DSTI/ICCP/TISP(2004)2/FINAL 
In other cases strings may not be controversial but equally they may not add anything, beyond the 
value of the auction price, to the Internet's development. The latter case might occur if any entity 
purchased the right to establish a new TLD for reasons of vanity or self promotion but without a serious 
intent to operate a registry.  For this reason new TLDs should probably only be generic words or concepts. 
To allow an individual entity to reserve for their own use a gTLD, without the requirement to run an open 
registry or a registry for a particular community, would create a new category of user. Such a development 
would be antithetical to the hierarchical nature of the DNS and the benefits that confers in terms of 
managing the addressing system. 
It is unlikely that the vast majority of firms would bid with the intent of transforming their second 
level domain name to a TLD, should an auction for unspecified strings occur. Nor should they be placed in 
a situation where they felt compelled to do so. Some firms, of course, might like to have a TLD in the form 
of their company acronym or name which they could use for themselves and their customers. But in a 
market economy firms come and go over time whereas users look for stability and continuity in addressing 
systems.  These eventualities, however, could be avoided by the requirement to run a registry, pre 
qualification procedures and the requirement that proposed strings be limited to generic words. ICANN has 
stated that it is   seeking views from experts and the community on the appropriate balance between 
corporate/sponsor control of a gTLD and management on behalf of the internet community  .
57
While in theory allowing a successful bidder to choose the string should lead to a higher price and 
more efficient outcome, in terms of satisfying demand, this may not be so in practice. Bidders may feel that 
the ability to choose a string is offset by the potential for rights challenges or other uncertainties in not 
being able to use their first choice. There may also be a possibility of litigation against ICANN, in relation 
to string selection, albeit this potentially exists under any allocation mechanism. A further consideration 
for not allowing individual firms to transform second level names into top level names is that it would 
further complicate the IANA function and potentially increase the resources needed for this function. 
Pre qualification would still be necessary 
In theory the firms that believe they will run the most efficient registries should succeed in auctions. 
In practice, however, a pure auction based process may attract candidates that do not have the right 
technical credentials. Accordingly, ICANN's criteria for security and stability dictate the need for auctions 
to occur only among technically qualified candidates. In the current TLD market a number of registries 
perform back office functions for other registries, so this may not be a barrier to wide participation by 
entities that qualify in other respects.  
The right to operate registries for gTLDs can be bought and sold in the market. In March 2004, for 
example, the 
.pro 
registry changed ownership. This raises the question as to whether speculators would 
participate in auctions. In most markets, speculators can play a valuable role in helping to realise the true 
value of a resource. On the other hand, revenue maximisation may not be ICANN's primary objective. If 
running a registry was a requirement of participating in an auction speculators would factor that risk into 
their bids if they had no serious intent to run a registry.  In addition auctions can be designed to exclude 
bidders with serious no intent to offer services, such as through non refundable deposits and performance 
targets. 
Could auctions lead to higher end user prices? 
Auctions would not lead to higher prices for domain name users. Prospective operators of new gTLDs 
would be aware of current pricing levels, and the potential entry of other new operators, and factor that 
knowledge into their bids.  
 47 




  

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