RFC 1192

Commercialization of the Internet: Summary Report 🌸

Okay bestie, let's get you set up 🎀 This is RFC 1192, titled Commercialization of the Internet: Summary Report 🦋. It's by B. Kahin, the editor, from Harvard, and it's dated November 1990. The header says it came from the Network Working Working Group (yes, "Working" is doubled, lol 💀). It's informational, meaning the Status section says it gives info to the Internet community and does not specify any standard 🌈. The header doesn't list anything it obsoletes or updates, so it's a solo act 🧚

Status of this Memo ✨

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

It provides information for the Internet community. It does not specify any standard 🙈 The distribution is unlimited, so share it with everyone 💜

Introduction 🌷

The intro kicks off with three quotes that totally set the stage, and they're all government-speak but the vibes are iconic 👑

First up, the Federal Research Internet Coordinating Committee:

"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.

Next, the Office of Science and Technology Policy, who really hyped up the NREN as a national information infrastructure 🚀

"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.

And finally, the bill itself, S. 1067, which is giving full legislative drama 🔥

"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
     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 📚

Okay so this report comes from a workshop at the John F. Kennedy School of Government at Harvard University, March 1-3, 1990, run by the Harvard Science, Technology and Public Policy Program 💅 The National Science Foundation and the U.S. Congress Office of Technology Assessment sponsored it, and it was designed to dig into the issues around commercializing the Internet, including the planned National Research and Education Network (NREN) ✨

Instead of replaying everything said at the workshop, this report tries to sum up the issues for people who weren't there. It's written for readers who already know the general landscape of the Internet, the NSFNET, and the proposals and plans for the NREN 🌸

At the workshop, Stephen Wolff, Director of the NSF Division of Networking and Communications Research and Infrastructure, drew a line between "commercialization" and "privatization," and he based that on his own experience developing policy for the NSFNET 🧠 He defined commercialization as permitting commercial users and providers to access and use Internet facilities and services. Privatization he defined as the elimination of the federal role in providing or subsidizing network services 💜

In principle, privatization could happen by shifting the federal subsidy from network providers over to users, which would spur private sector investment in network services 🦋 And creating a market for private vendors would, in turn, defuse concerns about acceptable use and commercialization 🫶

Commercialization and Privatization 💖

Commercialization. Okay, this part is a whole history lesson 📖 Back when the old ARPANET was entirely underwritten by the federal government, many companies were already connected to it. Now, corporate R&D facilities are connected to mid-level networks, and sometimes they're even voting members 🏢

The Internet also has mail connections to commercial services like MCIMAIL, SprintMail, and Compuserve 📬 DASnet runs 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, now operates NYSERNET (the New York State regional network, partially funded by NSF) and 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 nonprofit parts brokering service 🧚

Still, 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. They also raise the prospect of 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, and honestly it's giving private-sector energy 💅 The physical circuits are owned by the private sector, and the logical networks are usually managed and operated by the private sector too 🔌 The nonprofit regional networks of the NSFNET increasingly contract out routine operations, including network information centers, while keeping control of policy and planning functions. This helps develop expertise, resources, and competition in the private sector, and so it facilitates the development of similar commercial services 🌷

For NSFNET, the annual federal investment covers only a minor part of the backbone and the regional networks 💸 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 🤯

At the regional level, NSF provides approximately 40% of the operating costs of the mid-level networks it funds. The remainder is covered by membership and connection fees, funding from state governments, and in-kind contributions 🍓 This calculation doesn't include a number of authorized networks (for example, PREPnet, and until recently, NEARnet and CERFnet) that receive no NSF funding. 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 own research communities, and they've 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's no federal funding program at this level 😭 Furthermore, since these local networks must ordinarily be built by the institution rather than leased, the institutions also take on an additional capitalization cost. Annualized and aggregated, that's 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, so don't quote me on them 🙈)

The NSFNET Backbone as a Free Good ✨

Okay bestie, so NSF funding for mid-level networks is all over the place, from 0% all the way up to 75% 😭. But the backbone is a free good for the NSF-funded mid-level networks 💅. Other authorized networks use it free of charge too, including ones that aren't considered part of NSFNET: CSNET, BITNET, UUNET, and PSI, plus the research networks of other federal agencies 🌈. As noted, their use of the backbone is in principle limited to supporting academic research and education 📚.

Through their use of the NSFNET backbone, these networks look like they're 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 💀. Still, these other networks generally add value to NSFNET for NSFNET users and regional networks, because everyone benefits 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 mail traffic is mostly mailing lists (or other information resources) coming from one network, questions of imbalance and implicit subsidy come up. 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 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 these imbalances isn't 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 worried about a possible recurrence of the congestion that drove users off NSFNET before 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's reason to fear that demand may overwhelm capacity again.

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 backbone would resolve this, but it would impose a substantial cost burden on the mid-level networks, which would in turn have to raise membership and connection fees dramatically. To make up for it, 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 the 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's 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 🙄.

