```
                                                                 
Internet Management: Limited Progress on Privatization Project	 
Makes Outcome Uncertain (12-JUN-02, GAO-02-805T).		 
                                                                 
This report discusses privatizing the management of the Internet 
domain name system. This system is a vital aspect of the Internet
that works like an automated telephone directory, allowing users 
to reach Web sites using easy-to-understand domain names like	 
www.senate.gov, instead of the string of numbers that computers  
use when communicating with each other. The U.S. government	 
supported the development of the domain name system, and, in	 
1997, the President charged the Department of Commerce with	 
transitioning it to private management. The Department issued a  
policy statement, called the ''White Paper,'' that defined the	 
four guiding principles for the privatization effort as 	 
stability, competition, representation, and private, bottom-up	 
coordination. After reviewing several proposals from private	 
sector organizations, the Department chose the Internet 	 
Corporation for Assigned Names and Numbers (ICANN), a		 
non-for-profit corporation, to carry out the transition. In	 
November 1998, the Department entered into an agreement with	 
ICANN in the form of a Memorandum of Understanding (MOU) under	 
which the two parties agreed to collaborate on a joint transition
project. Progress on and completion of each task is assessed by  
the Department on a case-by-case basis, with input from ICANN.	 
The timing and eventual outcome of the transition remains highly 
uncertain. ICANN has made significant progress in carrying out	 
MOU tasks related to one of the guiding principles of the	 
transition effort--increasing competition--but progress has been 
much slower in the areas of increasing the stability and security
of the Internet; ensuring representation of the Internet	 
community in domain name policy-making; and using private	 
bottom-up coordination. Although the transition is well behind	 
schedule, the Department's public assessment of the progress	 
being made on the transition has been limited for several	 
reasons. First, the Department carries out its oversight of	 
ICANN's MOU-related activities mainly through informal		 
discussions with ICANN officials. Second, although the transition
is past its original September 2000 completion date, the	 
Department has not provided a written assessment of ICANN's	 
progress since mid-1999. Third, although the Department stated	 
that it welcomed the call for the reform of ICANN, they have not 
yet taken public position on reforms being proposed.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-805T					        
    ACCNO:   A03582						        
  TITLE:     Internet Management: Limited Progress on Privatization   
Project Makes Outcome Uncertain 				 
     DATE:   06/12/2002 
  SUBJECT:   Privatization					 
	     Internet						 

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GAO-02-805T
     
Testimony Before the Subcommittee on Science, Technology, and Space,
Committee on Commerce, Science, and Transportation, U. S. Senate

United States General Accounting Office

GAO For Release on Delivery Expected at 2: 30 p. m. EDT Wednesday June 12,
2002 INTERNET

MANAGEMENT Limited Progress on Privatization Project Makes Outcome Uncertain

Statement of Peter Guerrero Director, Physical Infrastructure Issues

GAO- 02- 805T

Page 1 GAO- 02- 805T

Mr. Chairman and Members of the Subcommittee: We appreciate the opportunity
to provide testimony today on the important issue of privatizing the
management of the Internet domain name system. This system is a vital aspect
of the Internet that works like an automated telephone directory, allowing
users to reach Web sites using easy- to- understand domain names like www.
senate. gov, instead of the string of numbers that computers use when
communicating with each other. As you know, the U. S. government supported
the development of the domain name system and, in 1997, the President
charged the Department of Commerce with transitioning it to private
management. The Department subsequently issued a policy statement, called
the ?White Paper,? that defined the following four guiding principles for
the privatization effort:

 Stability: The U. S. government should end its role in the domain name
system in a manner that ensures the stability of the Internet. During the
transition, the stability of the Internet should be the first priority and a
comprehensive security strategy should be developed.  Competition: Where
possible, market mechanisms that support

competition and consumer choice should drive the management of the Internet
because they will lower costs, promote innovation, encourage diversity, and
enhance user choice and satisfaction.  Representation: The development of
sound, fair, and widely accepted

policies for the management of the domain name system will depend on input
from the broad and growing community of Internet users. Management
structures should reflect the functional and geographic diversity of the
Internet and its users.  Private, bottom- up coordination: Where
coordinated management is

needed, responsible private- sector action is preferable to government
control. The private process should, as far as possible, reflect the
bottomup governance that has characterized development of the Internet to
date.

After reviewing several proposals from private sector organizations, the
Department chose the Internet Corporation for Assigned Names and Numbers
(ICANN), a not- for- profit corporation, to carry out the transition. In
November 1998, the Department entered into an agreement with ICANN in the
form of a Memorandum of Understanding (MOU) under which the two parties
agreed to collaborate on a joint transition project. The Department
emphasized that the MOU was an essential means for the Department to ensure
the continuity and stability of the domain name management functions that
were then being performed by, or on the behalf of, the U. S. government. The
MOU states that before making a

Page 2 GAO- 02- 805T

transition to private sector management, the Department requires assurances
that the private sector has the capability and resources to manage the
domain name system. To gain these assurances, the Department and ICANN
agreed in the MOU to complete a set of transition tasks. The Department?s
tasks mainly relate to providing advice, coordination with foreign
governments, and general oversight of the transition. ICANN agreed to
undertake tasks that call for it to design, develop, and test procedures
that could be used to manage the domain name system. Collectively, ICANN?s
tasks address all four of the transition?s guiding principles.

Progress on and completion of each task is assessed by the Department on a
case- by- case basis, with input from ICANN. Any amendments to the MOU, such
as removing tasks, must be approved by both parties. However, the Department
retains responsibility for determining when management of the domain name
system will be transitioned to ICANN, using the procedures tested during the
transition. The original MOU was scheduled to expire on September 2000.
