Ted Cruz Is Kinda Sorta Right About Something

Ted Cruz Is Kinda Sorta Right About Something

© Brian Snyder / Reuters

It’s September, so Ted Cruz is trying to shut down the government again.

Every time Congress needs to keep federal agencies operating when the fiscal year ends, Cruz’s eyes light up with opportunity. But this time, his quest for high-profile defiance of the Obama administration has turned to an incredibly obscure subject: a planned reorganization of the governance of the internet’s list of website addresses.

This highly technical, back-of-the-newspaper topic doesn’t seem like it could ever lead to a controversy. But though Cruz’ public statements suffer from the usual grandstanding and overstatement, he’s hit on something important about the government-created non-profit that manages internet domain names, like .com or .net.

Related: US Tech Firms Urge Congress to Allow Internet Domain Changeover

That organization is called ICANN, the Internet Corporation for Assigned Names and Numbers. The U.S. government has wanted to get out of the domain name business for decades, creating ICANN in 1998 to outsource day-to-day management. Instead of the government logging all 334 million internet addresses in use around the world, ICANN runs the root servers, and makes sure every address routes to its correct source. The National Telecommunications and Information Administration (NTIA), a division of the Commerce Department, has oversight responsibility, but ICANN does the work.

At the end of September, the government plans to relinquish regulatory control over ICANN and fully privatize the process, as its chief administrator Lawrence Strickling explained in August. The U.S. would still retain .gov and .mil, but everything else would go to ICANN.

None of this should matter to any internet user. They’ll log on Oct. 1 and see the same websites functioning the same way. The only change is that, instead of the U.S. government overseeing ICANN, a group of businesses and technical organizations would.

Cruz, however, has described this as a last-ditch battle to “protect the internet.” Specifically, he warns that Russia, China and Iran could exploit the looser supervision to censor content on the web. With government funding legislation needed by the Sept. 30 deadline and the Senate scheduled to hold a procedural vote Tuesday afternoon, Cruz is trying to insert a rider delaying the ICANN transition and forcing congressional approval for any transfer. With a few high-profile allies like Senate Judiciary Committee Chairman Chuck Grassley and Commerce Committee Chairman John Thune, he just might succeed.

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On the surface this crusade seems ridiculous. ICANN maintains that it merely runs the back end of the internet and cannot regulate, censor or block the censorship of online material in any country. Tech companies support the transition, arguing there are safeguards to prevent countries from hijacking ICANN’s oversight process. And Russia and China actually want to shift internet governance to a United Nations panel where they would have more influence, suggesting they aren’t counting on exploiting ICANN.

But beneath all of that, there are actual concerns about the way ICANN runs. This obscure organization has enjoyed revenues of nearly $600 million in the last three years, with one of the highest-paid executive teams in the non-profit world. They’ve spent over $400 million on salaries, consulting and lobbying fees and travel expenses over that three-year period, an incredible burn rate. That includes consulting firms run by Condi Rice and Madeleine Albright, $17.8 million annually for its auditor Ernst & Young and another $6 million for external legal advice.

Where is all this money coming from? The way it works is that ICANN contracts out the registries for all the top-level domain names to private companies. And these contracts are incredibly lucrative for everyone involved.

Related: Blocking Internet Transition a 'Gift to Russia,' Obama Administration Says

Take VeriSign, the company that operates the .com, .net, .name, .cc and .tv registries. The .com registry is easily the most lucrative, with roughly 128 million registered names. But though VeriSign, through a mandatory price cap, can only charge $7.85 a year for every .com name, the company’s profit margins are astronomical: over 60 percent last year, and on track to be even higher in 2016. As more people buy .com addresses and the expenses that go into managing them drop, this little company selling a regulated product is one of the most profitable in the entire world.

As the other entity in the contract, ICANN is supposed to prevent the registries from becoming sources of windfall profits. But it has done little about that, and until recently allowed VeriSign to increase the sales price of a .com address by up to 7 percent in four out of every six years (the company still gets to do that for .net). Competitors to VeriSign claim they could manage the same workload on .com while charging $1.00 per registration, and still make a profit.

Meanwhile, ICANN, whose mission statement is to “introduce and promote competition in the registration of domain names,” inked a contract with VeriSign in 2006 that allows the company to automatically renew it every six years if it meets certain performance metrics. Two years before the next renewal in 2018, ICANN reached agreement with VeriSign on another six-year .com renewal. (The deal has yet to be finalized.)

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ICANN benefits from a 25-cent kickback on every domain address, along with up-front payment for new domain name contracts. This has created massive revenue for ICANN, as domain names have exploded to over 1,000. The organization just held a public auction for the .web name, seen as one of the few domains that could compete with the dominant .com. A shell company named Nu Dot Com won the bidding for $135 million, three times what has ever been paid for a domain name. It turns out that Nu Dot Com was actually a wholly owned subsidiary of VeriSign. It can now either bury .web or price it so high that it offers no competition for .com.

These all seem like things that the chief regulator for ICANN would want to examine. But after Sept. 30, that regulator would be dispersed among multiple stakeholders. The proper dictum here is that if everybody has responsibility, then nobody does. So if the government gives up ICANN oversight, there will be less opportunity to critically scrutinize how ICANN operates, and whether it’s ripping off the public in mutually beneficial deals with monopolistic corporations.

To be clear, NTIA isn’t doing a ton of oversight of ICANN right now, so Cruz’s claim that we need to preserve the current system doesn’t offer much peace of mind. But though Cruz has mainly foregrounded the threat of foreign states censoring internet content, he has been mindful of ICANN’s governance problems. He and two congressional colleagues asked the Justice Department for a competition review of the .com contract in August. DoJ’s response was noncommittal.

At least right now, Congress can appeal to somebody. Once ICANN moves away from U.S. government oversight, the authority would be much less clear. And many fear that ICANN could use this opportunity to continue to ramp up unjustifiable revenues. Cruz has created mostly bluster with his “giving up control of the internet” campaign. But that doesn’t make him wrong to question the whole enterprise.

This article was updated at 11:55 a.m. on Tuesday, Sept. 20 to correct VeriSign's permitted price increases.