rfc1192.txt

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Network Working Working Group                           B. Kahin, Editor
Request for Comments: 1192                                       Harvard
                                                           November 1990


                   Commercialization of the Internet
                            Summary Report

Status of this Memo

   This memo is based on a workshop held by the Science, Technology and
   Public Policy Program of the John F. Kennedy School of Government,
   Harvard University, March 1-3, 1990.

   This memo provides information for the Internet community.  It does
   not specify any standard.  Distribution of this memo is unlimited.

Introduction

   "The networks of Stages 2 and 3 will be implemented and operated so
   that they can become commercialized; industry will then be able to
   supplant the government in supplying these network services."  --
   Federal Research Internet Coordinating Committee, Program Plan for
   the National Research and Education Network, May 23, 1989, pp. 4-5.

   "The NREN should be the prototype of a new national information
   infrastructure which could be available to every home, office and
   factory.  Wherever information is used, from manufacturing to high-
   definition home video entertainment, and most particularly in
   education, the country will benefit from deployment of this
   technology....  The corresponding ease of inter-computer
   communication will then provide the benefits associated with the NREN
   to the entire nation, improving the productivity of all information-
   handling activities.  To achieve this end, the deployment of the
   Stage 3 NREN will include a specific, structured process resulting in
   transition of the network from a government operation a commercial
   service."  -- Office of Science and Technology Policy, The Federal
   High Performance Computing Program, September 8, 1989, pp. 32, 35.

   "The National Science Foundation shall, in cooperation with the
   Department of Defense, the Department of Energy, the Department of
   Commerce, the National Aeronautics and Space Administration, and
   other appropriate agencies, provide for the establishment of a
   national multi-gigabit-per-second research and education computer
   network by 1996, to be known as the National Research and Education
   Network, which shall:

        (1) link government, industry, and the education



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        community;
             ....
             (6) be established in a manner which fosters and
        maintains competition and private sector investment in high
        speed data networking within the telecommunications
        industry;
             ....
             (8) be phased out when commercial networks can meet the
        networking needs of American researchers."

   -- S. 1067, 101st Congress, 2nd Session, as marked up April 3, 1990
   ["High-Performance Computing Act of 1990"], Title II, Section 201.

Background

   This report is based on a workshop held at the John F. Kennedy School
   of Government, Harvard University March 1-3, 1990, by the Harvard
   Science, Technology and Public Policy Program.  Sponsored by the
   National Science Foundation and the U.S.  Congress Office of
   Technology Assessment, the workshop was designed to explore the
   issues involved in the commercialization of the Internet, including
   the envisioned National Research and Education Network (NREN).
   Rather than recapitulate the discussion at the workshop, this report
   attempts to synthesize the issues for the benefit of those not
   present at the workshop.  It is intended for readers familiar with
   the general landscape of the Internet, the NSFNET, and proposals and
   plans for the NREN.

   At the workshop, Stephen Wolff, Director of the NSF Division of
   Networking and Communications Research and Infrastructure,
   distinguished "commercialization" and "privatization" on the basis of
   his experience developing policy for the NSFNET.  He defined
   commercialization as permitting commercial users and providers to
   access and use Internet facilities and services and privatization as
   the elimination of the federal role in providing or subsidizing
   network services.  In principle, privatization could be achieved by
   shifting the federal subsidy from network providers to users, thus
   spurring private sector investment in network services.  Creation of
   a market for private vendors would in turn defuse concerns about
   acceptable use and commercialization.

Commercialization and Privatization

   Commercialization.  In the past, many companies were connected to the
   old ARPANET when it was entirely underwritten by the federal
   government.  Now, corporate R&D facilities are already connected to,
   and are sometimes voting members of, mid-level networks.  There are
   mail connections from the Internet to commercial services such as



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   MCIMAIL, SprintMail, and Compuserve.  DASnet provides a commercial
   mail gateway to and from the Internet and commercial mail services.
   UUNET, a nonprofit corporation, markets TCP/IP services (Alternet)
   with access to the Internet as well as mail services.  Performance
   Systems International (PSI), a startup company which now operates
   NYSERNET (the New York State regional network, partially funded by
   NSF) is aggressively marketing Internet-connected TCP/IP services on
   the East and West Coasts.  RLG is selling access to its RLIN database
   over the Internet directly to end users.  Other fee-based services
   include Clarinet, a private news filtering service, and FAST, a non-
   profit parts brokering service.  However, in all these cases, any use
   of the NSFNET backbone must, in principle, support the "purpose of
   the NSFNET."

