Future of Domainz Options and Recommendations
BACKGROUND
Members and stakeholders will be aware that as of Monday 14 October Domainz (www.domainz.net.nz) is no longer the registry for .nz as this has transferred to NZRS (www.nzrs.net.nz).
InternetNZ and Domainz have agreed that Domainz shall operate as a
stabilising registrar under the terms of the agreement at
www.internetnz.net.nz/public/committee-reports/
ctte-srs-implementation/stabilising_contract.pdf
.
This agreement expires on 30 September 2003.
Council agreed at its December 2001 meeting that "once a competitive market is in place, InternetNZ no longer needs to own a registrar". This was due to perceived conflict of interest in also owing the registry, and through the DNC (www.dnc.org.nz) being the market regulator. Council further in August 2002 resolved to establish a Future of Domainz Taskforce to consider and consult on options for Domainz's future and report back to Council by no later than 30 November 2002.
The membership of the taskforce is:
| InternetNZ: | President, Secretary, Treasurer |
| .nz Oversight Committee: | Chair, DNC |
| Domainz: | Chair, CEO, Donna Hiser |
The Taskforce has met twice to date and has considered various options for the future of DOMAINZ and following consultation has also reached conclusions which it recommends to Council.
The three main options for the future of DOMAINZ are:
- Retain ownership of Domainz, but as a non-registrar business
- Sell Domainz as a going concern
- Windup Domainz
Within each option there are a number of sub-options which are also detailed below.
1. RETAIN OWNERSHIP
While InternetNZ has ruled out retaining DOMAINZ as a registrar once a competitive market is in place, it could retain DOMAINZ as a non Registrar business.
This option is seen as undesirable by the Taskforce. The Taskforce considers that InternetNZ is not well suited to be the owner of a competitive non registrar business and further that DOMAINZ without its registrar activities is unlikely to be able to move into a totally new business area within a year. A feasible business case to do so is not considered likely.
| PROS | CONS |
| Could produce ongoing revenue stream for INZ reducing its reliance on income from .nz registrations | Large amount of money would need to be invested in DOMAINZ to change its business focus |
| INZ does not have the expertise to wholly own a competitive business | |
| Registrants with DOMAINZ would be forced to move to another Registrar |
2. SELL DOMAINZ AS A GOING CONCERN
Under this option InternetNZ would relinquish ownership of DOMAINZ through some commercial mechanism such as sale, auction or share float and DOMAINZ would transfer to new owners once a competitive market is in place.
The Taskforce unanimously choose sale as its preferred option. It believes it offers the best option for realising the value built up in DOMAINZ, offers staff an opportunity for continued employment and allows registrants who so choose, to stay with DOMAINZ.
The major pros and cons of the sale option are:
| PROS | CONS |
| Should produce maximum value to INZ, thus providing a capital sum which can reduce its reliance on domain name registrations | Preparation of DOMAINZ for sale could lead to tensions with its role as a stabilising Registrar |
| Provides DOMAINZ staff with opportunities for continued employment | The rate of loss of market share is unknown and sale is less likely if DOMAINZ market share is too high (market dominance) or too low (potentially unprofitable) |
| Allows registrants to choose to remain with DOMAINZ and avoid being forced to transfer to another Registrar |
If InternetNZ proceeds down the sale path, as is recommended, it will have to consider the precise details of the process including three major issues which are method of sale, restrictions on sale and purpose of sale.
2.1 METHOD OF DIVESTURE
InternetNZ has a number of ways in which it can divest its 100% equity in DOMAINZ. These include identifying one or more suitable buyers and developing business plans with them, a sale by tender and also potentially floating DOMAINZ on the proposed Alternative Exchange (AX) of the NZ Stock Exchange (NZSE).
