From chapter 9 of Ruling the Root by Milton L. Mueller

[Some acronyms: ICANN (Internet Corporation of Assigned Names and Numbers; TLD (Top Level Domain); DNSO (Domain Name Supporting Organization)]

9.3 The Assimilation of Network Solutions

ICANN's registrar accreditation contracts were designed to put it in control of the terms and conditions offered to all domain name registrants in the generic TLDs. It was also evident that key members of the dominant coalition intended to extend the regime to the entire name space, including the country codes, as soon as practicable." By the middle of 1999, however, there was still a gaping hole in the Commerce Department's nascent regime: Network Solutions. Network Solutions controlled almost all of the retail registration business under .com but was not itself an accredited registrar. It could offer domain name registrations to the public outside of the accreditation regime and also subcontract with other firms to resell access to its registry. Its registry contract was still with the Commerce Department, not with ICANN.

ICANN and the Commerce Department hoped that Network Solutions would recognize ICANN's authority to step into the shoes of the Commerce Department and establish the terms and conditions governing its operation of the .com, .net, and .org registry. After that, it was expected to sign one of ICANN's registrar accreditation contracts and become "just another registrar." Network Solutions, however, resisted recognition of ICANN. To do so would be to cede control over the asset upon which its entire business had been built; moreover, as soon as it did, most of its bargaining power over the transition process would disappear. Since ICANN at this point consisted of nothing more than nine self-appointed people, many of whom had a long history of hostility to NSI, it was only rational for the company to strenuously resist being incorporated into the regime. During the summer of 1999, ICANN's board and management reinforced these fears by stripping NSI of most of its voting rights in the DNSO and refusing to recognize constituencies that might dilute the control of the dominant coalition over the DNSO's policymaking council.

ICANN itself had no bargaining power in this struggle. The real battle was between Network Solutions and the Commerce Department. The basis of contention was the same as in October 1998: whether upon termination of the Cooperative Agreement, Network Solutions could continue to register names under the gTLDs. The absence of an agreement with ICANN did no harm to NSI; the company could continue to register names in .com, .net, and .org and possibly even set up an alternative root server system, completely out of the government's control. To enhance the company's bargaining power, NSI lobbyists went on the offensive against ICANN in the U.S. Congress. ICANN critics hammered away at the US$1 per name "tax" and began to embarrass the Clinton administration politically. Rep. Bliley of Virginia held hearings on the theme "Is ICANN out of control?" The registrar testbed period, which could not be brought to a close until Network Solutions officially recognized ICANN, was extended several times. With no source of financial support, ICANN went deeply into debt. At that time the core of ICANN's support was clearly revealed. MCI's Vinton Cerf and IBM's John Patrick frantically appealed to the industry for loans and donations. Patrick delivered US$100,000 from IBM, and Cerf delivered a loan of US$500,000 from MCI. ICANN's management leveraged connections in the White House, Congress, and the Federal Trade Commission to bring Network Solutions to heel.

Finally, in late September 1999, a series of agreements were made between the Commerce Department, Network Solutions, and ICANN that represented a settlement acceptable to the three parties." These agreements are the fundamental bargain upon which the new regime was founded, and their implementation starting in November 1999 was the real beginning of the new system's operation. In essence, Network Solutions agreed to enter into a registry contract and a registrar accreditation contract with ICANN and to provide the new governance regime with US$I.5 million in financial support. In exchange, it got to extend its property right over the legacy gTLD registry and got the Department of Commerce to assume various kinds of authority over ICANN. The main points of the agreements are as follows.

Network Solutions recognized ICANN and agreed to operate the .com, .net, and .org registry in accordance with the provisions of a "registry agreement" with ICANN. ICANN agreed to license NSI as the generic TLD registry for four years. If NSI fully divested its registry from the registrar functions within 18 months of the agreement, the registry contract would be extended for another four years. This gave Network Solutions an extended property right over the coveted .com registry, but at the price of divesting its registrar business. As NSI was a for-profit entity, this solution ended the debate, which had been inaugurated by the gTLD-MoU, over whether all registries should be nonprofit.

The new contracts regulated Network Solutions' rates more tightly. The wholesale registry price was reduced to US$6 per name-year from US$9 per name-year beginning January 15, 2000. NSI's retail registrar prices were deregulated (the US$35 per name-year price had been fixed by its Co-operative Agreement). NSI promised to prepay registrar fees to ICANN of US$I.25 million.

To lock the new regime into place, NSI agreed to accept domain name registrations only from ICANN-accredited registrars and not to deploy an alternative DNS root server system. It also continued to operate the authoritative root server system in accordance with the directions of the Commerce Department.

The new agreements also clarified ICANN's obligations. ICANN was required to comply with specific procedural limitations on the exercise of its authority. Many of its decisions were required to gain a two-thirds majority of the supporting organization councils. ICANN's policy authority over the Network Solutions registry can be terminated if it does not succeed in bringing other registries into its centralized contractual regime and Network Solutions is competitively disadvantaged as a result. This provision, which was directed at country code registries and particularly the quasi-generics competing with NSI, made it clear that the ICANN regime's scope must become global and uniform. The fees ICANN imposes on registrars must be "equitably apportioned" and approved by the registrars that pay two-thirds of the fees, a provision that gave Network Solutions considerable leverage over ICANN's taxing policies. The amount of registrar fees NSI must pay to ICANN was capped at US$2 million.

A revision of the registry agreement in 2001 further strengthened Network Solutions' property right over the .com domain and ICANN's status as the regulator of the name space. Network Solutions (which had been sold to Verisign, Inc.) agreed to pay more fees to ICANN and give up control of the .org registry (which accounted for 8 percent of its registrations) in exchange for a "presumptive renewal right" over the .com registry and an elimination of the requirement to divest its registrar business."