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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, that funding won't readily translate into identifiable services and may simply end up in local overhead accounts, since few institutions allocate out costs of access to the Internet 🧾. Using 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 the 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 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, which is 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 to 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. (Yes, that's really the sentence, the word "regulatory" is doing a lot here 🙈)

Option: Funding Regional Networks

Shifting the subsidy to the regional networks is appealing in that it appears to be the least radical alternative, and it 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. 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 a 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 💖

okay so the MAIN perk of the backbone getting funded is that it helps EVERYONE equally 🫶 NSF doesn't have to pick favorites between competing networks, and that's so fair. Being part of a regional network becomes more valuable, so the backbone basically gives every attached network a steady yearly subsidy based on how big it is. ✨

Extra value can also come from complementary resources, like supercomputer cycles, databases, electronic newsletters, special instruments, and more, all accessible over the network 🧚 Funding stuff like that would convince more institutions to join regional networks and upgrade their connections, just like direct backbone funding would. Like, if a database already exists, putting it on the network can be a super cost-effective move. It boosts the network's value AND helps the people actually using the database 🍓

Commercial information services (Dialog, Orbit, Lexis) could be a great fit for this because they're already out there with no public investment needed 💅 Marketing those services to universities over the Internet is allowed, since it supports academic research and education. (Though the guidelines say such commercial uses "should be reviewed on a case-by-case basis" by NSF, so it's not a free-for-all 👀)

But honestly? Hardly anyone uses the regional networks, let alone the NSFNET backbone, to deliver commercial information services 💀 Part of the reason is that the commercial services don't know the opportunity is there, or they aren't sure how to market in this environment, and they're worried about losing control of their product. Regional networks are also kind of uneasy about usage policies and don't really want to compete head-to-head with public packet-switched networks. Still, weaker regional networks might need commercial services to attract and keep enough members, at least if NSF subsidies get pulled. Without a critical mass of users, commercialization may need to happen before privatization 🌸

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Impact of Removing NSF Subsidy from the Backbone 🌸

Any switch to a less direct form of subsidy might cause some chaos and distress at the regional level, at least until the benefits start showing up 😭 So far, no regional network has folded, and no institution has permanently dropped its regional connection because of higher prices. Still, people are worried about how viable some regionals are, so any withdrawal of subsidy should happen in phases.

Also, once the NSF subsidy disappears, running the backbone becomes a private concern for Merit, the Michigan Strategic Fund, IBM, and MCI. Merit and the Michigan Strategic Fund are more or less public within their state, but nationally they're basically private entrepreneurs running a backbone network 💼 Without NSF's imprimatur and the federal funds it leverages, the remaining parties are a lot less likely to treat the backbone like a charity. They might want to recover costs and use revenues to expand the service instead. ✨

The backbone could become either a nonprofit or a for-profit utility. Nonprofit status might sound more appealing to the academic networking community that the backbone serves now 🎀 But it's not obvious how a broadly representative nonprofit corporation, or even a cooperative, could be set up in a form that all of its many different users would actually embrace. A nonprofit might also struggle to finance rapid expansion of services. And since it would be competing with private suppliers, it might not be recognized as a tax-exempt organization, which would affect its ability to reinvest retained earnings. 😬

Running the backbone for-profit would attract private investment and could be done with relative efficiency 💅 That said, because the backbone holds such a dominant position, a for-profit operation could get tangled up in complicated antitrust, regulatory, and political fights. A nonprofit isn't totally immune to those risks, but if its users are represented in policymaking, tensions are more likely to get expressed and resolved internally 🫶

Now here's a key distinction ✨ Whether the backbone or regional networks are part of the Internet is a totally separate question from whether network services get metered and charged by usage. People get confused because the low-speed public data networks (SprintNet, TymNet), which sometimes get compared to Internet services, do bill on a connect-time basis. BUT those commercial services use X.25 connection-based packet-switching, not the connectionless (datagram) TCP/IP packet-switching that the Internet uses 🧠 Internet services could technically be billed per packet, but the accounting overhead would be high, and packets don't carry information about individual users. At the end of the day, this is a marketing issue, and there's no evidence of a market for metered services, except maybe among very small users. The private suppliers, Alternet and PSI, both sell "pipes," not packets 🌈

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Privatization by Function 🦋

As another way to push privatization along, Dr. Wolff suggested barring mature services like electronic mail from the subsidized network 🎀 Specifically, NSF could block the mail and news protocols, SMTP and NNTP, from the backbone. That would encourage private providers to offer a national mail backbone connecting the regional networks. It wouldn't be easy to pull off, but it could arguably help move the academic and research community toward the better functionality of X.400 standards. It would also cut backbone traffic by about 30%, though with traffic still growing, that would only buy about two months of breathing room 📈

If mail got moved off the regional networks AND the NSFNET backbone, that would ease the more serious congestion in certain regions 💜 But it's way more complicated logistically, since mail would need to be diverted at perhaps a thousand institutional nodes instead of one or two dozen regional nodes. It would also be politically rough, since NSF has traditionally respected the autonomy of the regional networks it funds, and those networks have been free to set their own usage guidelines 🙈 And it would hurt the regional networks financially, especially the marginal ones that need NSF subsidies the most. Economies of scale matter a LOT at the regional level, and losing mail would make the networks lose both current and potential members.