Because work on the transition was not completed within the original
transition time frame, the MOU was amended several times, and its time frame
extended twice. The amended MOU is currently due to expire in September
2002.

My testimony today responds to Senator Burns? request that we review (1)
ICANN?s progress in carrying out the transition, and (2) the Department?s
assessment of the transition. To address these issues, we spoke with
officials from the Department of Commerce and ICANN, as well as members of
ICANN?s Board of Directors and outside experts. We also reviewed relevant
documents and attended public meetings of ICANN. We conducted our work from
June 2001 through May 2002 in accordance with generally accepted government
auditing standards.

In summary, we found that the timing and eventual outcome of the transition
remains highly uncertain. ICANN has made significant progress in carrying
out MOU tasks related to one of the guiding principles of the transition
effort- increasing competition- but progress has been much slower in the
areas of increasing the stability and security of the Internet; ensuring
representation of the Internet community in domain name policymaking; and
using private, bottom- up coordination. For example, despite years of
debate, ICANN has not yet decided on a way to represent the globally and
functionally diverse group of Internet stakeholders within its decision-
making processes. Earlier this year, ICANN?s president concluded that ICANN
faced serious problems in accomplishing the transition and would not succeed
in accomplishing its assigned mission without

Page 3 GAO- 02- 805T

fundamental reform. Several of his proposed reforms were directed at
increasing participation in ICANN by national governments, business
interests, and other Internet stakeholders; revamping the composition of
ICANN?s Board and the process for selecting Board members; and establishing
broader funding for ICANN?s operations. In response, ICANN?s Board
established an internal committee to recommend options for reform. The
committee?s May 31, 2002, report built on several of the president?s
proposals and made recommendations involving, among other things, changes to
ICANN?s organizational structure. The Board plans to discuss the committee?s
recommendations at ICANN?s upcoming meeting in Bucharest in late June 2002.

Although the transition is well behind schedule, the Department?s public
assessment of the progress being made on the transition has been limited for
several reasons. First, the Department carries out its oversight of ICANN?s
MOU- related activities mainly through informal discussions with ICANN
officials. As a result, little information is made publicly available.
Second, although the transition is past its original September 2000
completion date, the Department has not provided a written assessment of
ICANN?s progress since mid- 1999. The MOU required only a final joint
project report. Just prior to the ICANN president?s announcement of ICANN?s
serious problems, Department officials told us that substantial progress had
been made on the project, though they would not speculate on ICANN?s ability
to complete the transition tasks before September 2002, when the current MOU
is set to expire. Third, although the Department stated that it welcomed the
call for the reform of ICANN, they have not yet taken a public position on
reforms being proposed. They noted that the Department is following ICANN?s
reform effort closely, and is consulting with U. S. business and public
interest groups and foreign governments to gather their views on this
effort. Because the Department is responsible for gaining assurance, as the
steward of the transition process, that ICANN has the resources and
capability to manage the domain name system, we are recommending that the
Secretary of Commerce issue a status report assessing the transition?s
progress, the work that remains to be done, and the estimated timeframe for
completing it. In addition, the report should discuss any changes to the
transition tasks or the Department?s relationship with ICANN that result
from ICANN?s reform initiative.

We discussed our characterization of ICANN?s progress and the Department?s
assessment of the transition with officials from the Department, who stated
that they generally agree with GAO?s characterization of the Department?s
relationship with ICANN and

Page 4 GAO- 02- 805T

indicated that it would take our recommendation with respect to an interim
report under consideration.

From its origins as a research project sponsored by the U. S. government,
the Internet has grown increasingly important to American businesses and
consumers, serving as the host for hundreds of billions of dollars of
commerce each year. 1 It is also a critical resource supporting vital
services, such as power distribution, health care, law enforcement, and
national defense. Similar growth has taken place in other parts of the
world.

The Internet relies upon a set of functions, called the domain name system,
to ensure the uniqueness of each e- mail and Web site address. The rules
that govern the domain name system determine which top- level domains (the
string of text following the right- most period, such as .gov) are
recognized by most computers connected to the Internet. The heart of this
system is a set of 13 computers called ?root servers,? which are responsible
for coordinating the translation of domain names into Internet addresses.
Appendix I provides more background on how this system works.

The U. S. government supported the implementation of the domain name system
for nearly a decade, largely through a Department of Defense contract.
Following a 1997 presidential directive, the Department of Commerce began a
process for transitioning the technical responsibility for the domain name
system to the private sector. After requesting and reviewing public comments
on how to implement this goal, in June 1998 the Department issued a general
statement of policy, known as the ?White

Paper.? In this document, the Department stated that because the Internet
was rapidly becoming an international medium for commerce, education, and
communication, the traditional means of managing its technical functions
needed to evolve as well. Moreover, the White Paper stated the U. S.
government was committed to a transition that would allow the private sector
to take leadership for the management of the domain name system. Accordingly
the Department stated that the U. S. government was

1 For example, a March 2001 report by the Census Bureau estimated that
online business accounted for $485 billion in shipments for manufacturers
and $134 billion in sales for wholesalers in the United States in 1999. The
Census data include transactions conducted over the Internet and private
data networks. For more details, see http:// www. census. gov/ estats/.
Background

Page 5 GAO- 02- 805T

prepared to enter into an agreement to transition the Internet?s name and
number process to a new not- for- profit organization. At the same time, the
White Paper said that it would be irresponsible for the U. S. government to
withdraw from its existing management role without taking steps to ensure
the stability of the Internet during the transition. According to Department
officials, the Department sees its role as the responsible steward of the
transition process. Subsequently, the Department entered into an MOU with
ICANN to guide the transition.

