FTC Staff Supports Plan for Competition in Internet Domain Name System

A plan to privatize the Internet domain name system and to introduce multiple, competitive registries could reduce consumer prices and improve quality, the staff of the Federal Trade Commission’s Bureaus of Economics and Competition has told the National Telecommunications and Information Administration (NTIA).

Currently, many Internet domain names -- the unique 'address' of Web sites -- are designated by generic, top level domain (TLD) categories, such as ".com" for commercial sites, and ".gov" for government sites. They are assigned by a single registry, Network Solutions, Inc., under a five-year contract with the National Science Foundation that expires in March 1998. According to the NTIA, there is dissatisfaction with the absence of competition in the provision of domain name registration and with the limited number of TLDs now available under the current system. NTIA is proposing a new system that would create a competitive market for "registries." Under the proposal, up to five new privately-owned, for-profit entities would be allowed to become Internet registries. Each would be allowed to offer one top-level domain, for example, ".store" or ".vend."

The staff comment discussed the possibility that registries could raise prices to "locked in" customers after a domain name customer had signed up. Although the staff found it plausible that customers who had invested in familiarizing the public with the name of their web site might be exposed to switching costs upon changing registries, it indicated that this should not preclude the proposed move to a competitive system. The comment observes, "[H]igher prices resulting from 'lock-in' also could occur under alternatives to the NTIA proposal and under the current registration system." In addition, according to the FTC staff, customers may be able to protect themselves by entering long-term contracts, and vigorous competition among suppliers, particularly in growing markets, would reduce the concern over lock-in. Overall, staff concluded, "[w]hile the possibility of supplier opportunism exists, the potential benefits to consumers from enhanced competition -- such as possible price reductions and quality improvements -- argue in favor of the NTIA proposal."

The staff comment noted that accurate and reliable domain name information plays an important role in allowing law enforcers to track fraudulent or deceptive commercial practices on the Internet and to enforce consumer protection laws. "Thus, from a law enforcement perspective, it is important that whatever domain name registration system is in place appropriately safeguard the accuracy of this information."

The NTIA proposal would create a new, not-for-profit corporation to oversee certain technical functions, including management of number addresses. The NTIA has suggested safeguards, including a very broadly-based, diverse board of directors, to alleviate the possibility that any group of competitors will be able to use the proposed new corporation to impair competition. In addition the proposal states that the new corporation’s "decision making process should be sound and transparent; the bases for its decisions should be recorded and made publicly available." Although the FTC staff identified types of conduct that could raise competitive concerns, it concluded that forming the new corporation consistently with the proposed safeguards "should provide some protection from anticompetitive conduct. ... The informational benefits of broad-based participation in the process coupled with the diverse composition of the corporation’s board of directors, would increase the likelihood that decisions will be made in an appropriate manner."

The staff concluded that the likely benefits to customers of enhanced competition support adoption of the proposed changes to the domain name system.

The Commission vote to approve filing of the staff comments was 5-0.

Note: These comments are the views of the staff of the Federal Trade Commission’s Bureau of Competition and Bureau of Economics, and do not necessarily represent the views of the Commission or any individual Commissioner.

Copies of the staff comments are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202- 382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. V98 0005)