Network Solutions Tops Estimates

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July 22, 1999 (3:07 PM EDT)

By Malcolm Maclachlan and Mary Mosquera,

Network Solutions is thriving, so far, in the post-monopoly world.

The company announced net income of $5.8 million for the second quarter, ended June 30. This amounted to 17 cents a share, beating analyst estimates by penny. It was also more than double the profits of $2.5 million, or 7 cents a share, for the same period a year ago. Revenue for the quarter hit $47.5 million, up from $20.5 million a year ago.

For years, NSI has held a virtual monopoly of the registration of top-level domain names on the Internet. In a period where new registrars are beginning to come online, the company is doing more business than ever. CEO Jim Rutt said the company passed two milestones this quarter: registering its 5 millionth domain, and registering over 1 million domains in one quarter. The company registered 2.1 million domains in the first six month of the year, he said, more than in all of 1998.

Earlier this month, The Internet Corporation for Assigned Names and Numbers (ICANN) the non-profit group overseeing technical function of the Internet, announced over 60 companies would soon compete with NSI. This group will include such industry giants as America Online and AT&T.

Rutt said the increased profits validate NSI's business model. But Bill Whyman, Internet analyst at Legg Mason Precursor Group in Washington, D.C., disagreed. The earnings for the quarter don't reflect the new competition, he said. When new registrars start business in earnest, he added, NSI will quickly shed market share.

NSI has frequently clashed with ICANN over how to implement competition in the space. The company has also been widely criticized by its new competitors. One flap centered around the company page redesign in March, modified to push site visitors toward newer NSI services, from Internet software tools to custom T-shirts bearing domain names. The company also redirected the whois page, traditionally used to find out who owns a particular domain, directly to the main NSI page.

In April, the company announced it would launch a Dot Com Directory in the summer, offering free listing to any domain holders who wished it.

Whyman said NSI's business will increasingly have to center around these new sources of revenue. He said it is in the company's best interest to quickly come to a resolution of disagreements with the Commerce Department over implementing competition.

"Commerce and NSI need to reach agreement on a package of issues to finish the test and move to competitive name registration," Whyman said.

In April, the Commerce Department agreed to let NSI collect fees from its new rivals for the use of its database. NSI also announced a new policy on Wednesday, requiring customers to pay up front for domain names. It said the new policy is designed to discourage domain name speculators, who buy dozens of names and attempt to resell them.