[1101] in Commercialization & Privatization of the Internet
Talking Pointsink of this:
daemon@ATHENA.MIT.EDU (JAY HABEGGER (303) 530-1050)
Wed Jul 31 12:00:46 1991
Date: Wed, 31 Jul 1991 09:55 MST
From: "JAY HABEGGER (303) 530-1050" <HABEGGER_J@bronze.Colorado.EDU>
To: com-priv@psi.com
X-Envelope-To: com-priv@psi.com
X-Vms-To: IN"com-priv@psi.com"
This is something I wrote for another reason, but I would like to hear
what Com-Priv people think about some of these ideas.
Talking Points
Internet Privatization and Commercialization
by Jay Habegger
July 30, 1991
#1 Definitions. PRIVATIZATION: to transfer a good that has
previously been provided by the public sector to private
sector provision. COMMERCIALIZATION: this term often used
interchangeably with privatization by many members of the
Internet/NREN community, but here it refers to the policy of
allowing and promoting the use of the Internet to carry
commercially oriented traffic.
#2 There is not a theoretical justification for public
provision of Internet type networks. Access to these
networks is not a "public good" in the economic sense, i.e.
it does not have the properties of nonexcludibility or
nonrivalous consumption, and the good is therefore eligible
for provision by the private sector. It is important to
recognize that Internet type networks are provided by public
entities today only as a result of historical accident. The
technology was pioneered by DARPA and implemented by NSF to
solve the need for remote access to supercomputer centers.
If AT&T had acted upon an offer from DARPA to operate the
ARPANET in the early 1970's [1] the situation today might
be very different, perhaps more closely resembling the
present X.25 marketplace.
#3 Even if Internet type networks are eligible for private
sector provision there may be public policy considerations
that argue for public sector involvement. The distinction
between what is theoretically required and what is a
political decision to further public policy objectives
should be kept clear. For example, the desire for some
level of universal access to the Internet is a public policy
objective that may require public sector involvement.
Because there may be public policy objectives that require
some public sector involvement, does not imply, however,
that government needs to provide the good. For example, in
case of poverty or hardship the U.S. government provides
food-stamps, but the U.S. government does not operate
supermarkets or set the price of food.
#4 There are many constituencies involved in the Internet/NREN
debate that each possess a public policy agenda. Many of
these constituencies are likely to resist any attempt at
privatization that does not satisfy their public policy
objectives. For example, institutions presently enjoy free
use of the backbone are likely to resist any privatization
scheme that reduces or eliminates this benefit. Many
constituencies are likely to favor commercialization over
privatization in order to maintain their subsidies.
#5 The issue of privatizing the Internet can be reduced to
three questions: 1) how to privatize the NSFNET backbone; 2)
how to privatize the mid-level networks; and 3) how to
handle the issue of IP address assignment and name
registration.
#6 The NSFNET backbone is essentially already privatized in
that ANS - a private firm - provides the bandwidth for the
NSFNET for a fee out of the total bandwidth managed by ANS.
This is analogous to how public entities purchase telephone
service; they lease a portion of the bandwidth managed by an
IXC, such as U.S. Sprint or AT&T.
#7 Problems arise from the fact that NSF acts as a purchasing
agent for almost all of the potential backbone customers.
NSF essentially purchases bandwidth from ANS and then offers
it free to institutions and mid-level networks which must
only finance the cost of a link to a NSFNET backbone POP.
Instead of the ANS monopoly that is often discussed, there
exists an NSF monopsony. This situation is analogous to the
case if the U.S. government contracted with one IXC and then
offered free long distance telephone service to all U.S.
citizens provided that they use the carrier that the
government had contracted with. Obviously, there would be
little incentive for an individual to use some other IXC and
pay for long distance service.
#8 Once the problem is recognized to be an NSF monopsony rather
than an ANS monopoly it becomes clear that instead of
eliminating NSF acceptable use policies they should be
strengthened. Without acceptable use rules, NSF would be in
a position to offer free use of the backbone to all
potential customers eliminating any hopes of creating a
competitive backbone market. In the presence of strong
acceptable use rules, some potential customers, e.g. for-
profit entities, will be forced to pay for backbone service
and choose a backbone provider. Commercializing the NSFNET
backbone in the sense of the definition in #1 above should
not be considered.
#9 The obvious solution to the present monopsony situation is
to stop the NSF from acting as an agent for almost all of
the potential customers. One method of achieving this is to
allow the present NSFNET to cease operation in 1992 and
provide each institution which NSF wishes to have access to
the backbone with an "Access Token". NSF may create
different classes to tokens based on the size and need of
the institution. A small college, for example, may on need
a 56 kbps gateway to the backbone while anything less than
1.5 Mbps may be insufficient for a large university. The
token could be presented to the service provider of choice
by the institution in return for privilege of connecting to
the service providers network at the closest POP. The
service provider could then present the token to NSF for
remuneration of a standard access fee.
#10 The Access Token scheme eliminates the need for the need to
distinguish between commercial and non-commercial traffic.
Instead of providing bandwidth, NSF would be subsidizing
access to the network for approved sites. Any traffic
originating or leaving an approved site would by definition
pertain to the mission of that site.
#10 Another solution that may be considered at first is for NSF
to distribute the backbone contract over all backbone
providers. Under this plan each backbone provider would be
responsible for providing access to an equal portion of the
institutions and mid-levels that have their access sponsored
by NSF. This plan suffers from one serious problem. The
contract would have to renegotiated each time a backbone
provider entered or exited the market, or a cartel would be
created which would likely prevent any other firms from
entering the backbone market.
#11 In contrast to the backbone market, there is a possibility
for some publicly supported mid-level networks to become
regional monopolies. Although these mid-level networks are
not granted any special market privileges by the state
legislatures or state PUCs, a monopoly can arise because
these networks are often subsidized by both the NSF and
state taxpayers. In some cases the management of a mid-
level network that enjoys a subsidy may see it as an
opportunity to price service below cost in order to pursue a
policy agenda, e.g. providing universal access to
educational institutions within the state.
#13 The simplest method of forestalling the possibility of a
regional monopoly is for NSF to end subsidies to mid-level
networks. Note that if NSF grants an Access Token to a mid-
level is it is still providing a subsidy to the mid-level,
which leads to the conclusion that NSF should only provide
Access Tokens to institutions and not mid-level networks.
Thus, Access Tokens would flow primarily from institutions
to mid-levels and backbone providers that offered a plethora
of POPS. This creates no problem because a mid-level can
present the Access Tokens to NSF and the mid-level can in
turn pay a backbone provider for a connection.
#14 The use of an Access Token system is likely to create a
situation that is similar to the provision of other
utilities. The institution must merely trade its Access
Token for access to the POP of a local service provider.
Whether the local service provider is a mid-level that has a
connection to the backbone, or actually a backbone provider
makes no difference to the institution which is only
concerned about the most functional access to the resources
available on the Internet that can be obtained with the
Access Token.
#15 IP address assignment and name registration do not need to
be performed by a public entity. The best organization for
performing these functions might be a non-profit consortium
with membership open to all backbone providers. This
organization may be constituted along the lines of an
organization such as SPARC International which assures
compliance with the SPARC microprocessor architecture.
ENDNOTES
[1] Lawrence G. Roberts, "The Evolution of Packet Switching,"
Proceedings of the IEEE, Vol. 66, No. 11, November 1978. pp.
1307-1313.
