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Politics of Web domains
get ugly

A powerful politician issues a scathing attack against the Clinton administration's domain plan.

WASHINGTON -- The Clinton administration's laborious efforts to privatize the Internet's addressing system could be further slowed as the House Commerce Committee Tuesday issued a blistering critique and opened an investigation into the program.

Committee Chairman Thomas Bliley said he was "greatly concerned'' that the nonprofit corporation the administration had chosen to run the system had exceeded its authority by deciding to impose a $1 fee on every Internet Web site address.

In letters to Secretary of Commerce William Daley and the head of the nonprofit group, the Internet Corporation for Assigned Names and Numbers (ICANN), the Virginia Republican said the planned fee and other decisions went beyond what the Clinton administration had announced last year.

"Rather than promote the Internet's evolution, your organization's policies actually may jeopardize the continued stability of the underlying systems that permit millions of people to use, enjoy and transact business on the Internet,'' Bliley said in the letter to Esther Dyson, interim chairwoman of the nonprofit corporation.

A Commerce Department official said the administration ''welcomed'' the Commerce Committee's interest and would respond to Bliley's requests for information and records "fully and promptly.''

ICANN outside attorney Joe Sims defended the corporation's actions, noting that the entity had no power to compel compliance and relied on reaching consensus with key players.

"ICANN has no authority at all," Sims said. "Everything ICANN does now and in the future is a result of people agreeing."

NSI threatened
Bliley's letters sought records and information about the process used to select ICANN's interim board members and set its $5.9 million budget along with any analysis of its legal authority to levy the $1 fee. Bliley also criticized ICANN for holding its board meetings behind closed doors.

The letters also sought information about statements ICANN officials made threatening to terminate the authority of Network Solutions Inc. (Nasdaq:NSOL) to register new Internet addresses. Officials made the statements at a public meeting in Berlin last month, according to Bliley.

ICANN attorney Sims said only the Commerce Department could end Network Solutions' right to register, but added that the Herndon, Va. firm had agreed to abide by ICANN's rules in an October, 1998, agreement with the government.

From 1993 until this year, the Herndon, Va.-based company had sole authority to register Internet addresses in the popular .com, .net and .org domains.

But under the administration's privatization plan, new companies are also allowed to register names in those domains. The first competitor, Register.com, went online two weeks ago, and other firms, including America Online Inc. (NYSE:AOL), will begin competing soon.

Unsigned agreement
Network Solutions has not yet signed an agreement written by ICANN that sets some rules and minimum requirements for companies that register Internet names. The agreement, which Network Solutions says exceeds ICANN's authority to impose, has been signed by dozens of other firms, including Register.com.

The slow process of ending U.S. government oversight of the Internet's plumbing officially began when the Commerce Department asked for comments on privatization in July 1997.

The Clinton administration laid out its final plan to privatize the address system, which assigns names to Web sites and connects the names to corresponding numerical addresses that are used to steer data around the network, in June 1998.

The plan called for a nonprofit corporation that would begin with an interim, appointed board of directors. The interim board was to create competition for name registrations, establish qualifications for registering firms and set up a system for electing a new board of directors that represented the diversity of the Internet.

In November 1998, the administration selected ICANN as the nonprofit corp. to take control of the system that had been overseen for many years by a government contractor at the University of California and the National Science Foundation.

 

Tax-free Web goods
may disappear

Meeting for the first time, members of a congressionally appointed panel said Net goods should not have a broad tax advantage over store-bought goods.

WASHINGTON - Reuters The days of tax-free CDs, antiques, computer equipment, and other goods and services sold over the Internet may be coming to an end. Right now, the billions of dollars of goods bought by Web surfers annually are subject to a complex web of taxes levied by thousands of states, cities, counties, and parishes nationwide.

Most of those taxes go unpaid because municipalities have no way to collect taxes via retailers headquartered in remote sites. What's more, consumers rarely report the purchases on tax forms since state and local officials lack the resources and political will to track them down.

But key members of a congressionally appointed panel that met for the first time this week in historic Williamsburg, Va. said the time has come for tax "neutrality." That means consumers buying stereos, shoes and other goods over the Internet should have to pay sales and use taxes just like the millions of people shopping on Main Street.

Simplifying the tax morass
The hitch, say some of the members of the federal Advisory Commission on Electronic Commerce, is that the nation's 3,000 states and localities must simplify the intricate web of sales taxes they now levy -- a massive job, but one that is doable.

Statements by top brass from MCI WorldCom Inc.,AT&T Corp. (NYSE:T), and Charles Schwab Corp. (NYSE:SCH) encouraged the nation's mayors and county executives who had feared that their own representatives on the 19-member panel would be sandbagged by pro-Net forces. The commission was mandated by Congress in a 1998 cyberlaw calling for a three-year moratorium on new state and local taxation of the Internet.

The panel is studying whether Internet vendors should be required to collect sales taxes on goods sold, as sales volume is growing at lightning speed. According to the University of Texas, the Internet generated over $300 billion in U.S. revenue in 1998 -- a third of which was related to e-commerce.

"That makes the United States' Internet economy by itself the 18th largest economy in the world," said Virginia Governor Jim Gilmore, head of the advisory commission, whose state is the home of cybergiants like America Online Inc. (NYSE:AOL).

Too many levies may squelch growth
Gilmore pointed to the Virginia Diner in Wakefield, Va. -- started in a refurbished railroad car 70 years ago -- which has prospered and now sells its famous tins of peanuts worldwide with the click of a mouse at www.virginiadiner.com .

"We stand at the dawn of a new age," said Gilmore, whose panel is made up of eight people from industry, eight representing consumers and state and local governments, and three from the federal government,

Online firms warn that state and local taxes of Web sales would strangle the Internet if enforced. But localities say sales taxes are a life and death issue for them, since they rely on the revenues to build schools, repair roads, and provide other essential municipal services.

Some key commission members said localities have a point. "I'm a pretty big fan of the Internet and I don't think anyone on Earth wants it to succeed more than I do," said MCI Vice Chairman John Sidgmore. "(But) I don't think it's feasible over the long term to tax one form of commerce differently than the other," he said.

"Massive changes are going to be required to the current state and local framework ... but there are ways to get through (this)," he said. Michael Armstrong, chief executive officer of AT&T, said the world is experiencing the "most exciting communications age in history." "(But) we've got to use this opportunity for simplicity," he said, noting that AT&T fills out a mind-boggling 39,000 state and local tax forms a year.

A tax neutral zone
Yet, the Internet should be tax "neutral," he said. That means it must please not only consumers, who want the lowest price on online goods, but states and localities as well. "Stores will continue to play a very important role in American commerce," said David Pottruck, president and co-chief executive officer of Charles Schwab, which does nearly $2 billion in business daily over the Net.

"It is our belief that Internet should not be favored over other forms of commerce," he said, noting Schwab got 60 million "hits" a day on its website in the first quarter of 1999, compared to six million the same period last year. One tax specialist called the officials' statements a hopeful sign. "Significant industry leaders have signaled a willingness to work with state and local governments," said Clinton Stretch, a principal with Deloitte & Touche.

 

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