Commentary: Network Solutions: By Any Other Name, a
Monopoly.com
Network Solutions Inc. (NSOL) isn't your average Internet company. For one
thing, it's profitable. But even more surprising, in a world of freewheeling,
venture-backed Net startups, Network Solutions is a monopoly created by the U.S.
government. The company, under contract from a federal agency, maintains the
exclusive worldwide registry for the .com, .net, and .org domain names--the
address you type to get to a Web site. In one specific way, though, Network
Solutions resembles other Net companies: Its 103 3/8 stock trades at a multiple of
170 times expected 1999 earnings, giving it a market capitalization of $3.4 billion.
But beginning this month, part of the monopoly the government granted Network
Solutions will be taken away. Currently, NSI manages the fast-growing database
of more than 4 million domain names and provides a registration service. For both
services, NSI charges a $70 two-year fee and a $35 annual fee thereafter. Soon,
NSI will compete with five other companies in registering Web names, though NSI
will still maintain a monopoly over its .com, .net, and .org registry database.
WHAT'S REASONABLE? But a fierce fight has broken out over how much
NSI should be allowed to charge new competitors for NSI's maintenance of its
exclusive database. Critics fear that the government will be naive in gauging how
much Network Solutions should collect. The Commerce Dept., which is expected
to set the fee within the next few weeks, has said the price must ''reflect NSI's
costs and a reasonable return on its investment.'' Perhaps more important is a
nagging concern that the government isn't going far enough in creating true
competition.
Network Solutions is clear about what it thinks that fee should be. While NSI
would not break out its costs, Robert J. Korzeniewski, NSI's chief financial officer,
says the company is spending tens of millions of dollars on its registry database and
deserves an annual fee of about $16 from the other registrars to cover the cost of
managing the database.
Critics believe that's too high. They argue that NSI is intentionally overestimating
its costs. Curt Mayer, the chief technologist of Emergent, a division of
computer-services company Keane Inc., says his company could develop a
registry at a cost of $2 a name. Emergent was involved in an unsuccessful
independent effort a year ago to create a registry to compete with NSI. ''NSI is
inflating costs to maximize profits,'' he says. NSI says Emergent has never run a
registry, so its estimates are not based in reality.
But other countries, which have domain names not controlled by Network
Solutions, offer an opportunity to compare prices. While Germany has only 300,000
names in its databases, its registration fees have already tumbled from $20 a year
ago to about $10 today. Since this is a fixed-cost business in which larger volumes
reduce average costs, NSI's costs should be significantly cheaper than its smaller
international competitors, say industry experts. NSI acknowledges that its costs
could decline after the first year of dealing with competition.
NSI's $16 fee still sounds cheap. Real competition in the domain business can't be
created if Network Solutions overcharges, making it possible for NSI to subsidize
the customer-processing side of its business. That would give Network Solutions
an unfair edge over rivals.
ACCELERATE. What to do? Admittedly, competition on the Net is a work in
progress. But the government needs to speed up plans to introduce competition by
creating new domain names and database registries--and putting these out to bid.
For now, industry experts say, Commerce should allow NSI to charge no more
than $5 a name.
Some advocate more drastic measures, including splitting NSI into two separate
companies and running the database as a nonprofit organization. ''This would level
the playing field and give the new registrars an equal opportunity,'' says Michael
M. Roberts, interim president and CEO of the Internet Corporation for Assigned
Names & Numbers, the nonprofit group created last year by the government to
foster a competitive Net address system.
It's major decision-making time at the Commerce Dept. Let's hope true
competition wins out.NEWSWEEK |
