What Verisign's New Contract With ICANN Means For Domain Name Rates

Verisign, the operator for .com domain registry, has renewed its six-year contract with the Internet Corporation for Assigned Names (ICANN) with the U.S. Commerce Department's blessing.  Under the new contract, Verisign is not allowed to raise its current price of $7.85 per domain name. Unless, of course, it can convince the Commerce Department it's OK.

Wiggle, Wiggle, Wiggle, Wiggle, Wiggle 

Under its previous deal past, Verisign was allowed to raise its rates four times by as much as 7% over the six year term - and did just that, according to CNN Money. Now, any proposed rate hikes will need to be approved by the Commerce Department, and then only in the case of "extraordinary expenses related to security or stability threats." 

Verisign has operated top level domain .com and .net domain names since 2000 and has been maintaining the .com domain name for ICANN for more than 15 years. The licenses held for .net, .gov and .edu domains are separate. This provides Verisign some wiggle room. Even if the company can't raise rates on .com domains, it can hike prices for .net domains by 10% annually until 2017, when that contract expires.

Perhaps much more more important, the new contract gives Verisign the option to request that price hike restrictions be removed if it can demonstrate to the Commerce department that market conditions no longer require them. And that could happen thanks to ICANN's approval of the expansion of generic top-level domains (gTLDs), Verisign has yet another way to bypass these restrictions. If gTLDs get more popular and the intense competition for .com domains appears to wane, Verisign could be able to persuade Commerce that market conditions have changed enough to release the pricing restrictions. 

Site Owners Not Happy

That's one reason the Internet Commerce Association (ICA), an advocate for website owners, has been fighting Verisign throughout this entire process. The ICA claims that Verisign's rate hikes were arbitrary and unnecessary.

It even penned a letter requesting that the U.S. Commerce Department make Verisign charge the same amount for .com domains as it does for .net domains (currently $5.86). After all, the costs involved in .net domains are exactly the same as for .com domains. In a posting on its website, the ICA also claimed that the if the old  agreement with ICANN was extended, the company would rake in more than $1.2 billion in profits over the next six years: "Nice monopoly work if you can get it." 

While the Commerce Department didn't give ICA everything it asked for, the new contract's restrictions are expected to hold down Verisign's profits. After news of the agreement broke, Verisign's stock fell by 13% before the bell.