The SRS - The Business Model v1.0 - 14/08/01

This paper has been prepared by the SRS Implementation Manager to encourage some focused discussion around the business model for running the register. The status of this paper is that of a discussion draft.

Your feedback is sought on the contents of this document. A summary of specific areas where feedback is sought is outlined directly below. The feedback will be reviewed and summarised. Decisions on SRS implementation issues are made by the InternetNZ Council.

Your comments should be sent to srs-implementation@isocnz.org.nz by 14 September.

Areas for Feedback

Your feedback is sought both on the contents of this draft and whether there are significant gaps and omissions. Square brackets, [ ], have also been used to elicit comment on specific issues.

There are a number of specific issues where feedback is sought. These are outlined below.

It is proposed that the registry fees fund the public good aspects of managing the .nz domain name space.

Are all the following activities to be carried out by the office of the ccTLD manager considered to be "public good" activities?

• Maintaining the policy for .nz domain name management
• Contracting for registry services and monitoring the registry's performance (including ensuring appropriate investment in future-proofing) and register charges
• Running the Registry-Registrar Standing Committee
• Monitoring registrar activity - market surveillance, specific investigations of any registrar, terminating a registrar
• Monitoring of and influencing international developments in relation to the management of the DNS, in so far as they may impact on the .nz domain name space.
• Should the registry fees fund advocacy by ISOCNZ/InternetNZ for the continued development of the infrastructure required to support the internet within NZ?

Should the following activities of the ccTLD manager be funded through cost-recovery (based on an average transaction cost)?

• Authorising new registrars
• Running the process for creating the second level domains and appointing moderators for moderated second level domains

The Registry

1. The registry is the entity which is responsible for maintaining the definitive register for .nz ccTLD names in accordance with the policy for domain name registration and management, and the regular refreshing of zone files to the DNS servers.

2. This involves:

• Management of the register/database, DNS servers and associated technical infrastructure in line with the current policy and international protocols/best practice.
• Account management of authorised registrars (responding to technical and billing queries).
• Providing a "whois" and information service for the public.

3. Management of the register, DNS servers and associated technical infrastructure in line with the current policy and international protocols/best practice - this is the substantive role, and includes implementing and maintaining technical standards.

4. "Account management" of approved registrars (responding to technical and billing queries) - the aim should be that it is the registry who rings the registrars to check that all is well rather than responding to queries/concerns. A substantive role with a proactive approach required in the transition.

5. Providing a "whois" and information service for the public. The static information will require updating from time to time (adding new registrars etc).

6. The June 2000 AGM of ISOCNZ accepted the following recommendation from the SRS Working Group:

"Recommendation 8. ISOCNZ should revise its charging policy to encourage registry charging to:

Be focused on the registrar as a customer

Reflect a registrar's use of the register

Be independent of any contract or agreement between registrar and registrant."

7. The Working Group's Final Report then went on to state:

"The registry should charge the registrars to recover both its costs and the costs of the ccTLD manager. While the registry will act as a single collection agent the separate costs of registry and ccTLD manager operations should be clearly transparent, though not necessarily separate line items in the invoice."

Public Benefit vs. For Profit

8. One of the overarching guiding principles for the SRS environment is to ensure that the register, as a monopoly, has to be operated in a technically, legally and fiscally responsible manner.

9. "The designated [country code] manager is the trustee of the top level domain for both the nation, in the case of a country code, and the global Internet community." There is a duty to serve the community (RFC 1591). This notion is reinforced in the Best Practice Guidelines for ccTLD Managers, recently issued by ICANN.

10. Within New Zealand, there has been a lot of debate about the profits generated from Domainz's monopoly business, and the use of this to fund ISOCNZ activities. It is not clear whether this debate is particular to New Zealand or is one which occurs in other ccTLDs. The .nz delegation is held by an incorporated society (a not for profit organisation), which has established a fully owned company to run the register. It is interesting to note that in other ccTLDs, the delegation holder can be a private (and at times a non-native) individual or company, who may or may not be operating the ccTLD for profit.

11. As the issue of "profit" raises emotional arguments, it may be better to focus on what it is appropriate for the register charges to cover. It is also important to distinguish between the register and the registry.

12. The registry is the entity that is responsible for operating the register.

The register may or may not be the sole business of the registry.

The registry may or may not be owned by ISOCNZ.

Whether or not the registry is not owned by ISOCNZ, commercial prudence requires that there has to be a margin between the operating costs and revenue from the register.

Where the register is operated by a third party, the margin between the operating costs and the revenue has to be such that the third party views it as a business in which it wants to invest in and continue to invest it and/or operate.

13. Rather than getting preoccupied with the "for profit" and "public benefit" labels, the debate could focus on what it is appropriate that the register fees should fund. It may also be appropriate to consider how other monopoly commercial registers operate.

14. At a minimum, the register fees need to cover:

• the technical costs of operating the register; and
• the administrative costs of operating the registry-registrar interface.

15. The technical costs of operating the register includes the following:

• Hardware costs, including maintenance, licenses, communication costs
• Software costs including licenses
• Baseline technical support required
• Investment in future-proofing all the above (hardware upgrades, software enhancements, training)
• Other???

16. The administrative costs of operating the registry-registrar interface include the phone support, billing support and the overhead/administrative costs for the register.

