September 12, 1996
Internet Address Registry
Might Take Its Stock Public
By PETER H. LEWIS
The private company that the government put in charge of
registering
Internet and World Wide Web addresses is now considering
cashing in on its gatekeeper role.
Buoyed by the phenomenal growth
of the Internet and demand for new
Internet "domain names," or
addresses -- like whitehouse.gov,
harvard.edu and kelloggs.com --
Network Solutions Inc. of Herndon,
Va., has been exploring the idea of
selling shares of its stock to the
public.
Such a move would be troubling
enough to critics who see it as
tantamount to government surveyors
privately cashing in on the Oklahoma
Land Rush.
An added concern is that much of
the money that Network Solutions
has been receiving as Internet
registrar has come from speculators
who snatch up popular domain
names for $100 each -- a fee paid to
Network Solutions -- then turn
around and try to sell them for
thousands of dollars to the rightful
trademark holders.
"If Network Solutions ever moves
ahead with this, there is going to be
such a furor," said Michael J. Walsh,
president of Internet Info Inc., an
Internet research company in Falls
Church, Va. "It would be like a
business going public because
they've discovered oil under a national park."
There is no certainty that the speculative land grab can make
money for
the speculators or keep the money pouring in to Network Solutions.
Some companies, like McDonald's Corp., have bought back the
rights to
their domain names. McDonald's was able to reach a compromise that
involved making a donation to charity in exchange for rights to
mcdonalds.com.
But others are digging in their heels against Internet greenmail,
including
Intermatic Inc., a Chicago company that makes automatic timers,
which
has taken Dennis Eric Toeppen to court rather than pay Toeppen the
$5,000 for the domain name intermatic.com, which he registered
through
Network Solutions.
Although Wall Street investment bankers say Network Solutions has
been
eager to make an initial public offering of its stock, company
officials
declined to say much about the matter.
"It is certainly one of the options we have considered," said
David M.
Graves, a spokesman for Network Solutions. "But to the best of my
knowledge, I'm not aware of any decision that has been made to go
public."
Officials at Science Applications International Corp., the $2
billion
privately held research company with close ties to the Defense
Department that acquired Network Solutions in March 1995, did not
respond to requests for comment.
But people close to the company, speaking on condition of anonymity,
acknowledged that members of Science Applications' board had
discussed an initial public offering for Network Solutions
several months
ago at the height of Wall Street's frenzy for Internet stocks and
had talked
to several leading investment firms.
In common with many young and fast-growing
Internet concerns, Network Solutions is still
intent on cashing in with a public stock offering,
according to one banker familiar with the
company.
But some on Wall Street question whether
Network Solutions yet has enough management
experience and history of profitability to insure a
successful public offering -- particularly now
when investors have become more wary of
speculative high-technology ventures involving
the Internet.
Network Solutions, founded in 1979, began
helping the government's National Science
Foundation administer Internet domain names in
1992, when there were fewer than 4,000
registered domains on the Internet. As demand escalated, the
foundation
began to explore turning all domain registration responsibilities
over to a
contractor.
After a request for contract proposals, a panel composed of
government,
computer industry and educational experts awarded a five-year
contract in
1993 to Network Solutions and recommended that the company
eventually be allowed to charge a fee for its services to cover
expenses
and allow for future growth.
In September 1995, Network Solutions, with the approval of the
science
foundation, began charging a $50 annual fee to maintain rights to
registered domain names. A fee of $100 was assessed for new domain
name registrations, covering the first two years.
At the time, there were approximately 118,000 Internet domains in
operation. Soon, however, as the Internet caught the attention of
commercial users, the number of new registration requests soared
to more
than 50,000 a month.
If each new registrant paid the $100 fee, and if each existing
domain name
holder paid the annual maintenance fee, Network Solutions would
receive
more than $40 million for its services.
Network Solutions, however, contends that not every registrant
has paid
the fees it owes, although the company declined to specify how much
money it has actually taken in.
Even if half of those who registered actually paid, the flood of new
registrations would generate millions of dollars for Network
Solutions and
its parent. That would make it one of the more profitable Internet
companies around, analysts said.
And if current trends continue, new
domain name registrations could pass
a million a year very soon, many
experts say.
Elizabeth Gaston, a spokeswoman
for the National Science Foundation,
said there was nothing in National
Solutions' contract with the
government that would preclude the
company's making a public stock
offering on the strength of its
registrar's role.
"It would not affect the substance of
the cooperative agreement with the
NSF," Ms. Gaston said.
John Sidgmore, president of UUNet
Technologies in Falls Church, one of
the country's largest Internet service
providers, said that his company was
one of the bidders that lost out to
Network Solutions in 1993. UUNet
officials suggested at the time that the
entire domain registry system could
be administered for about $40,000 a
year.
"We think the actual cost of
administering the Internic today
would be less than 10 percent" of
what Network Solutions is likely to
be receiving from new registration
fees, Sidgmore said, referring to the
Internet registration service.
Network Solutions' exclusive
contract with the National Science
Foundation expires in March 1998,
and no decisions have been made on
how to handle the domain registry
system after that, said George
Strawn, a science foundation
director.
Another question is potential legal
liability for the rising number of
domain name disputes. Network
Solutions has been sued by
companies upset that their company
or brand names have been registered
by unauthorized users.
Last year, Network Solutions sought
to deflect legal challenges by simply
putting disputed domain names on
hold until the rivals resolved the issue
in court.
One such case involves the court battle between Intermatic Inc. and
Toeppen, who has registered more than 100 familiar-sounding Internet
domain names, including deltaairlines.com, yankeestadium.com and
hamiltonbeach.com. Toeppen said he will defend his right to the
domain
name intermatic.com, but declined to comment further about the
status of
his overtures to other companies.
A spokesman for Delta Air Lines said the company was aware Toeppen
held rights to deltaairlines.com, but considered that label too
awkward
and has registered and is using the domain delta-air.com on the
Internet.
Mailbank E-Mail Services Ltd., of Vancouver, British Columbia,
boasts
that it has registered 12,000 domain names -- including popular
surnames
culled from telephone books -- that it will then lease, not sell, to
individuals or businesses.
Jerry Sumpton, a principal at Mailbank, said his company has paid
"the
equivalent of several houses" in registration fees to Network
Solutions so
far and intends to pay the $100 fee for all 12,000 domains.
As a result, Mailbank alone could generate more than $1 million for
Network Solutions.
Network Solutions' nearly exclusive charter to grant domain
registrations
is already under attack from critics on the Internet.
"We cannot continue to support this monopoly," said Karl S.
Denninger,
president of MCSNet, an Internet service provider in Chicago that is
attempting to set up a rival registry for new domains. His
position is that it
is proper to charge fees if the system is open to competition.
"It is arguable that the entire domain name system was developed
with
federal government money," Denninger said. "And under the law,
things
that are developed with public funds belong to the public."
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