   Under the draft acceptable use policy in effect from 1988 to mid-
   1990, use of the NSFNET backbone had to support the purpose of
   "scientific research and other scholarly activities."  The interim
   policy promulgated in June 1990 is the same, except that the purpose
   of the NSFNET is now "to support research and education in and among
   academic institutions in the U.S. by access to unique resources and
   the opportunity for collaborative work."  Despite this limitation,
   use of the NSFNET backbone has been growing at 15-20% per month or
   more, and there are regular requests for access by commercial
   services.  Even though such services may, directly or indirectly,
   support the purposes of the NSFNET, they raise prospects of
   overburdening network resources and unfair competition with private
   providers of network services (notably the public X.25 packet-
   switched networks, such as SprintNet and Tymnet).

   Privatization.  In some respects, the Internet is already
   substantially privatized.  The physical circuits are owned by the
   private sector, and the logical networks are usually managed and
   operated by the private sector.  The nonprofit regional networks of
   the NSFNET increasingly contract out routine operations, including
   network information centers, while retaining control of policy and
   planning functions.  This helps develop expertise, resources, and
   competition in the private sector and so facilitates the development
   of similar commercial services.

   In the case of NSFNET, the annual federal investment covers only a
   minor part of the backbone and the regional networks.  Although the
   NSFNET backbone is operated as a cooperative agreement between NSF
   and Merit, the Michigan higher education network, NSF contributes
   less than $3 million of approximately $10 million in annual costs.
   The State of Michigan Strategic Fund contributes $1 million and the
   balance is covered by contributed services from the subcontractors to
   Merit, IBM and MCI.




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   At the regional level, NSF provides approximately 40% of the
   operating costs of the mid-level networks it funds -- with the
   remainder covered by membership and connection fees, funding from
   state governments, and in-kind contributions.  This calculation does
   not include a number of authorized networks (e.g., PREPnet, and,
   until recently, NEARnet and CERFnet) that receive no NSF funding.
   However, NSF also funds institutional connections to the NSFNET,
   which includes payments by the institution to the regional network.
   Other agencies (DOD, NASA, and DOE) have also funded some connections
   to NSFNET networks for the benefit of their respective research
   communities -- and have occasionally funded the networks directly.

   Finally, the campus-level networks at academic institutions probably
   represent a perhaps 7-10 times larger annual investment than the
   mid-level networks and the backbone together, yet there is no federal
   funding program at this level.  Furthermore, since these local
   networks must ordinarily be built by the institution rather than
   leased, there is an additional capitalization cost incurred by the
   institutions, which, annualized and aggregated, is perhaps another
   20-50 times the annual costs of the mid-level and backbone networks.
   (These figures are the roughest of estimates, intended only for
   illustration.)

The NSFNET Backbone as a Free Good

   Whereas the NSF funding of mid-level networks varies greatly -- from
   0% to 75% -- the backbone is available as a free good to the NSF-
   funded mid-level networks.  It is also used free of charge by other
   authorized networks, including networks not considered part of
   NSFNET: CSNET, BITNET, UUNET, and PSI, as well as the research
   networks of other federal agencies.  As noted, their use of the
   backbone is in principle limited to the support of academic research
   and education.

   Through their use of the NSFNET backbone, these networks appear to be
   enjoying a subsidy from NSF -- and from IBM, MCI, and the State of
   Michigan.  BITNET and some agency networks even use the backbone for
   their internal traffic.  Nonetheless, these other networks generally
   add value to NSFNET for NSFNET users and regional networks insofar as
   all networks benefit from access to each other's users and resources.

   However, small or startup networks generally bring in fewer network-
   based resources, so one side may benefit more than the other.  To the
   extent that the mail traffic is predominantly mailing lists (or other
   information resources) originating on one network, questions of
   imbalance and implicit subsidy arise.  For example, because of the
   mailing lists available without charge on the Internet, three times
   as much traffic runs over the mail gateway from the Internet to



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   MCIMAIL as from MCIMAIL to the Internet.  This pattern is reinforced
   by the sender-pays fee structure of MCIMAIL, which discourages
   mailing list distribution from within MCIMAIL.

   The impact of such imbalances is not clear.  For now, the capacity of
   the NSFNET backbone is staying ahead of demand: It jumped from 56
   Kbps to 1.544 Mbps (T-1) in 1988 and will go to 45 Mbps over the next
   year.  But NSF is concerned about a possible recurrence of the
   congestion which drove users off the NSFNET prior to the 1988
   upgrade.  Given the tripling of campus-level connections over the
   past year, continued growth in users at each site, the parade of new
   resources available over the network, and, especially, the
   development of high-bandwidth uses, there is reason to fear that
   demand may again overwhelm capacity.