ICANN has made significant progress in carrying out MOU tasks related to one
of the guiding principles of the transition effort- increasing competition.
However, progress has been much slower on activities designed to address the
other guiding principles: increasing the stability and security of the
Internet; ensuring representation of the Internet community in domain name
policy- making; and using private, bottom- up coordination. Earlier this
year, ICANN?s president concluded that ICANN faced serious problems in
accomplishing the transition and needed fundamental reform. In response,
ICANN?s Board established an internal committee to recommend options for
reform.

ICANN made important progress on several of its assigned tasks related to
promoting competition. At the time the transition began, only one company,
Network Solutions, was authorized to register names under the three publicly
available top- level domains (. com, .net, and .org). In response to an MOU
task calling for increased competition, ICANN successfully developed and
implemented procedures under which other companies, known as registrars,
could carry out this function. As a result, by early 2001, more than 180
registrars were certified by ICANN. The cost of securing these names has now
dropped from $50 to $10 or less per year. Another MOU task called on ICANN
to expand the pool of available domain names through the selection of new
top- level domains. To test the feasibility of this idea, ICANN?s Board
selected seven new top- level domains from 44 applications; by March 2002,
it had approved agreements with all seven of the organizations chosen to
manage the new domains. At a February 2001 hearing before a Subcommittee of
the U. S. House of Representatives, witnesses presented differing views on
whether the selection process was transparent and based on clear criteria. 2
ICANN?s

2 The hearing took place before the House Committee on Energy and Commerce,
Subcommittee on Telecommunications and the Internet, on February 8, 2001.
ICANN Has Increased

Competition, But Progress Has Been Much Slower on other Key Issues

ICANN Has Increased Domain Name Competition

Page 6 GAO- 02- 805T

internal evaluation of this test was still ongoing when we finished our
audit work in May 2002.

Several efforts to address the White Paper?s guiding principle for improving
the security and stability of the Internet are behind schedule. These
include developing operational requirements and security policies to enhance
the stability and security of the domain name system root servers, and
formalizing relationships with other entities involved in running the domain
name system.

Recent reports by federally sponsored organizations have highlighted the
importance of the domain name system to the stability and security of the
entire Internet. A presidential advisory committee reported in 1999 that the
domain name system is the only aspect of the Internet where a single
vulnerability could be exploited to disrupt the entire Internet. 3 More
recently, the federal National Infrastructure Protection Center issued
several warnings in 2001 stating that multiple vulnerabilities in commonly
used domain name software present a serious threat to the Internet
infrastructure. In recognition of the critical role that the domain name
system plays for the Internet, the White Paper designated the stability and
security of the Internet as the top priority of the transition.

The MOU tasked ICANN and the Department with developing operational
requirements and security policies to enhance the stability and security of
the root servers- the computers at the heart of the domain name system. In
June 1999, ICANN and the Department entered into a cooperative research and
development agreement to guide the development of these enhancements, with a
final report expected by September 2000. This deadline was subsequently
extended to December 2001 and the MOU between ICANN and the Department was
amended to require the development of a proposed enhanced architecture (or
system design) for root server security, as well as a transition plan,
procedures, and implementation schedule. An ICANN advisory committee, made
up of the operators of the 13 root servers and representatives of the
Department, is coordinating research on this topic. Although the chairman of
the committee stated at ICANN?s November 2001 meeting that it would finish

3 President?s National Security Telecommunications Advisory Committee,
Network Group Internet Report: An Examination of the NS/ EP Implications of
Internet Technologies,

(Washington, D. C.: June 1999). Efforts to Improve

Stability and Security Are Behind Schedule

Page 7 GAO- 02- 805T

its report by February or March 2002, it had not completed the report as of
May 2002.

To further enhance the stability of the Internet, the White Paper identified
the need to formalize the traditionally informal relationships among the
parties involved in running the domain name system. The White Paper pointed
out that many commercial interests, staking their future on the successful
growth of the Internet, were calling for a more formal and robust management
structure. In response, the MOU and its amendments included several tasks
that called on ICANN to enter into formal agreements with the parties that
traditionally supported the domain name system through voluntary efforts.
However, as of May 2002, few such agreements had been signed. ICANN?s Board
has approved a model agreement to formalize the relationship between the
root server operators and ICANN, but no agreements had been reached with any
of the operators as of May 2002. Similarly, there are roughly 240 country-
code domains (2- letter top- level domains reserved mainly for national
governments), such as .us for the United States. As with the root servers,
responsibility for these domains was originally given by the Internet?s
developers to individuals who served as volunteers. Although the amended MOU
tasked ICANN with reaching contractual agreements with these operators, it
has reached agreements with only 2 domain operators as of May 2002. 4
Finally, the amended MOU tasked ICANN with reaching formal agreements with
the Regional Internet Registries, each of which is responsible for
allocating Internet protocol numbers to users in one of three regions of the
world. 5 The registries reported that progress was being made on these
agreements, though none had been reached as of May 2002.

