My suggestion to ISI at this point would be to distinguish between "community" registrars and "commercial" registrars. A community registrar must have a reasonable relation to the place for which it's a registry, e.g. live or have an office within 20 miles of it, and handle registrations at no charge. Commercial registries have no such restrictions. In case of conflicting requests between community and commercial registrars, the community registrar wins.
This seems like the seed of a great idea, although the 20-mile restriction may be too tight. I'm thinking specifically of a regional ISP from the NSFNet days which... - Provided US domain registration services in a very professional manner for roughly an entire state. - Never charged for registration (still doesn't as far as I know) - Did a lot to promote use of the US domain within its region On a related note, last year ISI, evidently in response to the problem you describe, announced that US subregistries would be limited to 50 delegations apiece. I don't know if this limit was applied retroactively to subregistries that were already handling a larger number of subdomains or not.