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ICANN decision may determine future of VeriSign

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CIOL Bureau
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Eric Lai

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MARINA DEL REY: No company would seem to have more at risk from the outcome

of this week's annual meeting of the Internet's governing body on Web site names

than VeriSign Inc.

Yet analysts say that VeriSign is almost sure to emerge in a stronger

position than before.

The board of directors of Internet Corporation for Assigned Names and Numbers

(ICANN) is expected to decide Thursday how many new top-level domain names

should be created. Analysts expect the board to add fewer than 10 of the 44

proposed domain names, which include .kids, .travel and .web.

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These would compete directly with the seven existing domain names including

.com, .net, and .org for which VeriSign, solely a security software maker before

its $20 billion purchase of Network Solutions Inc. earlier this year, currently

enjoys a near-monopoly position as the sole operator of the top-level domain

name database, or registry.

But analysts say that VeriSign actually has much to gain from an expansion in

top-level domain names.

"The decisions to be made here would not make me nervous as an

investor," said Jack Ripsteen, analyst at Chase Hambrecht & Quist.

"A lot of the scenarios here are win-win-win."

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But investors were nevertheless queasy in the days preceding ICANN's meeting.

The stock fell nearly 30 per cent late last week and Monday, briefly dipping

below $100 on Monday afternoon on Nasdaq. VeriSign has since mostly recovered,

ending at $119-7/8 at the end of regular trading on Wednesday.

Key to understanding why VeriSign stands to gain, analysts say, is the fact

that VeriSign actually operates two businesses. In Internet parlance, VeriSign

is both a registry, holding and updating a master list of domain names, and a

registrar, selling the domain names to businesses and the general public.

The revenue from the combined businesses, which VeriSign does not break

apart, made up an estimated half of VeriSign's $173.1 million in revenue in its

third quarter ended Sept. 30.

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As a registry, VeriSign currently enjoys a near-monopoly position, charging

other registrars $6 per domain name in its database, which include all domain

names except those ending in a country suffix, such as those ending in .uk or .jp.

These are operated by organizations within each country.

With VeriSign not applying to be the registry this time around, the company's

monopoly is sure to end. But that does not prevent VeriSign from acting as a

registrar, leveraging its massive customer base, estimated to be around 15

million, to resell new domain names.

Opening up the registry business to competitors "is still a good thing,

because VeriSign can still resell domain names like everyone else,"

Ripsteen said.

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Others, like Bob Fagin of Bear Stearns, point out that VeriSign, with five

years experience under its belt, will likely end up making money through

managing the registries of some of Thursday's database winners.

Fagin expects VeriSign to earn 11 cents per share in its fourth quarter

ending December 31, and 42 cents for the whole year. He expects VeriSign's

fiscal year 2001 earnings per share to increase another third to 56 cents.

One potential trouble spot is if VeriSign is forced to delay the launch of

its multilingual domain name registry, which will let companies register Web

sites in an Asian language, ending in .com, .net and .org in English. VeriSign

is currently testing the service and has already received more than estimated

500,000 applications for domain names in Chinese, Japanese and Korean. But

ICANN's board may recommend that VeriSign delay its expected year-end launch,

due to complaints from the Internet Society, another Internet regulatory group,

as well as the Chinese government.

(C) Reuters Limited 2000.

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