📄 rfc1192.txt
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Offering the NSFNET backbone at no cost to authorized networks both encourages undisciplined use of the backbone and inhibits private investment in backbone networks. It constrains the development of a market for commercial TCP/IP services by diverting an established and rapidly growing user base to a subsidized resource. Charging NSFNET regionals and other mid-level networks for the use of the NSFNET backbone would resolve this problem, but this would impose a substantial cost burden on the mid-level networks, which would in turn have to raise membership and connection fees dramatically. To compensate, the NSF subsidy that now underwrites the backbone could be moved down the distribution chain to the users of the backbone -- i.e., to the regional networks, to the campuses, or even to researchers themselves. Each option poses unique opportunities and problems. In theory, the further down the chain the subsidy is pushed, the more accountable providers will be to end-user needs. Funding in hands of researchers would make universities more responsive to researchers' networking needs. Funding in the hands of universities would in turn make regional networks more responsive and competitive. And funds for regional networks would spur a general market for backbone services. But the mechanisms for expressing user demand upward through these tiers are imperfect. And, from an administrative standpoint, it is easier for NSF to simply provide one free backbone to all comers -- rather than deal with 25 mid-level networks, or 500 universities, or perhaps tens or hundreds of thousands of individual researchers.Option: Funding Researchers It would be possible to earmark funds for network services in agency research grants as a matter of course, so that no new administrative process would be required. But since network costs are presently not usage based, such funding will not readily translate intoKahin [Page 5]RFC 1192 Commercialization of the Internet November 1990 identifiable services and may simply end up in local overhead accounts since few institutions allocate out costs of access to the Internet. The use of vouchers rather than cash add-ons might help ensure that federal resources are in fact applied to qualifying wide area network services -- and possibly avoid the imposition of standard institutional overhead on direct funding. However, if vouchers can be sold to other institutions, as economists would advocate in the interests of market efficiency, these advantages may be compromised. Even non-transferable vouchers may create a unique set of accounting problems for both funding agencies and institutional recipients. A federal subsidy channeled automatically to research grants could substantially limit or segregate the user community. It would tend to divide the academic community by exacerbating obvious divisions between the resource-rich and resource-poor -- between federally funded researchers and other researchers, between scientists and faculty in other disciplines, and between research and education. Within the academic community, there is considerable sentiment for providing basic network services out of institutional overhead to faculty and researchers in all disciplines, at least as long as basic services remain unmetered and relatively low at the institutional level. Of course, special costing and funding may well make sense for high-bandwidth usage-sensitive network services (such as remote imaging) as they become available in the future.Option: Funding Institutions Alternatively, funding for external network services, whether in the form of cash or vouchers, could be provided directly to institutions without linking it directly to federal research funding. As it is, institutions may apply for one-time grants to connect to regional networks, and these are awarded based on peer assessment of a number of different factors, not just the quality of the institution's research. But redirecting the subsidy of the backbone could provide regular support at the institutional level in ways that need not involve peer review. For example, annual funding might be tied to the number of PhD candidates within specific disciplines -- or to all degrees awarded in science. Geographic location could be factored in -- as could financial need. This, of course, would amount to an entitlement program, a rarity for NSF. Nonetheless, it would allow institutions to make decisions based on their own needs -- without putting NSF in the position of judging among competing networks, nonprofit and for-profit. There are, however, questions about what sort of services the earmarked funding or vouchers could be used for. Could they be used to pay the institution's BITNET fee? Or a SprintNet bill? Or toKahin [Page 6]RFC 1192 Commercialization of the Internet November 1990 acquire modems? For information services? And, if so, what sort? Such questions force the funding agency to assume a kind of regulatory in an environment where competing equities, demonstrated need, technological foresight, and politics must be constantly weighed and juggled.Option: Funding Regional Networks Shifting the subsidy to the regional networks is appealing in that it appears to be the least radical alternative and would only require allocating funds among some two dozen contenders. Since most of the regional networks are already receiving federal funding, it would be relatively simple to tack on funds for the purchase of backbone services. However, providing additional funding at this level highlights the problem of competition among mid-level networks. Although most regional networks are to some degree creatures of NSF, funded to ensure the national reach of NSFNET, they do not hold exclusive geographic franchises, and in some areas, there is competition between regionals for members/customers. NSF grants to regional networks, by their very size, have an effect of unleveling the playing field among regionals and distorting competitive strengths and