Progress has also been slow regarding the other two guiding principles
outlined in the White Paper, which call for the creation of processes to
represent the functional and geographic diversity of the Internet, and for
the use of private, bottom- up coordination in preference to government
control. In order for the private sector organization to derive legitimacy
from the participation of key Internet stakeholders, the White Paper
suggested the idea of a board of directors that would balance the interests

4 ICANN signed agreements with the operators responsible for the .au
(Australia) and .jp (Japan) country- code domains and their respective
governments. 5 The areas of responsibility for the three Regional Internet
Address Registries are: the Western Hemisphere and southern Africa, Europe
and northern Africa, and Asia. Slow Progress for Creating

Processes to Ensure Representation and Bottom- up Coordination

Page 8 GAO- 02- 805T

of various Internet constituencies, such as Internet service providers,
domain name managers, technical bodies, and individual Internet users. The
White Paper also suggested the use of councils to develop, recommend, and
review policies related to their areas of expertise, but added that the
board should have the final authority for making policy decisions. The
Department reinforced the importance of a representative board in a 1998
letter responding to ICANN?s initial proposal. The Department?s letter cited
public comments suggesting that without an open membership structure, ICANN
would be unlikely to fulfill its goals of private, bottom- up coordination
and representation. ICANN?s Board responded to the Department by amending
its bylaws to make it clear that the Board has an ?unconditional mandate? to
create a membership structure that would elect at- large directors on the
basis of nominations from Internet users and other participants.

To implement these White Paper principles, the MOU between ICANN and the
Department includes two tasks: one relating to developing mechanisms that
ensure representation of the global and functional diversity of the Internet
and its users, and one relating to allowing affected parties to participate
in the formation of ICANN?s policies and procedures through a bottom- up
coordination process. In response to these two tasks, ICANN adopted the
overall structure suggested by the White Paper. First, ICANN created a
policy- making Board of Directors. The initial Board consisted of ICANN?s
president and 9 at- large members who were appointed at ICANN?s creation.
ICANN planned to replace the appointed at- large Board members with 9
members elected by an open membership to reflect the diverse, worldwide
Internet community. Second, ICANN organized a set of three supporting
organizations to advise its Board on policies related to their areas of
expertise. One supporting organization was created to address Internet
numbering issues, one was created to address protocol development issues,
and one was created to address domain name issues. 6 Together these three
supporting organizations selected 9 additional members of ICANN?s Board- 3
from each organization. Thus, ICANN?s Board was initially designed to
reflect the balance of interests described in the White Paper. Figure 1
illustrates the relationships among ICANN?s supporting organizations and its
Board of Directors, as well as several advisory committees ICANN also
created to provide input without formal representation on its Board.

6 In the context of ICANN?s responsibilities, protocols are the technical
rules that allow communications among networks.

Page 9 GAO- 02- 805T

Figure 1: Structure of Board of Directors Approved in May 2000

Source: Information provided by ICANN.

Despite considerable debate, ICANN has not resolved the question of how to
fully implement this structure, especially the at- large Board members.
Specifically, in March 2000, ICANN?s Board noted that extensive discussions
had not produced a consensus regarding the appropriate method to select at-
large representatives. The Board therefore approved a compromise under which
5 at- large members would be elected through regional, online elections. In
October 2000, roughly 34,000 Internet users around the world voted in the
at- large election. The 5 successful candidates joined ICANN?s Board in
November 2000, replacing interim Board members. Four of the appointed
interim Board members first nominated in ICANN?s initial proposal continue
to serve on the Board.

Parallel with the elections, the Board also initiated an internal study to
evaluate options for selecting at- large Board members. In its November 2001
report, the committee formed to conduct this study recommended the creation
of a new at- large supporting organization, which would select 6 Board
members through regional elections. Overall, the number of atlarge seats
would be reduced from 9 to 6, and the seats designated for

Page 10 GAO- 02- 805T

other supporting organizations would increase from 9 to 12. 7 A competing,
outside study by a committee made up of academic and nonprofit interests
recommended continuing the initial policy of directly electing at- large
Board members equal to the number selected by the supporting organizations.
This committee also recommended strengthening the atlarge participation
mechanisms through staff support and a membership council similar to those
used by the existing supporting organizations. 8 Because of ongoing
disagreement among Internet stakeholders about how individuals should
participate in ICANN?s efforts, ICANN?s Board referred the question to a new
Committee on ICANN Evolution and Reform. Under the current bylaws, the 9
current at- large Board seats will cease to exist after ICANN?s 2002 annual
meeting, to be held later this year.

Although the MOU calls on ICANN to design, develop, and test its procedures,
the two tasks involving the adoption of the at- large membership process
were removed from the MOU when it was amended in August 2000. However, as we
have noted, this process was not fully implemented at the time of the
amendment because the election did not take place until October 2000, and
the evaluation committee did not release its final report until November
2001. When we discussed this amendment with Department officials, they said
that they agreed to the removal of the tasks in August 2000 because ICANN
had a process in place to complete them. Nearly 2 years later, however, the
issue of how to structure ICANN?s Board to achieve broad representation
continues to be unresolved and has been a highly contentious issue at
ICANN?s recent public meetings.

In addition, the amended MOU tasked ICANN with developing and testing an
independent review process to address claims by members of the Internet
community who were adversely affected by ICANN Board decisions that
conflicted with ICANN?s bylaws. However, ICANN was unable to find qualified
individuals to serve on a committee charged with implementing this policy.
In March 2002, ICANN?s Board referred this unresolved matter to the
Committee on ICANN Evolution and Reform for further consideration.

