VeriSign sees concerns on loss of monopoly
Warren Buffett’s Berkshire Hathaway filed an amended 13G with the U.S. Securities and Exchange Commission (or SEC) earlier this week where it disclosed that it has increased its position in VeriSign (VRSN). The filing revealed that Berkshire Hathaway now owns a 10.4% stake in the company with 12,985,000 shares.
Shares fell more than 7.5% in March on concerns VeriSign’s monopoly would end following a U.S. government announcement that it would give up a direct means of control over the administration of the internet.
The U.S. Commerce Department’s National Telecommunications and Information Administration (or NTIA) announced in March that it intends to transition key internet domain name functions to the global multi-stakeholder community. The announcement said the NTIA currently contracts with Internet Corporation for Assigned Names and Numbers (or ICANN) to carry out the Internet Assigned Numbers Authority (or IANA) functions and has a Cooperative Agreement with VeriSign under which it performs related root zone management functions.
The NTIA later clarified that the U.S. would renew the ICANN contract if the transition didn’t meet U.S. principles. The current contract expires September 30, 2015. Cowan & Co. analysts said in a note back in March that “With less U.S. control and without knowledge of what entity or entities will ultimately have power, we believe there is increased risk that VeriSign may not be able to renew its .com and .net contracts in their current form.”
VeriSign issued a statement saying that the announcement by NTIA doesn’t affect the company’s operation of the .com and .net registries. It added that the “NTIA announcement involves Internet functions that are entirely different functions from those VeriSign performs under its .com and .net agreements. The functions performed by VeriSign involved in the NTIA announcement have been performed as a community service spanning three decades without compensation at the request of the Department of Commerce under the Cooperative Agreement.”
The company renewed its agreement in November, 2012, with ICANN to be the sole registry operator for domain names in the .com top-level domains (or TLD) through November 30, 2018. Under this agreement, the company pays ICANN on a quarterly basis—$0.25 for each annual increment of a domain name registered or renewed during such quarter. The company incurred registry fees for the .com TLD of $27.9 million in 2013. The .net registry agreement provides that the company will continue to be the sole registry operator for domain names in the .net TLD through June 30, 2017.
ICANN’s new gTLD program could add to competition
VeriSign anticipates additional competition with the launch of new TLDs by ICANN. On June 13, 2012, ICANN announced it received 1,930 applications to operate over 1,400 unique new generic top-level domains (or gTLDs). The new gTLD program’s goals include enhancing competition and consumer choice, and enabling the benefits of innovation. According to ICANN, through the program, the DNS could expand from 22 gTLDs—the letters immediately following the final dot in an internet address—to more than 1,300.
VeriSign said these applicants for new gTLDs include companies with greater financial, marketing, and other resources, and could include existing competitors, domain name registrars, and new entrants into the domain name industry. Some of the gTLD applicants include Amazon (AMZN), Google (GOOGL), Apple (or AAPL), Microsoft (MSFT) and Walmart (or WMT). VeriSign’s other competitors in the domain registry space include Neustar, (NSR), Afilias Limited, ARI Registry Services, Donuts Inc., and RightSide Inc. The company has a 47% market share in the space, according to news reports. Google also launched its domain registration service Google Domains in June.