Master of Domains: VeriSign Buys Network Solutions

NEW YORK (03/08/2000) - An Internet stalwart was swallowed up Tuesday, as Internet security provider VeriSign said it would acquire Network Solutions, the leading domain-name registrar. The deal was a stock swap, valued at $21 billion, based on VeriSign's closing price Monday.

At markets' close Tuesday, VeriSign lost 19.17 percent of its value, dropping $47.43 to $200. Network Solutions gained 12.97 percent in value, rising $46.77 to $407.39. VeriSign, which provides e-commerce services to Web sites and online shopping firms, will issue 2.15 shares of its common stock for each share of Network Solutions stock.

For Network Solutions, the deal marks the end of a comparatively long and consistently fascinating history on the Internet. The Herndon, Va.-based firm was founded in 1979 as a computer systems developer. In 1992, they were selected to manage Internet registrations and by 1995, they were off and running as a government-sanctioned monopoly, the sole source of Internet domain names such as .com and .org. At first, the niche seemed small, but with the explosion of the Internet Economy, Network Solutions watched its business - and revenue - soar.

The company was among that rare breed of Internet firms that actually made a profit: $26.9 million last year, on revenue of $220.8 million; and $9 million in 1999's fourth quarter on revenues of $75.9 million. "They're a long-standing brand and we believe we're an up-and-coming brand," said VeriSign executive Richard Yanowitch. "Clearly this is a huge opportunity for the company, and it's obviously an enormously huge commitment." But that lock on the business has been under siege.

Last year, the government began to open up the domain-name registration business, and 22 competing registrars now resell domain names. Most offer a wide range of services, from e-mail to Web site hosting to 10-year registration periods. But as demand for new Web addresses soars, technical problems have caused some registrars to duplicate registrations and delay application processing unnecessarily.

Still, with a six-year government-sanctioned monopoly, Network Solutions remains the industry giant. NSI will keep control of the lucrative central registry for .com, .net and .org for as many as four more years before selling the registry and plowing the profits back into its business. The company says it registered 5 million new domain names in 1999, while its closest competitor, Register.com, signed up just under 160,000 new names in the third quarter of last year before quietly filing for an IPO two days before Christmas. Research and development company Science Applications International owns 45 percent of Network Solutions.

The merger news was a hot topic in Cairo, Egypt, where the Internet Corporation for Assigned Names and Numbers, or ICANN, begins its public meetings Wednesday.

ICANN board member Amadeu Abril i Abril of Spain said the merger was "a surprising move." He wondered whether the merger would impact Network Solutions strategy at the meetings, which he said has been in opposition to the creation of new top level domains.

Other competitors said they believe the move will make it less likely that Network Solutions will maintain the central registry if new domains are created. "It's fascinating. I'm astounded by the price," said Ken Stubbs, chairman of CORE, one of the competing registrars, and chairman of ICANN's Names Council. "But I don't think it will have a significant affect on the debate. I'm sure there will be more than one registry in the future." ICANN president Michael Roberts said he would be surprised if the merger had any impact on ICANN business.

He said the merger would not change the terms of the agreement ICANN reached with Network Solutions in November through which the company agreed to provide competing registrars with access to the central registry of domain names on an equal footing, among other issues. Meanwhile, ICANN will consider creating additional top-level domain names, such as .inc or .bank. Introducing multiple new domains at once could quickly replace gridlock with a cacophony of competing trademark claims. But some trademark holders have grown worried that the additional addresses would dilute their brand names.

And ISPs fear that their customers won't care to be known in cyberspace as johndoe@aol.com if they can sign up for johndoe@entrepreneur.inc instead.

Country-code domain holders know that once names like .inc and .corp come around, people will be less likely to pay a premium for Moldova's .md and Tuvalu's .tv, which have licensing agreements with registrars Domain Name Trust and .TV Corp., respectively. VeriSign said it expects the deal to close in the third quarter, at which time Network Solutions will become a subsidiary.

(Keith Perine contributed to this article from Cairo, Egypt)

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