It is too early to make a final decision on this issue but initial feedback is welcome from members and stakeholders. A preliminary look at the pros and cons of NZSE AE listing is given below.
| PROS | CONS |
| Would allow members of the Internet community who have contributed to DOMAINZ's value to take a shareholding in it | Traditionally sale of individual shares generates significantly less income than sale to a single buyer |
| Would help prevent a single buyer gaining too large a market share | Compliance costs of sale and listing may be onerous on INZ and also INZ may not be able to exit all its equity at once |
| Would allow the ?market?to set the value of DOMAINZ | There may not be enough potential investors interested in a niche company |
2.2 RESTRICTIONS ON DIVESTURE
As part of any sale process InternetNZ will need to consider whether it places any restrictions on whom DOMAINZ can be sold to, and whether such restrictions be made part of a long term or permanent caveat to restrict future owners from selling to said companies.
Possible restrictions could include other Registrars with market share over a certain size, Telecommunication companies, companies which are seen to use unethical business practices such as the now defunct Australian based Internet Name Group or major international players such as Verisign.
It is likely that the more restrictions put on a sale, the lower the sale price will be, especially if any restriction is made part of a caveat. If there is no caveat though the restriction may be meaningless as the new owner could immediately onsell it to a restricted party.
Feedback from members and stakeholders on whether any companies, by type or name, should be ineligible to buy DOMAINZ is welcome.
The taskforce believes that any sale should not lead to an unfair market dominance for any one company. A judgement as to the definition of unfair market dominance is best left until next year when the degree of competition in the .nz market will be readily known.
2.3 PURPOSE OF DIVESTURE
The Taskforce has considered whether DOMAINZ should try to be sold just "as is" or if other business areas should be considered to increase value.
The Taskforce agreed that the main purpose of any sale process should be to maximise value for the shareholder, but only if such sale would not result in an unfair market dominance in the .nz market.
The Taskforce is happy for DOMAINZ to develop other lines of business, on top of being a registrar, if this is judged likely to help maximise value.
3. WIND-UP DOMAINZ
Under this option InternetNZ would wind up DOMAINZ on 30 September 2003. All registrants who remaining with DOMAINZ at this stage would be transferred to one or more other Registrars.
As with sale there are a number of ways this could be achieved, which are detailed below. However the Taskforce does not recommend any of them as its preferred option as they will involve forcing registrants to move to another Registrar.
The major pros and cons of winding up are:
| PROS | CONS |
| Would provide absolute certainty to DOMAINZ on the future. | DOMAINZ would have considerable difficulty retaining and where necessary recruiting staff for a company with no future |
| Would lose any value built up in DOMAINZ | |
| Would force registrants who wish to remain with DOMAINZ to transfer to other Registrars |
If InternetNZ did decide to wind up DOMAINZ, there are a number of ways this could be done, with major options detailed below.
3.1 REMAINING NAMES ALLOCATED TO ALL REGISTRARS
If DOMAINZ were not to continue as a registrar, then any remaining names with DOMAINZ as at 30 September 2003 could be allocated out to other Registrars in proportion to their market share.
This option is also not preferred as it could lead to Registrants having different domains given to different registrars and also provides other Registrars with what is effectively a "gift" of potentially considerable value.
3.2 REMAINING NAMES TENDERED OUT
If DOMAINZ were not to continue after 30 September 2003 as a Registrar, and there were still some registrants left with DOMAINZ despite being asked to choose another Registrar, then the registrar rights to the remaining block of names could be sold off as part of the winding up of DOMAINZ.
The Taskforce's preference is for DOMAINZ to be sold as a going concern. If for some reason a sale does not happen (such as due to lack of buyers at right price) then this option is the recommended fallback option where registrar rights to names would be sold or tendered in a commercial manner.
RECOMMENDATIONS
The initial recommendations of the Taskforce to InternetNZ Council are:
- That Council receives the Report of the Taskforce
- That InternetNZ resolve that it wishes to sell DOMAINZ as a going concern before 30 September 2003
- That the Future of DOMAINZ Taskforce continue in existence until 30 September 2003 to consider, consult on, and eventually recommend to Council precise details of the divesture process
