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Why your website is about to get more expensive

The most popular websites are about to get more expensive because of a no-bid deal between the Trump administration and the company that holds a monopoly on managing a prime part of the internet.

And the Biden team isn’t sure it can back out of the arrangement.

Planned price spikes by Verisign in the coming years may add just a few dollars to the cost of registering or renewing an internet addressing ending in “.com.” But critics say that extra expense — totaling an estimated $85 million for the first year alone — will cascade through the online economy, ultimately hitting consumers. And they fault the U.S. government for not even trying to get a better deal by bidding out the contract that Verisign has held for more than two decades.

“When it’s a government monopoly, you should have some mechanism to protect the consumer interests,” said Deb Garza, a former federal antitrust official who had been involved in contract discussions with Verisign during the George W. Bush administration.

Verisign serves as the registry for all addresses that end in .com — essentially maintaining the directory and associated administrative data specifying who owns what sites. The Reston, Va.-based company doesn’t sell sites directly to the public but charges a fee to businesses like GoDaddy, Google and Alibaba for domains they register.

The Clinton, George W. Bush and Obama administrations’ contracts with Verisign all imposed caps on the fees Verisign can charge, and Bush’s Commerce Department even lowered them. But the Trump administration did away with limits in 2018, allowing the company to raise prices by as much as 7 percent in most years. The new agreement also includes an automatic renewal every six years — making the arrangement perpetual.

After imposing its first fee increase in September, to $8.39, Verisign said it will again raise the price on .com domains to $8.97 this fall.

Verisign defends the price increases as necessary to cope with rising costs, including the expense of protecting the internet’s infrastructure from constant cyberattacks.

“The wholesale price of .com domain names has not kept up even with inflation, much less with increasing demand for Internet services and online presence that has driven increased demand for domain names across the industry,” company spokesperson James Barbour said.

Defenders of the Trump administration’s lifting of the price caps also argue that the market for internet domain names is far more competitive than it was in the infancy of the online age. Companies that don’t want to pay Verisign’s price hikes can choose an address ending in .biz or .info, for example.

But opponents of the Trump move say no other address has the same business cachet as one ending in “.com” — which means the government has given Verisign a stranglehold on the Boardwalk and Park Place of the internet. They hope the Biden administration will revisit the deal.

“A lot of the antitrust focus [in Washington] is on Google and Facebook, and Verisign goes under the radar with this money-printing business,” said Zak Muscovitch, general counsel of the Internet Commerce Association, an advocacy group for domain registrars like GoDaddy.

He also questioned whether the work Verisign is doing justifies the price spikes.

“This isn’t exactly rocket science,” Muscovitch said. “It’s just a database they are running.”

Asked for comment, the Commerce Department’s National Telecommunications and Information Administration said the agency has no plans to change the Verisign contract. An agency spokesperson declined to answer detailed questions about the Trump deal.

What’s in a name?

The flap over Verisign’s price spikes is just the latest dust-up involving the hodgepodge of nonprofits and for-profit businesses that oversee the building blocks of the internet, which began as a U.S. government research project in the late 1960s.

One crucial role — control of the system for assigning internet domain names — is in the hands of the Internet Corp. for Assigned Names and Numbers, a California-based global nonprofit that was under U.S. government supervision from 1998 until the United States relinquished its control in 2016. ICANN contracts with other entities, including Verisign, to manage top-level domains like .com, .edu and .org (Verisign oversees both .com and .net.).

The internet had 364.6 million registered domain names as of Sept. 30, according to Verisign. Of those, 158.6 million end in .com, making it by far the largest.

By comparison, the next largest top-level domain is .tk, with just 24.7 million registered domain names. The .tk domain, associated with the New Zealand territory of Tokelau in the South Pacific, allows anyone to register a domain for free, making it among the most common domains used for phishing attacks.

The final prices that people or businesses pay for website registration vary widely depending on the domain. Companies called registrars — including GoDaddy and NameCheap, both U.S.-based, along with China’s Alibaba and Canada’s Tucows — often charge low prices for a new domain that hasn’t been registered before.

But popular domain names can be expensive because of a secondary market of resellers who buy and sell domain names for profit. The domain name, for example, sold for a record $49.7 million in 2010; has sold twice, once for $14 million in 2005 and again for $13 million in 2010.

Verisign said registrars charged an average retail price of $16.58 for a .com renewal in 2020, with the registrar keeping about half of that after the fees to Verisign and ICANN were taken out.

Industry experts, however, said the price is harder to calculate because most registrars bundle in other services, like web hosting or domain privacy services to shield the identity of a website’s owner. GoDaddy, the No. 1 registrar, says the price it charges for a one-year website renewal varies between $10 and $20.

The backbone of the internet

Verisign’s role in the architecture of the internet is a product of history.

In the late 1990s, when the U.S. government sought to privatize the internet, the Commerce Department chose the company Network Solutions Inc. to manage the .com domain. Verisign bought the company and took over the agreement in 2000.

Since the beginning, the Commerce Department’s NTIA and antitrust prosecutors at the Justice Department have tussled with Verisign over the price.

The government originally set a price cap of $9 per domain per year in April 1999, which it said reflected “NSI’s costs and a reasonable return on investment.”

During the Bush administration, NTIA lowered the price to $6, but said the company could increase its fees by 7 percent in four out of every six years.

DOJ justified the price caps on the grounds that Verisign “possesses significant market power,” noting that individuals and companies view the .com suffix as the gold standard for websites.

When the Obama administration reviewed the contract in 2012, NTIA kept the price cap, then at $7.85, for the next six years, though it permitted Verisign to request an increase if its own costs rose. Before the U.S. government handover in 2016, Obama administration officials told Congress that Verisign was in talks to extend that $7.85 cap through 2024.