weaknesses. Alternet and PSI further complicate the picture, since there is no clear basis for NSF or other agencies to discriminate against them. The presence of these privately funded providers (and the possibility of others) raises difficult questions about what network services the government should be funding: What needs is the market now capable of meeting? And where will it continue to fail? Experience with regulation of the voice network shows that it is inefficient to subsidize local residential service for everybody. If one is concerned about people dropping off the voice network -- or institutions not getting on the Internet -- the answer is to identify and subsidize those who really need help. The market-driven suppliers of TCP/IP-based Internet connectivity are naturally going after those markets which can be wired at a low cost per institution, i.e., large metropolitan areas, especially those with a high concentration of R&D facilities, such as Boston, San Francisco, and Washington, DC. In the voice environment, this kind of targeted marketing by unregulated companies is widely recognized as cream- skimming. Like fully regulated voice common carriers (i.e., the local exchange carriers), the non-profit NSF-funded regional networks are expected to serve all institutions within a large geographic area. In areas with few R&D facilities, this will normally result in aKahin [Page 7]RFC 1192 Commercialization of the Internet November 1990 disproportionately large investment in leased lines. Either remote institutions must pay for the leased line to the nearest network point of presence -- or the network must include the leased line as part of common costs. If the regional network assumes such costs, it will not be price-competitive with other more compact networks. Accordingly, a subsidy redirected to the regional networks could be keyed to the density of the network. This might be calculated by number of circuit miles per member institution or some form of aggregate institutional size, figured for either the network as a whole or for a defined subregion. This subsidy could be available to both for-profit and non-profit networks, but only certain non-profit networks would meet the density requirement, presumably those most in need of help.Increasing the Value of the Connection The principal advantage in underwriting the backbone is that it provides a evenhanded, universal benefit that does not involve NSF in choosing among competing networks. By increasing the value of belonging to a regional network, the backbone offers all attached networks a continuing annual subsidy commensurate with their size. Increased value can also derived from access to complementary resources -- supercomputer cycles, databases, electronic newsletters, special instruments, etc. -- over the network. Like direct funding of backbone, funding these resources would induce more institutions to join regional networks and to upgrade their connections. For example, where a database already exists, mounting it on the network can be a very cost-effective investment, increasing the value of the network as well as directly benefiting the users of the database. Commercial information services (e.g., Dialog, Orbit, Lexis) may serve this function well since they represents resources already available without any public investment. Marketing commercial services to universities over the Internet is permissible in that it supports academic research and education (although the guidelines state that such commercial uses "should be reviewed on a case-by-case basis" by NSF). But to date there has been remarkably little use of the regional networks, let alone the NSFNET backbone, to deliver commercial information services. In part, this is because the commercial services are unaware of the opportunities or unsure how to market in this environment and are concerned about losing control of their product. It is also due to uneasiness within the regional networks about usage policies and reluctance to compete directly with public packet-switched networks. However, for weak regional networks, itKahin [Page 8]RFC 1192 Commercialization of the Internet November 1990 may be necessary to involve commercial services in order to attract and hold sufficient membership -- at least if NSF subsidies are withdrawn. Without a critical mass of users, commercialization may need to precede privatization.Impact of Removing NSF Subsidy from the Backbone Any shift to a less direct form of subsidy may cause some disocation and distress at the regional network level -- until the benefits begin to be felt. No regional network has yet folded, and no institution has permanently dropped its connection to a regional network as a consequence of higher prices, but concerns about the viability of some regionals would suggest that any withdrawal of subsidy proceed in phases. Moreover, as the NSF subsidy vanishes, the operation of the backbone becomes a private concern of Merit, the Michigan Strategic Fund, IBM, and MCI. While Merit and the Michigan Strategic Fund are more or less public enterprises within the state, they are essentially private entrepreneurs in the national operation of a backbone network. Without NSF's imprimatur and the leveraging federal funds, the remaining parties are much less likely to treat the backbone as a charity offering and may well look to recovering costs and using revenues to expand service. The backbone operation could conceivably become either a nonprofit or for-profit utility. While nonprofit status might be more appealing to the academic networking community now served by the backbone, it is not readily apparent how a broadly representative nonprofit corporation, or even a cooperative, could be constituted in a form its many heterogeneous users would embrace. A non-profit organization may also have difficulty financing rapid expansion of services. At the same time, the fact that it will compete with private suppliers may preclude recognition as a tax-exempt
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