auDA’s recent decision to backflip and enter exclusive negotiations with AusRegistry for a renewal of the existing Registry Agreement (instead of going out to tender as they previously committed to do) could be snuffed out in its infancy.
Why? Overnight I read that Neustar (effective owner of AusRegistry) has entered into an agreement to sell out to a private investment group in the USA. If it does proceed to finalisation, this is envisaged for the 3rd quarter in 2017.
This is a snippet from Michael Berkens at “The Domains”:
“Neustar, Inc. (NSR), today announced that it has entered into a definitive agreement to be acquired by a private investment group led by Golden Gate Capital in a transaction valued at approximately $2.9 billion.”
And this from Andrew Allemann at Domain Name Wire:
“The deal comes at a pivotal time for the company, which is about to lose its $500-million-a-year Number Portability Administration Center (NPAC) contract with the U.S. government. It has been on an acquisition binge to grow revenue in anticipation of losing the contract. Among the domain name companies it has acquired are .co and Bombora Technologies (which owns ARI Services).”
Here’s The Thing
I’m not a lawyer, but I do know that it is commonplace for any service agreement to have provisions about assignment and “change of control”. So I went and had a look at the Registry Licence Agreement document as proposed by auDA back in 2005.
And sure enough, here they are:
The definition of “Relevant Control” in the same document is this:
My Conclusion
If auDA is trying to justify their sudden haste (and backflip) to try and strike a new deal with the current operator, then this surely has to put a spanner in the works.
There must be Australian owned enterprises that would like to have the opportunity to at least be considered for the tender?
The simple fact is this. If you go out to tender, you see who else may be interested. And it’s going to be a “big pie” – particularly if direct registrations are part of the mix.
Nothing to stop AusRegistry / Bombora / Neustar / Golden Gate Capital putting in a tender. And given their past experience, they should be in the box seat.
It is incumbent on the Directors of auDA to try and achieve the best possible deal for the organisation. Directors obligations 101.
What do you think?
Ned O’Meara – 15th December 2016
Disclaimer
I think a key risk is ownership. Is it acceptable for a leveraged buyout firm and the government of Singapore to jointly own Ausregistry. Will Ausregistry get sold again once they start selling off assets, taking cash out etc. Does AUDA even know who they are contracting with at this point?
You can see any example of what can potentially go wrong here (note the lawsuit involves the same people Golden Gate Capital)
http://www.law360.com/articles/241957/orchard-trustee-sues-golden-gate-over-310m-payout
My response to your questions:
1. Not in my opinion – and certainly not without first seeing if there are other parties (particularly Australian ones) that may be interested in running the Registry.
2. It’s certainly possible. That’s potentially a nightmare for auDA down the track.
3. Exactly – that’s the point of my article. This deal of theirs apparently doesn’t “close” for months. Who knows what machinations happen in that time.
The other thing I’d like to know is if AusRegistry declared this possibility of buyout to auDA when they made their unsolicited offer on the 14th November?
And if not then, did they do so subsequently? i.e. When the auDA Board resolved to enter exclusive negotiations.
Ned you are spot on the money!
Did Ausregistry make a disclosure to auDA and the board about the possible sale? They must have known?
Did auDA and the board of directors do their own homework plus ask Ausregistry, Neustar Inc if anything may happen to ownership etc?
Seeing that Ausregistry / Neustar is on the auDA Board did they disclose and also vote as part of the auDA Board Unanimous resolution?
Can anyone see serious legal issues here?
https://www.auda.org.au/news/auda-enters-exclusive-negotiations-with-ausregistry/
“auDA enters exclusive negotiations with AusRegistry
Posted by Helen Hollins on 13 December 2016
The Board of auDA has unanimously resolved to enter into a period of exclusive negotiation with AusRegistry for the management of auDA’s registry operations beyond 2018.
On 14 November AusRegistry made an unsolicited offer to continue those services beyond the current contract.
auDA is seeking a best-in-class operator’s arrangement focussed on an enhanced security and technical setting and a rigorous process is underway to test the value, accountability and performance impacts of these initiatives.
auDA reserves the right to conduct a market exercise if negotiations do not achieve these outcomes.
Media contact
Helen Hollins
helen.hollins@auda.org.au”
/////////////////
Regarding the first question I don’t think Ausregistry would need to and it wouldn’t be in their interests to either. You can be sure that Ausregistry have all their bases covered and AUDA is now committed to negotiate with a company that will soon be controlled by a bunch of LBO specialists and the Singapore Government.
Regarding did AUDA do its homework regarding change of ownership, the answer is no, AUDA wasn’t even watching the acting CEO to see if they were starting the tender so you can be sure they haven’t been considering issues like change of ownership. Little doubt Ausregistry was watching, they were watching while AUDA completely botched things and Ausregistry came up with their own plan to take advantage of that incompetence.
