[Chapter-delegates] FW: Ethical aspects of sale of PIR

[Richard Hill]

I am cross-posting the message below, which I posted to the Internet Policy
list.

Best,
Richard

-----Original Message-----
From: Richard Hill [mailto:rhill at hill-a.ch] 
Sent: Tuesday, November 19, 2019 19:14
To: 'internetpolicy at elists.isoc.org'
Subject: Ethical aspects of sale of PIR

Dear all,

Following up on the extensive discussions regarding the sale of PIR (the
.org registry) to a for-profit company, I would like to explain why that
sale appears unethical to me (while no doubt being perfectly legal).

As a consequence, I will propose to the next ISOC-CH General Assembly that
ISOC-CH should, in the future, not accept funds from ISOC. I don't know
whether the other members of ISOC-CH will support this proposal.

I start with a summary of the facts, as I understand them, then comment on
the communication regarding the deal, its financial aspects, and its ethical
aspects.

Facts
=====

ICANN decided to lift the price cap (ceiling) for domain names in .org. 

Subsequent to that, a start-up investment firm (some of whose principals are
very familiar with the domain name business because they were associated
with ICANN in some way or another) offered to buy PIR from ISOC.

The firm will obtain money for the deal from investors, including some funds
that appear to be trust funds.

The offer appears to be in cash. ISOC apparently plans to invest that cash
in an endowment fund which would give it an annual revenue sufficient to
ensure ISOC's operations.

The deal was negotiated in private, apparently at the request of the buyer.

The Board has done due diligence and concluded that the deal is in ISOC's
best interests.

The deal is finalized, but not closed, pending approval by regulatory
bodies.

There was no communication with ISOC's constituencies (which includes the
chapters) prior to the deal being finalized, and the details of the deal
have still not been communicated.


Communication
=============

I agree that deals of this nature must be negotiated in private. But it
appears to me that:

1) ISOC could and should have consulted its constituencies (including the
chapters) regarding the principle, that is, should PIR be sold to a
for-profit entity in exchange for cash

This consultation could have been done without naming the parties or
disclosing the value of the deal.

2) Now that the deal is finalized, but not closed, ISOC can and should
disclose the details to its constituencies (including the chapters).  

Apparently the deal is being evaluated by regulatory authorizes (the US tax
authorities?) and will only be closed after they approve.

ISOC should have insisted, as part of the deal, that it was allowed to
inform and/or consult its constituencies after the deal was finalized.

Financial aspects
=================

If the deal involves a cash payment of $ 700 million or more, then I agree
that it is probably good for ISOC from the financial point of view.

However, if maximization of revenue for ISOC is the objective, then it seems
to me that it would have been better to hold public auction. Maybe some
other group of investors would have been willing to offer more.

Ethical aspects
===============

I am very disturbed by the lifting of the price cap on domain names in .org.
While it is true that there is lots of competition for new domain names, and
lots of new gTLDs, if you have a long-established .org name, then the cost
of switching to another gTLD is high. Not in terms of the actual move of the
servers behind the domain name, but in term of informing the world that
www.haha.org is no longer your domain name, so please ignore the error
message (or the new site that comes up) and please type wwww.haha.new in the
future.

So entities that have had a .org for a long time will not be willing to
switch and will prefer to pay a new, higher, price, if such a price is
imposed.

If the increase in price is not due to an increase in costs, then this
appears to me to be a form of abuse of market power: if you want to keep
your .org name, then PIR is a monopoly, you cannot switch to another
registry (and, again, the cost of switching to a new gTLD may be very high).

In my opinion, PIR, as a non-profit owned by ISOC (also a non-profit) should
have refused the lifting of the price cap, or at least stipulated that
prices would be increased only if costs increased.

Since ISOC is a non-profit, its main objective is not to maximize its
revenues.

I understand that the Trustees must act in the best interests of ISOC, and
having a healthy revenue stream is an important goal.

I understand that the Trustees, after due diligence, concluded that the deal
is in the best financial interests of ISOC.

But I believe that ISOC also has non-financial interests, and I believe that
selling PIR to a for-profit company is not consistent with those
non-financial interests.

I'm glad that I'm not a Trustee, because I would not have wanted to be in
the position of having to balance the financial versus the non-financial
interests.

Conclusion
==========

I believe that ISOC should not have accepted funding which may be based, at
least in part, on potential future abuse of a dominant market position.

I will propose to the next ISOC-CH General Assembly that ISOC-CH refuse
future funding from ISOC, because I believe that we should not be suspected
of obtaining funds which may be viewed as laundered funds coming from abuse
of dominant market power.

Best,
Richard