Testimony of Assistant Secretary Victory on ICANN Governance

Thank you, Mr. Chairman. I would like to thank you and the members of the Subcommittee for inviting me here today to testify on this important issue. I am Nancy J. Victory, Assistant Secretary for Communications and Information and Administrator of the National Telecommunications and Information Administration.

There is no question that the Internet has seen tremendous growth over the last several years. What started as a small-scale system of links among U.S. academic institutions is now a gigantic global network connecting any American with a computer hook-up to individuals, companies and institutions around the world. The Internet has not merely grown in size. Its role in society has also expanded exponentially, particularly here in America. The Internet has become a significant and important means of doing research, communicating with each other, and conducting business. In fact, e-commerce sales by retail establishments reached $9.8 billion during the first quarter of 2002 - a 70 percent increase over first quarter 2000. Given the Internet's importance in all of these facets of daily life and the country's general economic well-being, it is essential that the Internet - and its underlying domain name management system - remain stable and secure. This is the primary concern of the Department of Commerce.

While the Department continues to serve as the steward of critical elements of the domain name system during the transition to private sector management, the Internet Corporation of Assigned Names and Numbers (ICANN) is the private sector organization responsible for its day-to-day management. Recently, there have been calls for ICANN to review its mission, structure and processes for their efficacy and appropriateness in light of the needs of today's Internet. ICANN itself has initiated its own process of reform. The Department believes these discussions are healthy and essential to ensuring the best path for stable and secure Internet management in the future. On behalf of the Department, I am pleased to participate here today to assist in further discourse on this important issue.

In my testimony today, I would like to briefly outline the Department's relationship with ICANN, the Department's activities during this reform effort, and the Department's views on the priority areas for ICANN reform.

The Department's Relationship with ICANN

ICANN was created out of an effort to bring more coordination and sustainability to the domain name management process, as the Internet grew into a large-scale global network. In June 1998, the Department issued the Statement of Policy on the Privatization of the Internet Domain Name System (DNS), known as the DNS White Paper. This document articulated four primary functions for global DNS coordination and management:

1. To set policy for and direct the allocation of IP number blocks;
2. To oversee the operation of the Internet root server system;
3. To oversee policy for determining the circumstances under which new top level domains (TLDs) would be added to the root server system; and
4. To coordinate the assignment of other technical protocol parameters as needed to maintain universal connectivity on the Internet.

The White Paper concluded that these functions were relevant to the state of the DNS and should be primarily performed through private sector management. To this end, the Department stated that it was prepared to enter into agreement with a new not-for-profit corporation formed by private sector Internet stakeholders to administer policy for the Internet name and address system. ICANN was formed by private sector interests for this purpose, and, in the fall of 1998, the Department of Commerce entered into a memorandum of understanding (MOU) with ICANN to carry out these functions.

The MOU did not simply turn over management of the domain name system to ICANN. Rather, the purpose of this agreement was to give ICANN certain responsibilities during a transition period to allow the Department to ensure that ICANN possessed the capabilities to assume technical management of the DNS before it was transferred from the Federal government. Under the MOU, the domain name system management functions to be undertaken by ICANN included:

1. establishment of policy for and direction of the allocation of Internet Protocol number blocks;
2. oversight of the operation of the authoritative root server system;
3. oversight of the policy for determining the circumstances under which new top-level domains would be added to the root system;
4. coordination of the assignment of other Internet technical parameters as needed to maintain universal connectivity on the Internet; and
5. other activities necessary to coordinate the specified DNS management functions, as agreed by the parties.

The relationship between the Department and ICANN is defined by legal agreements, and is not one of regulator and regulated. The Department plays no role in the internal governance or day-to-day operations of the organization. However, under the terms of the MOU, the Department may provide oversight to ensure that ICANN performs the MOU tasks and may offer expertise and advice on certain discrete issues, such as private sector functions related to technical management of the DNS and processes for making the management of the root server system more robust and secure. The Department's real ability to influence ICANN's activities is tied to renewal of the MOU. The MOU is set to expire on September 30, 2002, at which time the Department will have to decide whether to extend the agreement, modify the agreement, or allow it to expire.

