Letter from Stratton Sclavos to Vint Cerf Regarding Proposed Revision of ICANN-VeriSign Agreements 28 February 2001

Via Facsimile No. 703-886-0047 and Federal Express

Feb. 28, 2001

Dr. Vinton G. Cerf
Senior Vice President, Internet Architecture and Technology
WorldCom
Mail Stop F2 4-115
22001 Loudoun County Parkway
Ashburn, Virginia 20147

Re: .Com, .Net and .Org Agreements

Dear Vint:

As you know, under a 1999 agreement between ICANN and Network Solutions, Inc. (NSI has since merged with VeriSign, Inc.), in order for the term of the registries for .com, .net and .org to continue at least through 2007, we are obliged to divest the assets and operations of either the NSI Registrar or the Registry (now known as VeriSign Global Registry Services). Earlier this year, VeriSign announced its intention to divest itself of the assets and operations of the NSI Registrar and to continue to operate the Registries for .com, .net, and .org through at least 2007.

I want to reiterate our willingness to see this commitment through to its completion. Under this commitment, on the part of both parties, we would expect and intend to continue to operate the Registries for .com, .net, and .org at least through 2007.

While we are fully prepared to continue under the existing agreement, we have carefully explored with ICANN management and counsel the possibility of re-structuring and updating our relationship altogether to recognize dramatically changed circumstances since that agreement was signed, and to continue the positive development of the ICANN process. These discussions were motivated by several factors, including some very significant changes in the environment since 1999:

• The market today is far more competitive than it was in 1999. Unlike the market conditions in 1999, when the NSI Registrar was just coming out of its status as the only domain name registrar authorized by the National Science Foundation to process registrations for .com, .net and .org, the NSI Registrar today holds a cumulative market share of around 50% of all .com, .net, and .org registrations and under 40% of new .com, .net, and .org registrations (which is the leading indicator for this industry). When one considers the recent, very rapid growth of domain name registrations under the country code Top Level Domains (such as ".us" or ".uk"), the NSI Registrar's share of combined registrations drops further.
  
• ICANN's recent actions on new gTLD registries will permit several companies to own both a registry and a registrar. The record speaks for itself, but largely as a result of increased competition, it is easy to see that the importance of separating registries from registrars is less significant today than it was in 1999.
  
• VeriSign's merger with NSI has given us a sharper focus on our business strategy and greater flexibility in many areas of business planning. In addition, our experience and that of ICANN management over the past year under the existing contract has given us a better understanding of how the existing contract functions as a practical matter.

As a result of these and other factors, we have reached agreement with ICANN management on three new contracts which, if they are approved, would replace the 1999 registry agreement between ICANN and NSI. These agreements would become effective upon (1) approval by the ICANN Board of Directors, (2) concurrence of the U.S. Department of Commerce, by means of an appropriate amendment to the Cooperative Agreement, and (3) approval by the VeriSign Board of Directors.

These new agreements will provide substantial benefits for the entire ICANN community, further promote competition, enhance Internet stability, and help ICANN standardize its practices among registries. Among their main provisions are:

• We would agree to terminate our operation of the registry for .org on December 31, 2002 and to cooperate with ICANN in transitioning .org to management by a new, non-profit organization representing the global universe of non-profit organizations. Among the issues to be determined in this transition is whether .org should be limited to registrations only by non-commercial entities, and if so, what transition arrangements need to be established for those existing registrants that would not qualify under that limitation. ICANN has agreed that, at a minimum, existing registrants would be permitted to remain in the new .org registry for one renewal cycle under its new management. In addition, and as another part of the transition process, all ICANN-accredited registrars would continue to be permitted to register qualifying names in the .org TLD for three years after termination of our operation of the .org registry, during which period the new registry could develop whatever registration policies for the future it thought appropriate. Our objective is to provide a permanent and affordable home on the Internet for the non-profit sector and in so doing make a major effort to close the digital divide on a worldwide scale. To see this through, we also would agree to support the new non-profit .org registry operator, and provide it with a contribution of $5 million that would be used for an endowment to help cover its operating expenses. Further, we also agree to make available to the party designated by ICANN as successor operator of the .org registry the use of global resolution and distribution facilities at no charge for one year.
  
• We would agree to end the current term of our operation of the registry for .net on January 1, 2006 and to participate in an open, competitive process for the operation of the .net registry beyond that date.
  
• We would immediately place the registries for .net and .org under new contracts, which would be based on the standardized contract that ICANN management has proposed for all new gTLD registries. For .com, portions of the current agreement would remain the same, while other portions have been modified to more closely conform to the standardized agreement. Among the provisions that will remain in effect are those that impose very strict information separation requirements between the VeriSign Registry and the NSI Registrar. Among the provisions that would be modified are those that impose a limit of $250,000 per year on the contributions that the Registry will make to ICANN.
  
• To demonstrate our long-term commitment to the stability of the Internet and to the domain name system, we would commit to invest $200 million over a ten-year period in research & development and infrastructure to increase the efficiency and stability of the .com, .net, and .org registries and the ability of all ICANN-accredited registrars to access these registries.

For all of these changes in the term periods and provisions in the agreements for .com, .net and .org, and the further commitments discussed below, we have mutually agreed to modify the current provision in the .com agreement concerning the procedures for any subsequent agreement.

We have accepted new and substantial obligations on the part of all three registries to pay fees, as part of ICANN's cost recovery program, identical to those paid by similarly situated registries. Because there is an existing fee structure already in place for these registries and the accredited registrars that register names in them, there will have to be a transition plan to move to the new fee system; that transition will be the subject of continuing negotiations between ICANN and VeriSign, with the objective of coming to an agreed transition before these agreements become final that can be put in place by the end of ICANN's fiscal year on June 30, 2001. ICANN has committed that the final agreement will ensure that VeriSign will not pay more than its proportional share of the overall Variable Registry-Level Fee (currently capped at $3.5 million for all registries) as measured by its share of registrations, and that an appropriate mechanism will be included to ensure that any future increases in this Fee can be offset by appropriate increases in the fees that VeriSign charges to accredited registrars, on the same basis as that set forth in the registry agreements for new TLDs. We believe that this regularization of the fee structure with respect to the .com, .net, and .org registries will further assure ICANN's financial stability and enable it to accomplish the important tasks ahead.

The new and increasingly standardized ICANN-registry operator agreements which we would be agreeing to more clearly set forth ICANN's obligations to assure the availability of a stable, secure, and authoritative database of root zone information regarding delegation of registry TLDs. We support ICANN's efforts to achieve these goals and pledge to assist ICANN to meet those goals.

Because the new agreements may call for various adjustments in VeriSign registry's operations, we would expect ICANN expressly to agree that, as to any new or revised obligations, VeriSign would be allowed a reasonable time to bring its operations into compliance. We would, for example, be required to re-engineer our Shared Registration System and adjust various contractual relationships with registrars and registrants, neither of which can be accomplished instantaneously. For our part, we would undertake to implement any required changes as promptly as possible.

As I indicated above, VeriSign has up to now been intent on complying with Section 23 of the current Registry Agreement, which provides for the automatic extension of the term of that agreement for all three TLDs by May 10, 2001. I'm sure you will understand that prompt final approval of these new agreements is necessary. We also appreciate your commitment to seek formal Board approval for an appropriate extension of the time under the existing agreement should compliance with Section 23 be necessary. But we are hopeful that by working with you, and the Internet community, including members of the ICANN Board, we will all see these new agreements approved and successfully implemented.

Sincerely,

/S/
Stratton Sclavos
President & CEO