DSTI/ICCP/TISP(2004)2/FINAL 
lower prices although, in practice, this may not be the case. It may also contain a certain risk for the 
Internet community.  
As the primary function of the DNS is addressing it is worth considering whether driving the registry 
price to the lowest possible level is in the best interest of the Internet community. For their part registries 
have noted that not all registrars can be expected to pass on any reduction in price.
60
 While that is true, for 
some registrars, others will undoubtedly adopt the reductions as is evident from current pricing models 
which charge little more than the registry s maximum price. In most markets this development would be 
considered beneficial in bringing lower prices to users. The broader impact lower prices may have on the 
DNS and its use, however, needs also to be considered.  
At their current level the lowest prices for registration clearly enable a large amount of speculation in 
domain names and related activities such as those of traffic aggregation. Driving down the baseline cost of 
registration may considerably enhance the economics of these activities to the point where their negative 
impacts far outweigh the potential benefits to users of lower prices. In short it would be of little benefit to 
users if the type of economic models that appear to make large scale spam profitable were transferred to 
the domain name system. Is this a credible risk? Speculators have already shown a willingness to register 
virtually all names in English language dictionaries under 
.com
 at current prices. Lower prices may simply 
further encourage speculation, across all existing and new domains, to the point where the only option for 
users is to purchase names from the secondary market. In effect, because secondary market prices are 
higher than registrar prices, this would lead to a price increase for users. Moreover, given the challenges 
new names face in winning market acceptance it is not clear that increasing the supply of top level domain 
names would act as a counter balance to speculation. Rather, speculators would target existing gTLDs that 
already have acceptance and any new names that gained acceptance. 
Risk of corruption 
A comparative selection procedure introduces a higher risks for potential corruption compared to an 
auction. 
Summing up: Allocation procedures 
ICANN faces a number of allocative decisions over the coming years. Some of these decisions relate 
to the possible creation and allocation of new resources while others concern the allocation of existing 
resources. These are decisions to be taken by ICANN in consultation with all stakeholders. In the case of 
potential new TLDs, the actual resources to be allocated need to be defined, so that issues such as whether 
scarcity exists can be determined, prior to deciding the most appropriate allocation procedure.  
Most concerns that might apply to using auctions as a tool to allocate new gTLDs do not apply to any 
decision on the future allocation of existing gTLDs. For example, there seem to be few, if any, obstacles to 
ICANN auctioning the right to be the registry responsible for 
.net 
as an adjunct to pre qualification 
procedures. Indeed, there would be clear and demonstrable benefits in meeting the objectives set by 
ICANN. An auction would provide a transparent, objective and verifiable mechanism for the market to 
appropriately value 
.net
 and avoid the pitfalls associated with comparative selection. Such an auction could 
also act as a practical demonstration, for auctions, in relation to other allocative choices as and when they 
arise. 
On balance the economic arguments favour the use of auctions in some form, where scarcity exists, in 
relation to the goals set by ICANN for allocation procedures. They are particularly strong in relation to 
allocation decisions concerning to existing resources and where a `tie breaker' is needed during a 
 51 




  

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