Re-Examination of ICANN Is Appropriate

Since its inception less than four years ago, ICANN has had some significant successes and made progress in the development of a more competitive Internet environment. For example:

1. Since ICANN's inception, the average price of domain name registrations to consumers has decreased from $50 per year to $10 per year.
2. ICANN has increased competition in the generic top level domain market by successfully selecting and implementing seven new gTLDs - .pro, .aero, .museum, .biz, .info, .coop, and .name.
3. Further, ICANN launched its Uniform Dispute Resolution Procedure (UDRP), which introduced a process for the quick, low cost resolution of disputes involving trademark "cybersquatting." The UDRP has dampened interest in this formerly lucrative Internet activity.

Yet, there has also been substantial criticism of some of ICANN's decisions or lack thereof. For example:

1. Many have considered the selection of new gTLDs arbitrary and the roll-out of new gTLDs too slow.
2. There has been a growing concern in the community of ICANN stakeholders that its structure, processes, and inability to make progress on other key DNS issues has undermined its effectiveness and legitimacy.
3. Further, ICANN is perceived by many to lack the financial and personnel resources to carry-out its mission - a limited role from which many believe ICANN has departed.

Yet, separate and apart from these important stakeholder concerns, the Department believes that the current re-examination of ICANN's structure, process, role and mission is not only appropriate, but also inevitable. After all, ICANN is really the first experiment with having a private sector entity manage a huge, complex resource with multi-national implications. There was no precedent or model for ICANN to follow. It should not be surprising, then, that in hindsight some things should have been done differently. Moreover, the Internet has changed dramatically in scope and usage since ICANN was first conceived. Governance and decision-making processes that might have made sense several years ago may no longer make sense today. Accordingly, the Department views the current reform process as a timely and necessary step.

Reforming ICANN, however, will not be easy. One of the great strengths of the Internet - its diversity of stakeholders - is also one of ICANN's challenges. These stakeholders run the gamut from commercial carriers and businesses to public interest organizations and private citizens, not to mention technocrats, governments and assorted others. These different constituencies have different interests and priorities - and very different visions of DNS management. It will be difficult, if not impossible, for any reform effort to satisfy all of these different parties. Yet, while they may have different perspectives, these stakeholders should all share a common goal in maintaining a safe and stable Internet. The task before ICANN is to ensure that these interests stay focused on their common goal so that they all can benefit together.

DOC/NTIA Role in Exploring ICANN Reform

As I mentioned earlier, the Department believes that an examination of the ICANN experiment is a particularly appropriate undertaking at this time. Given the gravity of the Department's charge to ensure the stable and sound management of the Internet domain name system, we were especially heartened by ICANN's own call for reform and self-examination. Recently, Stuart Lynn, the Chief Executive Officer of ICANN, published a paper outlining his views on the organization's problems, as well as steps for reform. The ICANN board responded to Mr. Lynn's call for reform by establishing a Committee on Evolution and Reform, charged with constructing a plan to address these problems. In accomplishing this task, the Committee invited public participation and considered reform proposals from the ICANN community.

As part of the reform efforts, NTIA and other Departmental agencies engaged other U.S. Government agencies including, the Department of State, the Federal Trade Commission, the Federal Communications Commission, and other Commerce agencies including the Technology Administration, the International Trade Administration, and the U.S. Patent and Trademark Office to develop an interagency consensus on acceptable parameters for the ICANN reform process.

The Department further consulted private sector stakeholders including trade associations, businesses, academia, and public interest groups to gather a wide range of views on ICANN reform issues. Recognizing the global nature of the DNS, the Department also consulted international counterparts through ICANN's Governmental Advisory Committee and on a bilateral basis. And of course we have listened carefully to the views of Congress on this matter and have had the opportunity to consult with Congressional staff on the topic several times both prior to and during the ICANN reform process. We have shared these views with ICANN management and look forward to working with them on the organization's reform effort.