We go through this every couple years with .com, .net, and .org. ICANN should put out that those contracts for competitive bidding but doesn’t. Makes up BS reasons and doesn’t take into account any comments. If you go back and see many people have recommended .com go up for tender.
Doesn’t surprise me a ccTLD registry would do the same Ned. Ignore the rules and just renew the contract.
Nice catches in the registry agreements. 🙂
@Web Hosting Jobs – good observations.
What concerns me more with this latest news is that the auDA Board / CEO is not even prepared to give Aussie companies the opportunity to tender.
I think the AUDA board could not be bothered doing all that work and probably have little idea how to run the tender either, plus you have the vested interests.
However the way the tender (or lack of it) is shaping up could be the next big AUDA scandal. The fact that Ausregistry is being sold to “god knows who” and the contract is just being awarded with no competition is likely to spark the interest of the government I’d say. I’d imagine at minimum they’d need to investigate foreign ownership issues (especially a foreign govt owning part of it) and the lack of tender process is likely to come up as part of that in my view.
What other technology companies in Australia would be prepared to run the .AU namespace?
I don’t know the answer to that WHJ. But we’ll never even find out if auDA continues on this course.
3.1 million current registrations is not a lot – but if direct registrations are introduced into the mix, that’s a different story for any potential tenderer.
I think it is a huge contract personally, Must be around $25million in revenue per year, likely over $30million with direct registrations. So over 5 years a $150 million contract.
The idea that it may not get much intent is AUDA/Ausregistry propaganda to keep the status quo.
The last time it went out to tender was 2005 when it was for around 550k domains, so it is now 6 times larger. in 2005 multiple companies put in applications (can’t find the exact numbers), including Verisign Australia. So if Verisign was interested in in a 550k contract I suspect with a much large contract there would be a significant number of very qualified registries applying.
https://www.auda.org.au/pdf/auda-rft2005-part2.pdf
I imagine that the words “private equity firm” might be a bit of a hot button with the Australian Public after the Dick Smith’s debacle.
Now a US private equity firm wants to get its hands on .au?
Not a good look for auDA if the exclusive negotiations with Neustar/AusRegistry proceed at this point.
@Andrew – having you been reading my texts? 😉 I said exactly the same thing to a friend about 30 minutes ago!
You are spot on the money with your analysis imo.
Agree, especially when it is a critical piece of infrastructure. I think most Aussies know what private equity is all about, it is adding a whole lot of risk (financial and political) to something that is vital infrastructure. I don’t think the UK, Germany or China would be allowing this kind of thing.
Passions are running high; and I’m a great believer in free speech. But there is a difference between free speech and potentially defamatory comments. I do not wish to be sued as a publisher!
So you know who you are – happy to publish; but you need to re-word please.
Australian registry operations are being handed to a foreign owned company without Australians even having the opportunity to be considered.
That on its own is absurd, but to now have ownership and future stability of that foreign company up in the air is even worse.
auDA has been collecting huge sums from registrants over the years, they can afford to do this properly, they’re just choosing not to and endangering the whole .AU space.
@Cam – Hammer. Nail. Head.
(Or perhaps I should say “spanner”!)
So Neustar Inc ( Ausregistry owner) will be delisted from the US stock exchange. Chances are they do not need to even continue operating Ausregistry or the Australian registry services once the current contract period is officially over. They could wipe their hands of it completely if they chose to and look after their own interests and other bigger global markets and issues.
What is the auDA and auDA board directors back up plan now for a Registry services provider? What have they been doing for the last 15 years to have a back up registry plan and have their failed to meet their obligations? It appears so doesn’t it?
This also shows the failure of the Department of Communications just trusting that auDA and the board where doing the contract job properly for 15 years also. Heads need to roll…. so many meetings of just drinks and food listening in the background.. Icann junkets..but no risk assessment and actual oversight at all .
The Federal Dept of Comm’s should not renew the auDA contract and not renew the Ausregistry / Neustar Inc. contracts. They need to set up an immediate backup plan to run it themselves now. They have the staff, technology, security all set to go so why not do it? This self regulation experiment has proven to be a failure many have taken seemingly taken advantage of, auda Foundation grants, massive financial waste, apparent benefits for associated friends, families etc.
How can suppliers even be on the auDA board and in such powerful positions? This makes no sense to me at all.
This is Critical Australian Infrastructure and it is a very high risk.
Maybe Nick Xenophon or even Pauline Hanson need to get involved. They seem to care about foreign ownership risks to national interests and consumers rights….
What a shemozzle.
It is plain to see that something weird is going on here. The registry agreement should clearly be going out for tender.