7 See http:// www. atlargestudy. org/ final_ report. shtml 8 See http://
www. naisproject. org/ report/ final/

Page 11 GAO- 02- 805T

In the summer of 2001, ICANN?s current president was generally optimistic
about the corporation?s prospects for successfully completing the remaining
transition tasks. However, in the face of continued slow progress on key
aspects of the transition, such as reaching formal agreements with the root
server and country- code domain operators, his assessment changed. In
February 2002, he reported to ICANN?s Board that the corporation could not
accomplish its assigned mission on its present course and needed a new and
reformed structure. The president?s proposal for reform, which was presented
to ICANN?s Board in February, focused on problems he perceived in three
areas: (1) too little participation in ICANN by critical entities, such as
national governments, business interests, and entities that share
responsibility for the operation of the domain name system (such as root
server operators and countrycode domain operators); (2) too much focus on
process and representation and not enough focus on achieving ICANN?s core
mission; and (3) too little funding for ICANN to hire adequate staff and
cover other expenditures. He added that in his opinion, there was little
time left to make necessary reforms before the ICANN experiment came to ?a
grinding halt.?

Several of his proposed reforms challenged some of the basic approaches for
carrying out the transition. For example, the president concluded that a
totally private sector management model had proved to be unworkable. He
proposed instead a ?well- balanced public- private partnership? that
involved an increased role for national governments in ICANN, including
having several voting members of ICANN?s Board selected by national
governments. The president also proposed changes that would eliminate global
elections of at- large Board members by the Internet community, reduce the
number of Board members selected by ICANN?s supporting organizations, and
have about a third of the board members selected through a nominating
committee composed of Board members and others selected by the Board. He
also proposed that ICANN?s funding sources be broadened to include national
governments, as well as entities that had agreements with ICANN or received
services from ICANN.

In response, ICANN?s Board instructed an internal Committee on ICANN
Evolution and Reform (made up of four ICANN Board members) to consider the
president?s proposals, along with reactions and suggestions from the
Internet community, and develop recommendations for the Board?s
consideration on how ICANN could be reformed. The Committee reported back on
May 31, 2002, with recommendations reflecting their views on how the reform
should be implemented. For example, the committee built on the ICANN
president?s earlier proposal to change the ICANN?s President Calls

for Major Reform of the Corporation

Page 12 GAO- 02- 805T

composition of the Board and have some members be selected through a
nominating committee process, and to create an ombudsman to review
complaints and criticisms about ICANN and report the results of these
reviews to the Board. In other cases, the committee agreed with conclusions
reached by the president (such as the need for increasing the involvement of
national governments in ICANN and improving its funding), but did not offer
specific recommendations for addressing these areas. The committee?s report,
which is posted on ICANN?s public Web site, invited further comment on the
issues and recommendations raised in preparation for ICANN?s June 2002
meeting in Bucharest, Romania. The committee recommended that the Board act
in Bucharest to adopt a reform plan that would establish the broad outline
of a reformed ICANN, so that the focus could be shifted to the details of
implementation. The committee believed that this outline should be then be
filled in as much as possible between the Bucharest meeting and ICANN?s
meeting in Shanghai in late October 2002.

As mentioned previously, the Department is responsible for general oversight
of work done under the MOU, as well as the responsibility for determining
when ICANN, the private sector entity chosen by the Department to carry out
the transition, has demonstrated that it has the resources and capability to
manage the domain name system. However, the Department?s public assessment
of the status of the transition process has been limited in that its
oversight of ICANN has been informal, it has not issued status reports, and
it has not publicly commented on specific reform proposals being considered
by ICANN.

According to Department officials, the Department?s relationship with ICANN
is limited to its agreements with the corporation, and its oversight is
limited to determining whether the terms of these agreements are being met.
9 They added that the Department does not involve itself in the internal
governance of ICANN, is not involved in ICANN?s day- to- day operations, and
would not intervene in ICANN?s activities unless the

9 In a July 2000 report prepared in response to a congressional mandate, we
reviewed questions and issues related to the legal basis and authority for
the Department?s relationship with ICANN. U. S. General Accounting Office,
Department of Commerce: Relationship with the Internet Corporation for
Assigned Names and Numbers,

GAO/ OCG- 00- 33R (Washington, D. C.: July 7, 2000). This report discusses
the development of the MOU, as well as other agreements related to the
ongoing technical operation of the domain name system. We list the various
agreements between ICANN and the Department in appendix II, which also lists
significant events in the history of the domain name system. The
Department?s

Public Assessment of the Transition?s Progress Has Been Limited

Page 13 GAO- 02- 805T

corporation?s actions were inconsistent with the terms of its agreements
with the Department. Department officials emphasized that because the MOU
defines a joint project, decisions regarding changes to the MOU are reached
by mutual agreement between the Department and ICANN. In the event of a
serious disagreement with ICANN, the Department would have recourse under
the MOU to terminate the agreement. 10 Department officials characterized
its limited involvement in ICANN?s activities as being appropriate and
consistent with the purpose of the project: to test ICANN?s ability to
develop the resources and capability to manage the domain name system with
minimal involvement of the U. S. government.

Department officials said that they carry out their oversight of ICANN?s
MOU- related activities mainly through ongoing informal discussions with
ICANN officials. They told us that there is no formal record of these
discussions. The Department has also retained authority to approve certain
activities under its agreements with ICANN, such as reviewing and approving
certain documents related to root server operations. This would include, for
example, agreements between ICANN and the root server operators. In
addition, the Department retains policy control over the root zone file, the
?master file? of top- level domains shared among the 13 root servers.
Changes to this file, such as implementing a new top- level domain, must
first be authorized by the Department.

In addition, the Department sends officials to attend ICANN?s public forums
and open Board of Directors meetings, as do other countries and Internet
interest groups. According to the Department, it does not participate in
ICANN decision- making at these meetings but merely acts as an observer. The
Department also represents the United States on ICANN?s Governmental
Advisory Committee, which is made up of representatives of about 70 national
governments and intergovernmental bodies, such as treaty organizations. The
Committee?s purpose is to provide ICANN with nonbinding advice on ICANN
activities that may relate to concerns of governments, particularly where
there may be an interaction between ICANN?s policies and national laws or
international agreements.

