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Sale of .org domain to private equity firm sparks battle over internet freedom

Ethos Capital’s proposed purchase has ignited backlash among open internet advocates

The future of one of the internet’s most irreproachable neighbourhoods has just been thrown into doubt — and some of its residents are up in arms.

The .org internet domain is a potent symbol for non-profit groups around the world, conveying such a strong sense of rectitude that some organisations have even included it in their offline names. So it was a shock to many users when the Internet Society, the US non-profit that owns .org, agreed earlier this month to sell the domain registry for an undisclosed sum to a newly established private equity firm called Ethos Capital.

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By handing ownership of an online brand that is a by-word for altruism to a type of institution known for its relentless pursuit of financial return, the proposed sale has touched a nerve. This week, AccessNow, an advocacy group that promotes an open internet, led other NGOs in calling on ICANN, which retains ultimate authority for the smooth functioning of internet addressing, to block the sale.

The .org domain favoured by non-profit groups is one of the internet’s main top-level domains, alongside others like .com and .gov, and was established 35 years ago, at the dawn of the internet. It “has been a critical part of ethics branding from the start”, said Marc Rotenberg, a former chairman of Public Interest Registry, which runs .org. “There is a special place for .org in the internet constellation. There is simply too much at stake.”
‘A failure of process’

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The seeds for the showdown were sown earlier this year when ICANN abolished a price cap on how much PIR could charge for using the .org registry. There was no hint at the time that a sale would follow: instead, PIR sought to calm widespread complaints about the price deregulation by pointing out that, as a “mission-based” organisation, it was “not just driven by the ‘bottom line’”.

That has made the surprise sale to a financial buyer less than six months later all the more grating. “It was a bait and switch,” said Milton Mueller, an internet governance expert at Georgia Tech, voicing a widespread frustration.

The ending of the price cap and sale of .org are “two of the most controversial decisions in the history of internet governance”, said Mr Rotenberg, throwing into doubt how the addressing system is managed. “It’s a failure of process. You can’t make decisions about the allocation of internet domain names in the dark.”

The sale has drawn warnings of price-gouging, as a new financial owner looks to maximise the returns from the registry. Even operating under a price cap and in non-profit hands, .org was set to generate revenue of around $100m this year and produce a surplus of $67m, according to Jon Nevett, chief executive officer of PIR.

But he said that the registry would face the same market constraints under new ownership as it does now, limiting any price increases, and that the new commercial footing it was put on earlier this year had only brought it into line with how other internet domains are operated.

Erik Brooks, head of Ethos, claimed price deregulation had not influenced his decision to buy the .org registry.

“The pricing is not something I was focused on or am focused on. It did not factor into my decision,” he said in an interview. Ethos has said that it will “live within historic practice” when it comes to .org pricing, meaning rises averaging no more than 10 per cent a year.

He also said that fees paid to .org would remain immaterial for non-profits — a point that some critics of the sale acknowledge. The registry, which operates as a wholesaler, currently charges an annual fee of only $9.93 a year for each organisation. “For a .org, it’s probably the smallest item in the balance sheet,” said Mr Brooks.
The infrastructure of the internet

That has done little to calm the anger over a deal that was forged in secret. Adding to the consternation has been the involvement of Fadi Chehade, chief executive officer of ICANN until 2016, in working with Ethos. Mr Chehade personally registered the firm’s internet domain shortly before the price cap was lifted, among other associations with Mr Brooks.

“I think it stinks — it really is too insidery, too much of the same old crowd,” said Mr Mueller.

For his part, Mr Chehade said he had acted only as an adviser to Ethos Capital and was “not a party to the transaction”. Responding to questions from the FT, he also rejected accusations that he had benefited from a “revolving door” that enabled him to profit privately from his previous position at ICANN. Organisations like Transparency International and countries that have rules limiting former officials from taking related work in the private sector “generally have a maximum of two years cooling-off period”, he said.

Moving away from the open, community-led process that has governed the .org registry could also hurt organisations that have come to rely on its imprimatur, said Mr Rotenberg. Rapid expansion of the domain to increase business could damage the brand, according to some critics.

Pressure is now mounting for ICANN to block the transaction. Since it involves a top-level internet domain, the transfer of .org to a new owner requires the agency’s formal approval.

In a statement to the FT, however, ICANN appeared to brush aside the calls for action, saying that it “does not have authority over the proposed acquisition”. Instead, it said its job was simply to “assure the continued operation of the .org domain” — implying that it could only stop the sale if the stability and security of the domain name infrastructure were at risk.

That minimalist interpretation of its responsibilities has not appeased its critics. Mr Rotenberg said that ICANN had taken a broader interest in ensuring appropriate ownership of top-level domain in the past — including when the .org registry was first transferred to the Internet Society.

Others, meanwhile, claim the sale highlights a deeper governance problem at key institutions involved in the smooth workings of the internet.

“It raises the question again: Who is ICANN accountable to? Under the current governance structure, it’s only accountable to itself,” said Nao Matsukata, an executive in the domain-name industry, which has long chafed at the way ICANN has handled the internet’s addressing system.

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