Summary of DOC/NTIA's Views Regarding Reform

As a result of these consultations and the Department's own independent analysis, the Department continues to support the goal of private sector management of the DNS. Indeed, private sector management seems to be the preference of virtually all of the Internet stakeholders with whom we have consulted. The Department strongly believes this approach is a much more effective vehicle than having such functions performed by an intergovernmental body, such as the International Telecommunication Union (ITU). We believe an intergovernmental body would be less responsive in managing an essentially private infrastructure. Further, such intergovernmental management would be inconsistent with U.S. efforts to privatize other global commercially driven communication services, such as Intelsat. Governmental input into ICANN is more appropriately provided through an effective Government Advisory Committee.

While generally supportive of private sector management, some stakeholders have urged abandonment of ICANN in favor of a new private sector entity. At this time, the Department considers this approach premature. ICANN is attempting to reform itself and the preliminary efforts of the Committee on Evolution and Reform show some promise. Starting over with a new entity would likely raise many of the same systemic problems that ICANN is currently in the process of tackling, as well as some issues ICANN may already have successfully addressed. Accordingly, the Department believes allowing time for the ICANN reform process is warranted.

Nevertheless, it is critical for ICANN reform to take place in a timely manner. If it is going to be effective, ICANN must instill confidence and legitimacy in its operations and focus solely on the business of DNS management. The September termination date of the MOU will be a key time for the Department to determine whether ICANN is on track for doing so. What will we be looking for in making this analysis? In general, we need to see that ICANN is on track to be professionally run and managed, in a stable manner, for the long term. In particular, the Department feels that progress needs to be made in several areas:

1. Clarifying its mission and responsibilities. First, ICANN's mission and responsibilities need to be clarified. Understanding its core functions, and formulating its structure and process accordingly, is key to any organization's success. Further, especially for a new, experimental organization, a limited, rather than an expansive, view of its functions is prudent. The Department believes ICANN's efforts should be focused around coordination of the core technical and directly related policy areas initially set forth in the Department's 1998 Statement of Policy. We agree with the majority of stakeholders that ICANN's mission must "stay narrow." ICANN is not, and should not become, the "government of the Internet."
2. Ensuring transparency and accountability. Second, ICANN's processes must be revised to provide transparency and accountability for decisionmaking. As an entity charged with managing a global resource, ICANN's operating procedures need to be open and transparent to all interested parties. At a minimum, ICANN should establish clearly written policy development procedures, with reasonable time frames for the development of recommendations, the posting and public consideration of those recommendations, and allotted time for revision of proposed policies.
3. Responding to Internet stakeholders. Third, ICANN's processes must be designed to ensure all Internet stakeholders have the opportunity to get a fair hearing. As I highlighted earlier, the Internet community consists of a variety of interests. It is critical that ICANN develop mechanisms that allow for the opinions of all stakeholders to be heard and considered. It is highly unlikely that ICANN, or any similar organization, will be able to completely satisfy all interested parties, but every effort should be made to meaningfully consider constituency concerns.
4. Developing an effective advisory role for governments. Fourth, ICANN's structure and processes should provide an effective advisory role for governments through an effective Governmental Advisory Committee. Given the multi-national nature of the Internet and the international ramifications of ICANN's decisions, it is appropriate to provide a mechanism for meaningful government input into ICANN. Since ICANN is a private sector entity, the governmental role, while important, must be advisory and narrowly tailored.
5. Ensuring adequate financial and personnel resources. Fifth, ICANN must have a mechanism for generating adequate financial and personnel resources to carry out its mission. As part of the reform process, ICANN must ensure that it has enough staffing to execute effectively its decision making processes and its operational responsibilities, including facilitating policy development by its supporting organizations, management of the technical functions, and support for the work of the Root Server System Advisory Committee. ICANN, and its stakeholders, must place priority effort on securing a stable funding base for the organization's operations.

In sum, the Department continues to be supportive of the ICANN model. However, the Department does believe that ICANN needs to make certain reforms to assure the Department and the Internet community that it is able to carry out its important missions - effectively and in a stable manner - into the future. I have outlined above the types of reforms the Department will be looking for in making a determination in September as to whether to renew, extend or modify the MOU with ICANN. We look forward to working with this Committee, ICANN and the Internet community to see that these reforms are achieved.

Thank you and I would be happy to answer any questions that you may have.