.
 Compliance, I think there was generally a positive comments on the -- increasing the compliance activity.  Security efforts as well.  The new gTLD separate budget, I think there were a lot of questions on the new gTLD separate budget, as you can imagine.  Until you see it, it's hard to understand exactly how it will happen.  But the final document does answer a lot of those questions.
 And there are still questions about the reserve fund that hang out there.  And I think that will be something that we just have to accept that we'll always have questions about that.  But we're managing that.  We now have an investment policy.  We're actively managing those funds and will continue to do so.
 The next steps are that we will synthesize this -- the information and post it for final -- hopefully, on Wednesday.  And so if there's any other questions or comments, I'd be happy to take those, and then obviously to drive for the board vote at the board meeting to approve it.
 The board finance committee has met, led by Raimundo Beca, the chairman, a number of times, both on the scheduled calls, as well as special calls, the scheduled monthly calls and the special calls.  So they have been providing lots of direction and guidance on the process.  We met for almost two hours yesterday on this as well.
 So special thanks to them for their suggestions on that.
 And so they're recommending as well the -- to the board to approve the budget.
 So is there any questions, comments, suggestions?
 Good.  I put everybody to sleep after the exciting opening session, I guess.
 Great.  Well, thank you very much.  There are some links in the document which I believe is posted on the Web site.  So if you have any more questions or want to read more or would like to read the document on Wednesday.
 Hagen, yes.
 >>HAGEN HULTZSCH:   My question --
 Thank you.  Can you turn it on?
 When you -- you spoke about the first strategic plan and the operation plan.
 In earlier years, we always had issues on our strategic plan and on our, let's say, tentative operation plan, which we could not realize because of limited fundings, limited budget.  And we had always a kind of line where we said these are the important things which we think we can do with the possible budget.  And those are things which we cannot get addressed.
 Is this still the case?  Can you now address all issues which are coming out of the strategic plan into the operation plan?  Or are there major items which you could and should address but cannot address because of limited funds?
 >>KEVIN WILSON:   In brief, the answer is, yes, we addressed every priority.  I think there are eight strategic priorities described in the strategic plan that was posted in December.  And we made a special effort as we were -- both before New Delhi and after New Delhi, when we were going through the line items, is to identify which strategic priorities are assigned to specific tasks that people are doing in the particular year.  You understand the strategic plan is for three years.  So we addressed it.  Obviously, in any budget, you have to say no to certain things.  And so we did prioritize those things.  So -- and some of the committees and constituencies did make comments on, "Gee, we should spend more time or less time on certain activities."  So that's an ongoing effort.
 Doug, can you address that, too.
 >>DOUG BRENT:   Just to add to Kevin's comments, Doug Brent, chief operating officer.  I think Hagen's point is that also, inevitably, there's much more on the plate that can be funded.  I think there's really two limitations that you see in this budget and operating plan for ICANN.
 First is, even though there is a substantial expense increase, we're taking on work that really is beyond the scale of anything ICANN has attempted to do before.  This new gTLD program is a very significant project, and I think even in a big business context, would still come out as a big project.  So there's just staffing limits and growth limits.  There's sort of how much work can ICANN meaningfully take on.  So I think it's certainly true that as we added up the work internally and looked across every constituency group about what was to have been achieved, it was much longer than the list that actually showed up in this, you know, budget that you see today.  But trying to balance the key strategic priorities, the expense, revenue, this is the budget that we arrived at.
 >> (saying name) just asking a quick question.  Is there any (inaudible) for paying fees to board members?
 >>KEVIN WILSON:   I couldn't hear your question.  Can you say it again.
 >> Is there any allocation for paying fees to board members.
 >>KEVIN WILSON:   For board compensation?
 >> Yes.
 >>KEVIN WILSON:   There is a discussion about board compensation, and so the specific answer is, no, we don't have a specific amount.  However, we have provided in the contingency, if that does come up, that will -- that will be okay.
 Okay.
 >> Hi, Tom (saying name) with dot NYC top-level domain.  Just curious as to the expenses.  A certain portion of (inaudible) at what point is that (inaudible) cut off in terms of the expenses that have been incurred up to this point will all be included or just the evaluation period?  Which part of the development process?  A portion of your office rent?  A portion of the meeting expenses that are associated with the development of the new TLDs?  How does that break out?
 >>KEVIN WILSON:   Okay.  It's a little bit hard to hear your question.  But let me restate it to see if it's correct.
 There's new gTLD cost being spent now before the new gTLD program happens.  How will those be captured into the new gTLD separate budget?
 >> Yeah.
 >>KEVIN WILSON:   Or how will revenue offset that?
 >> Right.  Are the applicants expected to pick up previous expenses from three years back from the whole development process, from the GNSO process, from -- which expenses will the applicants be expected to pick up?
 >>KEVIN WILSON:   That's a really good question.  It's landing right where we -- the work we're doing right now.
 And short answer is, we're modeling it all ways.  We talked with the board finance committee this week about it.  And I think it's partly a policy decision that will be raised to a different level.  But we'll show it in all ways.  Right now we have a provision for historical costs being captured in the new gTLD budget, so that the new applicants would be paying for historical cost.  But I think that's probably a policy decision that would be raised --
 >> And is there a figure for what the historical costs are.
 >>KEVIN WILSON:   Is there a figure for what those costs are?  Roughly, 13, 14 million, historical from the time people started thinking about gTLDs and IDNs all the way up until the launch, sometime in fiscal year '09.
 >> But the previous application periods, those are included in that --
 >>KEVIN WILSON:   No.  When I say new gTLD, I'm talking about the last couple of years.
 >> Last couple of years.  All right.  Thank you very much.
 >>KEVIN WILSON:   Thank you.
 >>RAIMUNDO BECA:   Raimundo Beca.  I'm a board member.  Actually, I am chairman of the finance committee.  The finance committee has been (inaudible) the question has been raised.  And it will be -- the answer is that the (inaudible) is (inaudible) $8 million.  (inaudible).
 What was expended before is about $16 million, I think, if the applicants are not -- are or are not going to be -- to pay for that.  So the answer is a minimum of eight, maximum of eight plus 16.
 >>KEVIN WILSON:   Thank you.
 Good.  Any other questions?
 Comments?  Okay.  Good.  Thank you very much.  Appreciate it.
 [ Applause ]