Ethos Capital’s $1bn .org domain name purchase blocked

July 2020 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

July 2020 Issue

After months of discussion, the Internet Corporation for Assigned Names and Numbers (ICANN) has turned down Ethos Capital’s controversial offer to buy the .org top-level domain from Public Interest Registry (PIR).

In a blog post explaining its decision, ICANN said it had reservations about Ethos Capital’s intentions and the fact the sale would have resulted in a $360m debt for PIR.

Ethos Capital, a firm backed by a number of firms such as Perot Holdings, FMR LLC and Solamere Capital, had offered $1.13bn for the PIR, which controls .org domain registration and collects associated fees. And while the deal was initially agreed in November, the ICANN board has withheld its consent for a change to the control and entity conversion request of the PIR.

PIR was founded by the Internet Society (ISOC) in 2003 to manage the .org domain. But under the terms of the deal agreed with Ethos, control of .org would be transferred to the firm in exchange for a $1bn endowment. However, the move was immediately criticised by advocacy groups like the Electronic Frontier Foundation, which called the move “worrisome”, as well as some original members of ICANN, including its first chair Esther Dyson.

In February 2020, ICANN’s chair of the board of directors raised questions about the deal, asking if ISOC received multiple bids for the sale of PIR, and if it had asked bidders how they would uphold the commitments made by ISOC in 2002. Ultimately, the decision to block the sale was made.

“ICANN roundly rejects Ethos Capital’s plan to transform the .org domain registry into a heavily indebted for-profit entity. This is an important victory that recognises the registry’s long legacy as a mission-based, not-for-profit entity protecting the interests of thousands of organisations and the people they serve,” said ICANN in a statement announcing the decision. “The takeover would have saddled PIR with debt which would have to be serviced while also providing dividends and other returns to the shareholders.”

“ICANN has overstepped its purview, which is limited to ensuring routine transfers of indirect control (such as the sale of PIR) do not impact the registry’s security, stability and reliability,” said Ethos Capital. “Today’s action opens the door for ICANN to unilaterally reject future transfer requests based on agenda-driven pressure by outside parties.”

ISOC also condemned the decision. “Although the Internet Society respects ICANN’s role in supporting the Internet’s technical coordination functions, we are disappointed that ICANN has acted as a regulatory body it was never meant to be,” said ISOC. “Despite ICANN’s decision, our work to connect the unconnected and strengthen the Internet will continue.”

In a blogpost, ISOC’s president and chief executive Andrew Sullivan explained that ISOC will now look to move on. “Now that we know that ICANN believes its remit to be much larger than we believe it is, we can state this clearly: neither PIR nor any of its operations are for sale now, and the Internet Society will resist vigorously any suggestion that they ought to be.”

“Our longstanding partnership and collaboration with the Internet Society team will remain strong,” said Jon Nevet, chief executive of PIR. “We are quite proud to support the Internet Society and to help fund its great work around the world, including an Internet that is free, open, and secure for everyone. In turn, the Internet Society will invest in PIR to ensure we are fulfilling our mission serving the .ORG Community. Adaptation is part of this next chapter – and we are ready. As we move ahead, the Internet Society and PIR will focus on the future together and make .org even stronger.”

Richard Summerfield