10 If the Department withdraws its recognition of ICANN by terminating the
MOU, ICANN has agreed to assign to the Department any rights that ICANN has
in all existing contracts with registrars and registries.

Page 14 GAO- 02- 805T

The Department made a considerable effort at the beginning of the transition
to create an open process that solicited and incorporated input from the
public in formulating the guiding principles of the 1998 White Paper.
However, since the original MOU, the Department?s public comments on the
progress of the transition have been general in nature and infrequent, even
though the transition is taking much longer than anticipated. The only
report specifically called for under the MOU is a final joint project report
to document the outcome of ICANN?s test of the policies and procedures
designed and developed under the MOU. This approach was established at a
time when it was expected that the project would be completed by September
2000.

So far, there has been only one instance when the Department provided ICANN
with a formal written assessment of the corporation?s progress on specific
transition tasks. This occurred in June 1999, after ICANN took the
initiative to provide the Department and the general public with a status
report characterizing its progress on MOU activities. In a letter to ICANN,
the Department stated that while ICANN had made progress, there was still
important work to be done. For, example, the Department stated that ICANN?s
?top priority? must be to complete the work necessary to put in place an
elected Board of Directors on a timely basis, adding that the process of
electing at- large directors should be complete by June 2000. ICANN made the
Department?s letter, as well as its positive response, available to the
Internet community on its public Web site.

Although ICANN issued additional status reports in the summers of 2000 and
2001, the Department stated that it did not provide written views and
recommendations regarding them, as it did in July 1999, because it agreed
with ICANN?s belief that additional time was needed to complete the MOU
tasks. Department officials added that they have been reluctant to comment
on ICANN?s progress due to sensitivity to international concerns that the
United States might be seen as directing ICANN?s actions. The officials
stated that they did not plan to issue a status report at this time even
though the transition is well behind schedule, but will revisit this
decision as the September 2002 termination date for the MOU approaches.

When we met with Department officials in February 2002, they told us that
substantial progress had been made on the project, but they would not
speculate on ICANN?s ability to complete its tasks by September 2002. The
following week, ICANN?s president released his report stating that ICANN
could not succeed without fundamental reform. In response, Department
officials said that they welcomed the call for the reform of ICANN and would
follow ICANN?s reform activities and process closely. When we

Page 15 GAO- 02- 805T

asked for their views on the reform effort, Department officials stated that
they did not wish to comment on specifics that could change as the reform
process proceeds. To develop the Department?s position on the effort, they
said that they are gathering the views of U. S. business and public interest
groups, as well as other executive branch agencies, such as the Department
of State; the Office of Management and Budget; the Federal Communications
Commission; and components of the Department of Commerce, such as the Patent
and Trademark Office. They also said that they have consulted other members
of ICANN?s Governmental Advisory Committee to discuss with other governments
how best to support the reform process. They noted that the Department is
free to adjust its relationship with ICANN in view of any new mission
statement or restructuring that might result from the reform effort.
Department officials said that they would assess the necessity for such
adjustments, or for any legislative or executive action, depending on the
results of the reform process.

In conclusion, Mr. Chairman, the effort to privatize the domain name system
has reached a critical juncture, as evidenced by slow progress on key tasks
and ICANN?s current initiative to reevaluate its mission and consider
options for reforming its structure and operations. Until these issues are
resolved, the timing and eventual outcome of the transition effort remain
highly uncertain, and ICANN?s legitimacy and effectiveness as the private
sector manager of the domain name system remain in question. In September
2002, the current MOU between the Department and ICANN will expire. The
Department will be faced with deciding whether the MOU should be extended
for a third time, and if so, what amendments to the MOU are needed, or
whether some new arrangement with ICANN or some other organization is
necessary. The Department sees itself as the responsible steward of the
transition, and is responsible for gaining assurance that ICANN has the
resources and capability to assume technical management of the Internet
domain name system. Given the limited progress made so far and the unsettled
state of ICANN, Internet stakeholders have a need to understand the
Department?s position on the transition and the prospects for a successful
outcome.

In view of the critical importance of a stable and secure Internet domain
name system to governments, business, and other interests, we recommend that
the Secretary of Commerce issue a status report detailing the Department?s
assessment of the progress that has been made on transition tasks, the work
that remains to be done on the joint project, and Conclusion

Recommendation

Page 16 GAO- 02- 805T

the estimated timeframe for completing the transition. In addition, the
status report should discuss any changes to the transition tasks or the
Department?s relationship with ICANN that result from ICANN?s reform
initiative. Subsequent status reports should be issued periodically by the
Department until the transition is completed and the final project report is
issued.

This concludes my statement, Mr. Chairman. I will be pleased to answer any
questions that you and other Members of the Subcommittee may have.

For questions regarding this testimony, please contact Peter Guerrero at
(202) 512- 8022. Individuals making key contributions to this testimony
included John P. Finedore; James R. Sweetman, Jr.; Mindi Weisenbloom; Keith
Rhodes; Alan Belkin; and John Shumann. Contact and

Acknowledgments

Page 17 GAO- 02- 805T

Although the U. S. government supported the development of the Internet, no
single entity controls the entire Internet. In fact, the Internet is not a
single network at all. Rather, it is a collection of networks located around
the world that communicate via standardized rules called protocols. These
rules can be considered voluntary because there is no formal institutional
or governmental mechanism for enforcing them. However, if any computer
deviates from accepted standards, it risks losing the ability to communicate
with other computers that follow the standards. Thus, the rules are
essentially self- enforcing.