Then came President Donald Trump’s administration, which maintained that the price controls were no longer needed.

Trump’s NTIA administrator, David Redl, acknowledged in an interview that “.com is an incredibly important part of the internet.” But the administration believed that the internet had “evolved” with the addition of new top-level domains, as well as the availability of country codes such as .tk or .uk (for United Kingdom websites).

In the 2018 amendment to Verisign’s agreement, NTIA said those domains and the use of social media had “created a more dynamic [domain name] marketplace,” leading the agency to determine that Verisign needed “pricing flexibility.” Verisign would now be able to increase its prices 7 percent a year in four out of every six years. The new deal also allowed for automatic renewals of Verisign’s contract every six years.

The agency consulted the Justice Department’s antitrust division on the implications of removing the price cap, Redl said, though he acknowledged having “zero insight” into how the DOJ analyzed the competition among domains.

But he disputed the idea that Verisign is a monopoly.

“I think calling them a monopoly at this point is an unfair comparison. Verisign is no more a monopoly than your Ford dealer is a monopoly,” Redl said. “It’s not the original days of the internet where that was the only top-level domain.”

Documents that POLITICO obtained through a public records request show that the Justice Department had little time to weigh in on the Trump-era contract changes.

NTIA first asked the department for its advice on amending Verisign’s agreement 20 days before the earlier contract was set to expire. The Commerce agency didn’t provide the DOJ a copy of the proposed amendment for another five days.

The Justice Department then sent a response letter a week later. NTIA declined to provide a copy of that letter, citing an exemption in federal public records law for inter-agency correspondence.

Who’s in charge now?

Though critics hope the Biden administration can find a way to rewind the deal, people involved in the debate have wildly different views on who might have that authority.

Redl said the final responsibility for pricing should rest with ICANN, which has its own contract with Verisign and other domain registries. But ICANN disagrees.

“ICANN is not a competition authority or price regulator,” said Gwen Carlson, a senior director for communications at the nonprofit. She said the organization “has long-deferred” to the Commerce and Justice departments for regulating wholesale prices for .com registrations — and “this has not changed.”

But having the Justice Department set these prices would be contrary to U.S. competition policy, argued Makan Delrahim, who was the top Trump DOJ’s top antitrust official and was involved in the Verisign contract discussions.

“The DOJ is not in the job of setting prices,” Delrahim said in an interview. “The antitrust division only looks at anticompetitive harm and is not a price regulator.”

If a price cap is needed, ICANN or Commerce should be the one to set it, Delrahim said.

But Commerce’s NTIA has no plans to change the 2018 agreement with Verisign, according to an agency spokesperson who said they were authorized to speak only anonymously.

And Biden’s DOJ has little room to challenge the Trump-era deal, despite being unhappy with the terms, said a department official who spoke on condition of anonymity to discuss internal agency policy. The perpetual renewal of the contract means NTIA and DOJ can’t necessarily require changes when the current agreement expires in September 2024, the individual said.

On the other hand, revisiting the deal would be in line with the sweeping executive order that President Joe Biden issued last summer to improve competition throughout the economy, said Garza, the former Bush antitrust official.

“I wouldn’t favor price regulation either,” said Garza, now a partner at the law firm Rule Garza Howley. “But it has a place when there’s a government-created monopoly.”

Big money

The job of overseeing one of the internet’s most lucrative corners has meant good business for Verisign, which reported $1.33 billion in revenue for 2021. Its income after expense — a common measure of profits — was $866.9 million.

But the company disagrees that it’s making an unfair killing. It said its wholesale price is the lowest among the more established top-level domains, which include .net, .org, .biz and .info, and that it plays an invaluable role in keeping the online economy humming.

“Verisign’s global DNS network has an unparalleled track-record of 24 years of uninterrupted uptime, and globally enables trillions of dollars in e-commerce annually,” said Barbour, the Verisign spokesperson.

The yearly 7 percent price increases will restore the hikes that had been allowed during the George W. Bush years, he said.

In response to questions by POLITICO, Verisign cited a paper by experts at the Massachusetts Institute of Technology to criticize domain resellers that buy popular domain names and flip them for a profit. But that paper also estimated that each of Verisign’s 7 percent price increases will add at least $85 million to the company’s bottom line.

Because of the high rate of renewals for .com websites, “even modest increases in their pricing could significantly increase their revenues,” the authors said of both Verisign and registrars like GoDaddy.

They added that even if Verisign were to increase prices to $50, “that would be unlikely to reflect a sufficiently significant cost increase to impact most serious businesses’ decisions regarding whether or not to register a domain name.”

ICA’s Muscovitch said governments in other countries, such as France, have a competitive bidding process to operate this kind of registry, forcing companies to compete on quality and price.

The U.S. Justice Department proposed introducing such a competitive bidding process in 2008 when ICANN sought to offer new top-level domains. In a letter from Garza, who was then the DOJ’s top antitrust official, the agency recommended that ICANN establish “competitive mechanisms” for authorizing domain registries, in which prospective companies “would compete for [top-level domains] by proposing registry terms — including maximum fee schedules — that would provide consumer benefits.”

Verisign’s market power stems from the fact that .com was among the internet’s first domains and the company has the exclusive right to manage the registry, Garza said. That can’t be addressed via an antitrust suit, she said, but only by the Biden administration.

ICA’s Muscovitch agreed, citing Biden’s competition order from last year.

“Biden said he wanted a whole-of-government approach. He didn’t specifically talk about this but he did talk about the internet,” ICA’s Muscovitch said. The Verisign contract fits that “especially when you have its two ostensible regulators denying the responsibility for letting it raise the price.”

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