Nominet EGM hits barriers

Well, I thought it would be a close thing. And I was completely wrong.

Nominet this morning lost all three votes called at its Extraordinary General Meeting and lost them by a massive margin. Why? Because, completely unexpectedly, two of the three biggest Nominet members decided they didn’t like them.

In the end, all the objections eloquently put forward by some members of Nominet’s Policy Advisory Board were as nought when big companies Fasthosts and Pipex turned against the deal.

But what I thought was a battle over Nominet’s future direction has suddenly become something much, much bigger. It’s now about who controls Nominet, and so by extension, the UK’s Internet space, and the UK’s biggest beast in the global Net infrastructure market.

The three resolutions were:

1. Rewrite Nominet’s Memorandum of Association – this required a 90 percent approval
2. Rewrite Nominet’s Articles of Association – this required a 75 percent approval
3. Reorder Nominet’s weighted voted system – this required 50 percent approval.

Resolution 2 was linked to Resolution 1, so effectively Resolution 2 also required 90 percent approval. All three failed to get even a simple majority.

The figures:

Resolution 1
For: 2,360
Against: 2,538

Resolution 2
For: 2,352
Against: 2,546

Resolution 3
For: 2,437
Against: 2,451

What has emerged however is that through the existing vote weighting that Pipex actually has more than 10 percent of all votes, it has 1,041 votes of a total of very close to 10,000 overall votes. The result: Pipex can effectively veto any changes to Nominet’s structure.

Fasthosts – the other big beast – has 880 votes and so is also in a position to disrupt any changes. So has a third company – Schlund (which runs 1and1 Ltd), with 795 votes. But Schlund is in favour of the changes and voted yes.

But there is another fundamental issue. Only 10 percent of Nominet’s members actually voted. Considering this is the biggest change to Nominet in its 10-year history, the appallingly low turnout is not encouraging. It also gives disproportiate weight to the few members that do vote, and overwhelming power to the three companies at the top of the tree.

The resolution to change the voting method will see any member restricted to a cap of 10 percent of votes cast. But with that 10 percent enough to prevent changes to Nominet’s memorandum, the company finds itself in a very difficult position.

I’ve done some number crunching to understand Nominet’s member system better. The simple explanation is that power in Nominet is massively disproportionate. There are over 2,800 members (2,822 according to my calculations).

Of this 90.1 percent of members (2542) have either one or two votes out of total of roughly 10,000 votes. Because their individual power is so minimal, this large majority of members in effect have almost no connection to Nominet at all.

Next, there are 196 (6.9 percent) of members with between 3 and 10 votes. Then 71 (2.5 percent) members with between 11 and 100 weighted votes a piece. Just 10 companies (0.4 percent) have between 101 and 500 votes. And the right at the top, three companies – representing 0.1 percent of members but 27 percent of total votes (significantly more in the real world where most members don’t vote) have over 500 votes.

And what tops all of this off is that Pipex – the company that has effective control of Nominet – is rumoured to be the target of a takeover bid.

According to the FT this morning: “Pipex Communications gained 14.7 per cent to 16p, its highest level for five years, amid rumours of a possible takeover and talk that a large shareholder had been cleared out.”

Clearly there are some very large implications here. I have put in calls to Schlund, Pipex and Fasthosts, and I have an interview with Nominet Bob Gilbert lined up for later today, so hopefully I should be able to make more sense over what happened this morning soon.