One critical set of rules, collectively known as the domain name system,
links names like www. senate. gov with the underlying numerical addresses
that computers use to communicate with each other. Among other things, the
rules describe what can appear at the end of a domain name. The letters that
appear at the far right of a domain name are called top- level domains
(TLDs) and include a small number of generic names such as .com and .gov, as
well as country- codes such as .us and .jp (for Japan). The next string of
text to the left (? senate? in the www. senate. gov example) is called a
second- level domain and is a subset of the top- level domain. Each top-
level domain has a designated administrator, called a registry, which is the
entity responsible for managing and setting policy for that domain. Figure 2
illustrates the hierarchical organization of domain names with examples,
including a number of the original top- level domains and the country- code
domain for the United States. Appendix I: Overview of the Domain Name

System

Page 18 GAO- 02- 805T

Figure 2: The Hierarchical Organization of Internet Domain Names

Source: GAO.

The domain name system translates names into addresses and back again in a
process transparent to the end user. This process relies on a system of
servers, called domain name servers, which store data linking names with
numbers. Each domain name server stores a limited set of names and numbers.
They are linked by a series of 13 root servers, which coordinate the data
and allow users to find the server that identifies the site they want to
reach. They are referred to as root servers because they operate at the root
level (also called the root zone), as depicted in figure 2. Domain name
servers are organized into a hierarchy that parallels the organization of
the domain names. For example, when someone wants to reach the Web site

Page 19 GAO- 02- 805T

at www. senate. gov, his or her computer will ask one of the root servers
for help. 11 The root server will direct the query to a server that knows
the location of names ending in the .gov top- level domain. If the address
includes a sub- domain, the second server refers the query to a third
server- in this case, one that knows the address for all names ending in
senate. gov. This server will then respond to the request with an numerical
address, which the original requester uses to establish a direct connection
with the www. senate. gov site. Figure 3 illustrates this example.

Figure 3: How the Domain Name System Translates a Web Site Name Into an
Address

Source: GAO.

Within the root zone, one of the servers is designated the authoritative
root (or the ?A root? server). The authoritative root server maintains the
master copy of the file that identifies all top- level domains, called the
?root

zone file,? and redistributes it to the other 12 servers. Currently, the
authoritative root server is located in Herndon, Virginia. In total, 10 of
the 13 root servers are located in the United States, including 3 operated
by

11 This example assumes that the required domain name information is not
available on the user?s local network.

Page 20 GAO- 02- 805T

agencies of the U. S. government. ICANN does not fund the operation of the
root servers. Instead, they are supported by the efforts of individual
administrators and their sponsoring organizations. Table 1 lists the
operator and location of each root server.

Table 1 : Operators and Locations of the 13 Internet Root Servers
Affiliation of volunteer root server operator Location of server

VeriSign (designated authoritative root server) Herndon, VA Information
Sciences Institute, University of Southern California Marina del Rey, CA PSI
net Herndon, VA University of Maryland College Park, MD National Air and
Space Administration Mountain View, CA Internet Software Consortium Palo
Alto, CA Defense Information Systems Agency, U. S. Department of Defense
Vienna, VA Army Research Laboratory, U. S. Department of Defense Aberdeen,
MD NORDUnet Stockholm, Sweden VeriSign Herndon, VA RIPE (the Regional
Internet Registry for Europe and North Africa) London, UK ICANN Marina del
Rey, CA WIDE (an Internet research consortium) Tokyo, Japan

Source: ICANN?s Root Server System Advisory Committee.

Because much of the early research on internetworking was funded by the
Department of Defense (DOD), many of the rules for connecting networks were
developed and implemented under DOD sponsorship. For example, DOD funding
supported the efforts of the late Dr. Jon Postel, an Internet pioneer
working at the University of Southern California, to develop and coordinate
the domain name system. Dr. Postel originally tracked the names and numbers
assigned to each computer. He also oversaw the operation of the root
servers, and edited and published the documents that tracked changes in
Internet protocols. Collectively, these functions became known as the
Internet Assigned Numbers Authority, commonly referred to as IANA. Federal
support for the development of the Internet was also provided through the
National Science Foundation, which funded a network designed for academic
institutions.

Two developments helped the Internet evolve from a small, text- based
research network into the interactive medium we know today. First, in 1990,
the development of the World Wide Web and associated programs called
browsers made it easier to view text and graphics together, sparking

Page 21 GAO- 02- 805T

interest of users outside of academia. Then, in 1992, the Congress enacted
legislation for the National Science Foundation to allow commercial traffic
on its network. Following these developments, the number of computers
connected to the Internet grew dramatically. In response to the growth of
commercial sites on the Internet, the National Science Foundation entered
into a 5- year cooperative agreement in January 1993 with Network Solutions,
Inc., to take over the jobs of registering new, nonmilitary domain names,
including those ending in .com, .net, and .org, and running the
authoritative root server. 12 At first, the Foundation provided the funding
to support these functions. As demand for domain names grew, the Foundation
allowed Network Solutions to charge an annual fee of $50 for each name
registered. Controversy surrounding this fee was one of the reasons the
United States government began its efforts to privatize the management of
the domain name system.

12 Network Solutions later merged with VeriSign. The new company currently
uses the VeriSign name. Under its original agreement with the National
Science Foundation, Network Solutions was also responsible for registering
second- level domain names in the restricted .gov and .edu top- level
domains.