It’s debatable that the Internet is almost as important to the economy as electricity and agriculture. So, dear Ned and readers, do you think ASIO’s chief David Irvine and the Foreign Investment Review Board, who recently blocked the transfer of other key Australian infrastructure assets to foreign entities, such as the cattle company Kidman & Co and electricity network Ausgrid, are aware that the management rights to Australia’s Internet naming system (Domain Names) appears to be owned by overseas interests?
What are the differences between Kidman & Co, Ausgrid and AusRegistry that permit only the latter’s sale to foreign interests, but not the other two?
I think the Australian Government dropped the ball by allowing the Australian Domain Name registry to be owned by foreign private equity.
As the Internet has become fundamental to every Tom, Dick and Harry, it is apparent to me that the Australian Domain Name registry is too an essential asset to be entrusted to auDA to rule over.
auDA is leaderless.
All that revenue handed over to another party doesn’t make sense.
Do it in-house. Hire the skills.
Garth,
Well the leader was appoint by the current board and the current board is the problem with AUDA, so it is just more of the same. The same type of things that happened before, are happening now.
Re doing it in house: AUDA has no clue about running a registry. If they tried to the whole of Australia would go down on the first day. AUDA can’t even run itself let along a registry with 3 million domains.
So WTF does auDA do if they can’t run a Registry 🙂
Headhunt staff from other Registry operations.
@Garth
It does to the other party!
It’s worth wondering what Phil Khoury of Cameron Ralph Report fame would say about their accountability and transparency to stakeholders? From their website: http://www.cameronralph.com.au/about.htm
“We aspire to be the advisors of choice for boards who are serious about governance
and board performance.”
@Legal Eagle
Now that is an excellent observation. 🙂
Am curious why none of this has been reported in any major media? There’s fascinating stories to be told. Big money is involved, intrigue, secrecy, perceived conflicts of interest, vital infrastructure contracts, staff exodus, major decisions being made that will affect all Australians
@Deb – only a matter of time in my opinion. It just needs one – then watch the “Domino Effect”.
It’ll only get on Four Corners when the 1.8 million stakeholders (owners) realise they’ve been shafted.
It’s great to see discussion on public policy issues seeking to hold auDA and its Board accountable. I gave up trying about a decade ago :).
If there’s one thing fifty plus years of involvement and interest in public policy taught me, it is that accountability and transparency are essential pre-conditions for stakeholder trust and confidence in public institutions. Failure to consistently meet high standards of accountability and transparency to stakeholders, invites government intervention.
Here’s my tuppence worth on Ned’s post and some responses:
Foreign Investment Policy
Any proposed change to the ownership and/or effective control of AusRegistry or assets of its business to a(nother) foreign interest should be notifiable, examinable and actionable under the Australian Government’s Foreign Investment Policy <https://firb.gov.au/resources/policy-documents/>.
If not, then the Policy should be changed. The .au namespace and the underlying assets have are key elements of critical Australian infrastructure (as noted by others) – for example, they underpin the Australian economy’s commerce, financial and payment systems.
I would find it almost inconceivable that any Australian Government would allow control of such sensitive infrastructure to pass to a(nother) foreign interest without knowing who would be in a position to exercise effective control of such infrastructure.
In practical terms, a proposed change to the ownership and/or effective control of AusRegistry or assets of its business to a(nother) foreign interest should be notified to and examined by the Foreign Investment Review Board (FIRB) and reported upon to the Treasurer for decision having regard to the national interest.
Prior to Board consideration and report, consultation should take place with interested Federal departments and agencies, including Departments of the Prime Minister & Cabinet, Finance, Communications and Defence, Australian intelligence services, AFP, RBA, ACCC and ACMA.
Sensitive foreign investment proposals may be considered by the Turnbull Cabinet before announcement of the Treasurer’s decision.
Competition Policy and Consumer Protection
The ACCC should have an interest in auDA’s proposal to continue to support and sustain a monopolist, having regard to its legislative responsibilities under competition and consumer protection laws. The ACCC was an active member of the Competition Model Advisory Panel.
It would be timely for the ACCC to review auDA’s ‘anti-competitive’ and ‘anti-consumer’ monopoly proposal and its other ‘anti-competitive’ and ‘anti-consumer’ rules imbedded in its policies and business systems. Indeed, auDA should be required to seek authorisation/s from the ACCC.
Consideration should be given by auDA and the ACCC to the imposition of a price cap (CPI-X) and “rate of return” on the Registry to, among other things, ensure monopoly profits are not captured by the Registry. The ACCC has decades of experience in regulating monopolists and oversighting those regulate them.
Thanks for this excellent summation Ian.
The formatting came through a bit garbled (not your fault); so I just tidied it up.
Learnt a lot from your post. Thank you
Let’s hope it won’t be another 10 years for the agencies you listed to take action. Hopefully they learnt from the ongoing Eddie Obeid cases
AusRegistry would be making a motza out of this contract. Little wonder they will pull out all the stops to avoid competition.
Jeff