Delayed Competition Means Continued Strong Growth for NSI.

By Nick Patience With competition in its primary domain name registration market amounting to barely a trickle, Network Solutions Inc reported better-than-expected second quarter results yesterday as the benefits of having an exclusive hold on the market continue to bear plentiful fruit, for now at least.

New York-based Register.com Inc became its first competitor when it started registering names on June 6, but for each of those it has to pay NSI $9 to include the name in the registry database that NSI maintains as part of its contractual arrangements with the US Department of Commerce.

The Herndon, Virginia company reported net income of $5.8m, or 17 cents per share. Analysts surveyed by First Call were expecting 16 cents per share. Revenue in the quarter rose 132% to $47.5m. NSI registered 1.2 million net news domain names in the quarter, a huge rise from the 443,000 it registered in the year-ago quarter and a 28% rise from the 922,000 in the first quarter of this year. NSI charges $70 for a two-year registration of each name - one-year registrations are not available.

As of yesterday four of the five companies that have been chosen to compete with NSI in the registrar market had got the system up and running and the other two have until August 6 to get going before additional companies are permitted to compete. The market is effectively being regulated by a combination of the Department of Commerce and the non-profit Internet Corporation for Assigned Names and Numbers (ICANN).

The test period has been extended twice because the new registrars were having trouble implementing NSI's share registry system software that it had developed as part of its agreement with the DoC. The second extension, which takes the test period up to August 6 was not NSI's doing, claimed CEO Jim Rutt on a conference call with analysts yesterday. "Commerce begged for that extension," he claimed.

NSI's contract to maintain the registry will expire on September 30 2000 and will not be renewed - at least not unless another problem crops up, which is always a possibility. However Rutt maintains that NSI will continue to operate the registry anyway, which begs the question of how many root servers the internet will have at that point.

NSI's challenge over the next few quarters is to differentiate its service by including value-added services along with the registration, but it starts with the advantage of a huge renewable base of names. NSI, which registered its five millionth name at the end of May, saw six monthly net profits up 134.8% to $10.6m on revenues that rose 131.6% to $85.6m. Cash and equivalents stood at $46.1m as of June 30.

Rutt took up his position towards the end of May, replacing ex- chief executive Gabe Battista, who resigned unexpectedly last November to take over at Tel-Save.com Inc. Rutt represented NSI at yesterday's congressional hearing into ICANN (see separate story).