Page 22 GAO- 02- 805T

Working under funding provided by the Department of Defense, a group led by
Drs. Paul Mockapetris and Jon Postel creates the domain name system for
locating networked computers by name instead of by number.

Dr. Postel publishes specifications for the first six generic top- level
domains (. com, .org, .edu, .mil, .gov, and .arpa). By July 1985, the .net
domain was added.

President Bush signs into law an act requiring the National Science
Foundation to allow commercial activity on the network that became the
Internet.

Network Solutions, Inc., signs a 5- year cooperative agreement with the
National Science Foundation to manage public registration of new,
nonmilitary domain names, including those ending in .com, .net, or .org.

President Clinton issues a presidential directive on electronic commerce,
making the Department of Commerce the agency responsible for managing the U.
S. government?s role in the domain name system.

The Department of Commerce issues the ?Green Paper,? which is a proposal to
improve technical management of Internet names and addresses through
privatization. Specifically, the Green Paper proposes a variety of issues
for discussion, including the creation of a new nonprofit corporation to
manage the domain name system.

In response to comments on the Green Paper, the Department of Commerce
issues a policy statement known as the ?White Paper,? which states that the
U. S. government is prepared to transition domain name system management to
a private, nonprofit corporation. The paper includes the four guiding
principles of privatization: stability; competition; representation; and
private, bottom- up coordination.

The Internet Corporation for Assigned Names and Numbers (ICANN) incorporates
in California. ICANN?s by- laws call for a 19- member Board with 9 members
elected ?at- large.?

The Department of Commerce and ICANN enter into an MOU that states the
parties will jointly design, develop, and test the methods and procedures
necessary to transfer domain name system management to ICANN. The MOU is set
to expire in September 2000. Appendix II: Important Events in the History

of the Domain Name System Nov. 1983 Oct. 1984 Nov. 1992 Jan. 1993 July 1997
Jan. 1998

June 1998 Nov. 1998 Nov. 1998

Page 23 GAO- 02- 805T

ICANN issues its first status report, which lists ICANN?s progress to date
and states that there are important issues that still must be addressed.

ICANN and the Department of Commerce enter into a cooperative research and
development agreement to study root server stability and security. The study
is intended to result in a final report by September 2000.

ICANN and the Department of Commerce approve MOU amendment 1 to reflect the
roles of ICANN and Network Solutions, Inc.

The Department of Commerce contracts with ICANN to perform certain technical
management functions related to the domain name system, such as address
allocation and root zone coordination.

At a meeting in Cairo, Egypt, ICANN adopts a process for external review of
its decisions that utilizes outside experts, who will be selected at an
unspecified later date. ICANN also approves a compromise whereby 5 atlarge
Board members will be chosen in regional online elections.

ICANN issues its second Status Report, which states that several of the
tasks have been completed, but work on other tasks was still under way.

At a meeting in Yokahama, Japan, ICANN?s Board approves a policy for the
introduction of new top- level domains.

The Department of Commerce and ICANN approve MOU amendment 2, which deleted
tasks related to membership mechanisms, public information, and registry
competition and extended the MOU until September 2001. They also agree to
extend the cooperative research and development agreement on root server
stability and security through September 2001.

ICANN holds worldwide elections to replace 5 of the 9 interim Board members
appointed at ICANN?s creation.

At a meeting in California, ICANN selects 7 new top- level domain names:
.biz (for use by businesses), .info (for general use), .pro (for use by
professionals), .name (for use by individuals), .aero (for use by the air
transport industry), .coop (for use by cooperatives), and .museum (for use
by museums). June 1999

June 1999 Nov. 1999 Feb. 2000

Mar. 2000 June 2000 July 2000 Aug. 2000

Oct. 2000 Nov. 2000

Page 24 GAO- 02- 805T

The Department of Commerce enters into a second contract with ICANN
regarding technical functions of the domain name system.

ICANN and the Department of Commerce approve MOU amendment 3, which conforms
the MOU with the Department?s new agreement with VeriSign (formerly Network
Solutions.)

ICANN issues its third Status Report, which states that most of the tasks in
the MOU are either complete or well on their way to completion.

ICANN?s At- Large Membership Study Committee issues a preliminary report
that recommends creating a new at- large supporting organization. The new
organization would be open to anyone with a domain name and would elect 6
members of ICANN?s Board of Directors.

The Department of Commerce and ICANN agree to extend the MOU through
September 2002 and the cooperative research and development agreement
through June 2002 (amendment 4).

Following the September 11 terrorist attacks, ICANN devotes the bulk of its
annual meeting to security issues. The At- large Membership Study Committee
releases its final report, which retains the Board reorganization first
proposed in August 2001.

ICANN president Dr. M. Stuart Lynn releases a proposal for the reform of
ICANN.

At a Board meeting in Ghana, ICANN?s Board refers Dr. Lynn?s proposal and
questions about at- large representation and outside review to an internal
Committee on ICANN Evolution and Reform.

The Department of Commerce exercises an option in its contract with ICANN
regarding the technical functions of the domain name system, extending it
through September 2002.

ICANN?s Committee on Evolution and Reform reports its recommendations to
ICANN?s Board.

ICANN?s Board is scheduled to meet in Bucharest, Romania. ICANN?s Board is
scheduled to meet in Shanghai, China Mar. 2001

May 2001 July 2001 Aug. 2001

Sep. 2001 Nov. 2001

Feb. 2002 Mar. 2002

Apr. 2002 May 2002 June 2002 Oct. 2002

(545001)
*** End of document. ***
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