17. The issue then becomes how far the register fees should be used to fund other aspects of managing the .nz domain name space.

18. The following activities fall within the "public good" activities of the Office of the ccTLD manager:

• Maintaining the policy for .nz domain name management
• Contracting for registry services and monitoring the registry's performance (including ensuring appropriate investment in future-proofing) and register charges
• Running the Registry-Registrar Standing Committee
• Monitoring registrar activity - market surveillance, specific investigations of any registrar, terminating a registrar
• Monitoring of and influencing international developments in relation to the management of the DNS, in so far as they may impact on the .nz domain name space.

19. The rationale for funding these public good activities above are that they are part of the trusteeship role associated with safeguarding registrants' rights and interests, through:

• Ensuring that the register is managed effectively
• Ensuring that registrars are acting responsibly
• Maintaining a competitive environment within NZ
• Ensuring that the operation of the .nz register is not compromised through "global" initiatives that undermine legitimate ccTLD interests.

20 The other option is that some of these are funded by registrars, either directly by voluntary contributions, authorisation application fees or through a levy on registrar activity:

• The "legal" costs of the SRS - monitoring the registry and registrars, market surveillance, policy initiatives, influencing national and international developments in so far as they impact on .nz name space.
• Contracting for registry services and monitoring the registry's performance (including ensuring appropriate investment in future-proofing) and register charges
• Running the Registry-Registrar Standing Committee
• Monitoring registrar activity - market surveillance, specific investigations of any registrar, terminating a registrar

21. The debate then focuses on whether there are residual activities remaining with ISOCNZ that have public good outcomes and therefore could be funded through the register charges. The key one would appear to be:

• Advocacy for the continued development of the infrastructure required to support the internet within New Zealand

22. The rationale for funding this activity is that ISOCNZ is one of the few non-commercial organisations within NZ that has a breadth of membership and expertise to contribute positively to these issues. It also has professional staff who can co-ordinate these activities. An activity that would fall within this is submissions on policy and/or legislation that have the potential affect the operation of the internet (e.g. Telecommunications Bill).

23. There are two other activities of the ccTLD manager that could be funded through cost-recovery, either full or partial. These are

• Authorising new registrars
• Running the process for creating the second level domains and appointing moderators for moderated second level domains

24. The rationale for cost-recovery for these activities is that there are costs associated with these activities that either provide benefits/protection to a small group (moderated domains) or there is a commercial interest involved (registrar).

Propose a one-off fee [$2,500] where a group seeks approval for a moderated second level domain. The ccTLD Standing Committee can waive this fee where the group has non-commercial/not for profit objectives.

25. The registry will need to recover the operating costs of the register and maintain adequate capital reserves to cover the following:

• Fluctuations in registration activity
• Ongoing investment in its technical infrastructure, particularly to ensure future-proofing of the DNS within NZ

26. As a monopoly provider of third party funded registries, government has established processes to ensure that the above risks are covered (and it's not called taxation!). Memorandum accounts can be established for third party funded registries. Fees models are established that make transparent the costs of operating the register and the costs associated with transactions (or groups of them) with the register/registry. Policies are established around which transactions are chargeable (cost of providing the service being only one factor. For example, the trend is to not charge for amendments to data on the register (including discharges/cancellations) as this provides an incentive to ensure the information held on registers is current). Annual projections are made of fee-generating transaction volumes, and estimated costs. The registry can apply for capital expenditure to be funded out of surpluses in the memorandum account. The memorandum account operates as a price-stabiliser in that it smoothes the fluctuations in fee-paying transaction volumes (enabling a medium term view to be taken on price changes).

27. The principles underpinning the "memorandum account" mechanism could be implemented for the .nz register fees, and overseen by the ccTLD Standing Committee. This would provide transparency both of operating expenses (ccTLD manager and registry) and fee changes. The account could be audited annually by an independent third party. The account would be managed to provide a level of commercial prudence for the operation of the register.

28. Given the relatively small size of the .nz market, its limited potential growth and the need for .nz domains to be internationally competitive, the SRS solution must be capable of being operated at a low cost both at the registry and for registrars.

29. It could be prudent for the registry not to be a 'one-horse" organisation but to run a number of complementary business activities to share the overhead costs with (and assist to keeping the registry costs at a minimum) - effectively becoming a 'plug and play" organisation to ensure economies of scale, long term viability (critical mass of revenue-generating activities), a technically interesting operation (to enable it to attract and retain highly competent technical expertise) etc.

30. It is recommended that:

(a) The register fees charged to registrars for the use of the register fund the following:

• The technical costs of operating the register
• The administrative costs of operating the registry-registrar interface
• The public good activities of the Office of the ccTLD manager (listed in paragraph 18)
• Advocacy for the continued development of the infrastructure required to support the internet within New Zealand.

(b) The following activities operate either on the basis of full or partial cost recovery:

• Authorisation of new registrars
• Processes for creating new second level domains and appointing moderators for moderated second level domains.

(c) (i) The registry operates a memorandum account principles are used for register fees to provide a fee-smoothing mechanism

(ii) The fee-smoothing mechanism memorandum account is overseen by the ccTLD Standing Committee and is audited annually by an independent third party

(iii) This mechanism e memorandum account provides a buffer of commercial prudence for the operation of the register.

©2001 InternetNZ
Last updated 15 August 2001