ICANN suffers split-personality disorder as deadline for .org sale decision draws close

Staff trying to strike a deal; Board worried about corporate shell structure

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With just seven days left until it has to make a decision on the $1.13bn sale of the .org registry to a private equity firm, DNS overseer ICANN appears in chaos.

In a series of communications from senior executives, ICANN has embarked on a public negotiation with potential buyer Ethos Capital over the sale of the domain, while at the same time aggressively questioning its corporate structure.

A blog post from ICANN’s CEO Goran Marby late last week highlighted revised “public interest commitments” (PICs) that Ethos Capital had published as a way to resolve ongoing concerns over the sale, and gave the clear signal that ICANN is intending to approve the deal on April 20.

There has been a clear negotiation between the two sides: Marby’s post came one day after an email from Ethos’ lawyer (since published [PDF] noted that the new changes were in direct response to a letter from ICANN sent just a few days earlier. “In making these changes, they specifically focused on changes that go to the clarity and enforceability of the PICs as you mentioned,” Ethos noted.

At the same time as it is moving forward on a deal, however, ICANN continues to dig [PDF] into Ethos Capital’s unusual corporate structure: something that critics say is no more a corporate shell game designed to hide the true owners of the company.

ICANN is also looking at its financing of the deal, which financial experts have warned is typical of a debt-leveraged buyout where a founding firm is saddled with debt after the financiers walk away with a healthy profit.

Debt pile

“Can you please provide more detail on PIR’s current plans with respect to the repayment of the $360m term loan at the maturity date in light of Ethos Capital’s ten plus investment horizon for PIR?,” reads just one of dozens of pointed questions in a letter from ICANN to the company nominally in charge of .org, Public Interest Registry (PIR).

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Another makes it plain that ICANN believes information is being hidden: “ICANN has specifically requested that PIR provide the entities and individuals that will ‘control’ PIR post-transaction as that is defined in PIR’s registry agreements. PIR has provided some information regarding share ownership but has not provided the specific information regarding ‘control’.”

There are no less than six different companies involved on the Ethos side of the transaction, all of them based in Delaware, a common base for shell companies, and all but one was incorporated on the same day, October 24, 2019.

In addition to Ethos Capital LLC, which was incorporated in May - the day after ICANN made it clear it was planning to remove price caps on .org domains in a decision worth tens of millions of dollars - there is also Ethos Purpose GP, LLC, and then four “Purpose Domains” companies: Purpose Domains Direct, Feeder, Holdings and Investments.

ICANN has asked for the directors of each of these companies and the structural connections between them but from published letters from Ethos and ICANN is it clear that Ethos has been withholding specific pieces of information.

Public interest

In addition to this mixed message, ICANN has still not outlined its decision-making process despite repeat calls from the internet community, including the world’s governments, to do so.

There is an obvious public interest in the sale of millions of .org domains but ICANN has repeatedly failed to say how or whether it will factor that in its decision. At a recent public meeting its general counsel failed to use the term “public interest” when discussing how a decision would be made; an omission that prompted the Governmental Advisory Committee (GAC) to pointedly note [PDF] that the ICANN Board had told it that “all options remain open and that the Board will consider the public interest in its decision-making.”

However, when PIR argued that ICANN only had grounds to reject the sale on issues of “security, reliability, or stability of services,” ICANN pushed back saying that it would not accept “any artificial restriction,” and noted “the obvious importance to the public interest of its operation.”

ICANN changes tune however when other groups point to “public interest” as a key reason for denying the sale. In his most recent letter to the GAC [PDF], ICANN’s chair Maarten Bottermann said that the organization “will apply a standard of reasonableness in making its determination on whether to provide or withhold its consent to the request.”

In a second sentence, he then notes that “the ICANN Board will continue to consider the public interest in all its decision-making using the totality of the information received.”

The difference between “apply” and “consider” is not lost on those watching the process; nor is the fact that ICANN has failed to define the term “reasonableness,” despite it now being the main factor of consideration.

Faulty logic

While ICANN tries to play both sides, it is also going out of its way to prevent outside influence. The organization continues to argue that despite the overriding economic nature of the deal, it doesn’t need to carry out any economic analysis because it is not a price regulator.

That argument is attracting growing criticism, particularly in the light of the fact that ICANN recently approved an increase in prices for .com domains against overwhelming opposition. In approving the decision - which still leaves it in the position of deciding .com wholesale prices - ICANN noted that it didn’t need to carry out an economic analysis of the decision, which is worth $1bn, because it is not a price regulator.

In truth, ICANN’s internal divisions tells a larger truth about the US-based organization. It is supposed to make decisions according to a “multistakeholder” process where everyone impacted by a decision gets an equal say. But decades of divergent views within the DNS world has led to a situation where the organization’s staff make most decisions based on their own opaque criteria while facing little or no accountability.

ICANN’s staff are clearly in favor of approving the deal but board members under pressure from those that they represent are continuing to push back, resulting in conflicting communications from the organization.

Despite repeat requests for clarity, ICANN has not provided any firm details over how it will make a decision and on what grounds. The fact that the process has now been going on for five months leads to the unmistakable conclusion that the vagueness is not only deliberate but part of a strategy to push off scrutiny until a decision is made.

As for the refusal to carry out an economic analysis, the only rational explanation is that ICANN’s staff wants to make sure it is complete control of all the information leading to a decision. The organization would feel obliged to publish any external economic analysis and so its authors would hold significant sway over the final decision.

Stumbling forward

The conclusion many are drawing is that ICANN would rather make a decision in the blind than cede any level of control. The organization doesn’t have a single economist on staff despite being in charge of a multi-billion-dollar market.

ICANN has already put off making the decision twice and will be hard pushed to delay it a third time, which means it must make a decision before Monday April 20. With Ethos Capital seemingly determined not to divulge who will really control the .org registry if it is sold, there is now a game of chicken going on inside the organization with staff pushing for approval and some board members continuing to raise concerns.

Internally, staff is continuing to push a well-worn message: that board members are obliged first and foremost to carry out their fiduciary duties i.e. make a decision in the best interests of the organization rather than the broader interest. With Ethos Capital likely to sue if ICANN denies the sale, the case will be made that the deal should be approved to avoid dragging ICANN into a legal battle that it may still lose.

If ICANN staff can demonstrate that Ethos has made changes in response to its feedback and concerns, then the organization can be said to have done its job. That at least is the current calculation in trying to get sufficient ICANN board members to vote in favor of the sale.

On the flip side, however, there is the reality that an opaque, profit-driven company with no experience in the internet market is trying to buy a registry that has always been associated with non-profit organizations in a deal that was secretly brokered by a former CEO of ICANN.

It is the kind of aggressive capitalism that the internet infrastructure has actively sought to avoid for decades. And one reason why ICANN was created in the first place: to make sure the technical side of the internet always took precedence over the financial when it came to fundamental issues of routing and addressing.

As one internet veteran told ICANN board and staff at a recent meeting: "ICANN’s handling of the proposal [is] an important internet governance decision, with bearing on the community’s trust in ICANN and the legitimacy of ICANN’s model.” ®

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