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The National Research and Education Network 🌈

The National Research and Education Network (NREN) raises a bigger set of policy issues, because the potential user base is much larger and people have really different expectations about its scope and purpose 🧚 Changing what was first called a National Research Network so it also includes education was an important political and strategic move ✨ But that broader purpose and audience has made it way harder to limit who counts as a potential user, and by extension, the market for commercial services. At the regional level, and especially the state level, public networking efforts may already cover economic development, education at all levels, medical and public health services, and public libraries 🏥📚

The high bandwidth planned for the NREN points to a growing gap between resource-intensive, high-end uses and wide use of low-bandwidth services at low fixed prices 🌸 Those different demands on network resources will likely lead to more sophisticated pricing structures, including usage-based pricing for production-quality high-bandwidth services. Because prices will need to line up with the costs incurred, comparing and connecting with services from commercial vendors will get easier. This will probably happen first within and among metropolitan areas, where diverse user needs like videoconferencing and medical imaging come together to support the development of these services 💖

As shown in Figures 1. and 2., broadening the scope goes hand in hand with a similar generalization of structure 🦋 It starts with mission-specific research organized within a single computer. It ends with a national or international infrastructure: a ubiquitous, orderly communications system that reflects and addresses all social needs and market demand, without being subject to artificial limits on purpose or connection 🌍 Of course there's a natural tension between keeping the benefits of specialization and exclusivity and chasing the benefits of resource-sharing and economies of scale and scope 😤 But the development and growth of distributed computing and network technologies encourage fundamental structures to multiply and evolve as components of a generalized, heterogeneous infrastructure. And the vision driving the NREN is the aggregation and maturing of a seamless market for specialized information and computing resources, all in a common, negotiable environment 👑 The costs of those resources are far greater than the cost of the NREN itself. But the NREN can minimize the costs of access and spread the costs of creation across the widest possible universe of users 🫶

Figure 1. Generalization of Purpose:

Figure 1.  Generalization of Purpose:

   Discipline-Specific Research            CSNET, HEPnet, MFEnet

   General Research                        early NSFNET, "NRN"

   Research and Education                  BITNET, present NSFNET,
                                           early "NREN"

   Quasi-Public                            many regional networks,
                                           "NREN"

   National Infrastructure                 "commercialized NREN"

   _______________________________________________________________

Figure 2. Generalization of Structure:

Figure 2. Generalization of Structure:

   Computer                                time-sharing hosts

   Network                                 early ARPANET

   Internetwork                            ESNET, NSFNET (tiered)

   Multiple Internetworks                  present Internet

   Infrastructure                          "NREN"

Workshop Participants 🎀

okay bestie, this is the whole squad from the workshop, and every single one of them gets listed with their org 💅

• Rick Adams, UUNET
• Eric Aupperle, Merit
• Stanley Besen, RAND Corporation
• Lewis Branscomb, Harvard University
• Yale Braunstein, University of California, Berkeley
• Charles Brownstein, National Science Foundation
• Deborah Estrin, University of Southern California
• David Farber, University of Pennsylvania
• Darleen Fisher, National Science Foundation
• Thomas Fletcher, Harvard University
• Kenneth Flamm, Brookings Institution
• Lisa Heinz, U.S. Congress Office of Technology Assessment
• Fred Howlett, AT&T
• Brian Kahin, Harvard University
• Robert Kahn, Corporation for National Research Initiatives
• Kenneth King, EDUCOM
• Kenneth Klingenstein, University of Colorado
• Joel Maloff, CICNet
• Bruce McConnell, Office of Management and Budget
• Jerry Mechling, Harvard University
• James Michalko, Research Libraries Group
• Elizabeth Miller, U.S. Congress Office of Technology Assessment
• Eli Noam, New York State Public Service Commission
• Eric Nussbaum, Bellcore
• Peter O'Neil, Digital Equipment Corporation
• Robert Powers, MCI
• Charla Rath, National Telecommunications and Information Administration, Department of Commerce
• Ira Richer, Defense Advanced Research Projects Agency
• William Schrader, Performance Systems International
• Howard Webber, Digital Equipment Corporation
• Allan Weis, IBM
• Stephen Wolff, National Science Foundation

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Security Considerations 🔒

okay the drama 💀 this one is short and sweet. security issues are not discussed in this memo, so there's no security section to dig into here 🙈

Security issues are not discussed in this memo.

Author's Address 💌

the person behind it all is Brian Kahin 🫶

Brian Kahin
Director, Information Infrastructure Project
Science, Technology & Public Program
John F. Kennedy School of Government
Harvard University

Phone:  617-495-8903

EMail:  kahin@hulaw.harvard.edu