Realizing the Information Future The Internet and Beyond (1994) / Chapter Skim
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5 Financial Issues
5 Financial Issues
Pages 172-203
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From page 172... ...
program, the research and education communities present both specific policy concerns and insights into the larger problem of financing access across the population. FEDERAL AND OTHER FUNDING FOR NETWORKING TO DATE Federal financing for information infrastructure fits into a large complex of decisions: choices are made about spending on research and education versus other activities, on different kinds of research, on different kinds of education, and on elements that enter into research and education as inputs, such as networks.
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From page 173... ...
will result in further redistribution of the resources supporting the use of information infrastructure. Pacific Bell announced in February 1994 a $100 million program for "linkage for computer communications and videoconferencing" to nearly 7,400 public K-12 schools, public libraries, and community colleges in its service area by the end of 1996.3 As a result of these developments, some communities that have found network access difficult, such as the K-12 schools and hospitals, should gain greater access to network-based information resources and services generally and advance their use of the Internet in particular.
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From page 174... ...
. The transition to commercial Internet service shifts attention from federal investment in network construction to support for network operation, maintenance, and use.
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Thus, private-public partnerships have been essential to Internet growth for some time the federal Internet investment has always been bounded and leveraged. The private component will inevitably rise with investments in network infrastructure and investments in the commercial provision of information resources.
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From page 176... ...
These range from Internet-access specialists, such as AlterNet, ANS CO+RE, DELPHI, PANIX, and PSI; to local or regional networks, such as Westnet, BARRnet, CERFnet, LosNettos, NEARnet, NYSERNet, Sesquinet, and SURAnet; to full-service telecommunications carriers, such as AT&T, MCI, and Sprint. Entry into the Internet interconnection market indicates that commercial service without subsidy appears viable even if, as is often the case in new markets, it takes time for service to be profitable.
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From page 177... ...
The cost of network service to any individual can be divided between the cost of network access and the cost of long-haul communication. Today's network access circuits are either dedicated transmission lines or are shared.
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From page 179... ...
architecture and including both entertainment-telephonecable TV and general data communications services implies a need for two-way service that is comparable in speed to that needed for compressed video on the order of 2 to 4 Mbps, based on current industry discussions.16 At present most people manage with much more modest speeds, such as those accommodated with dial-up modems (typically 9.6 or 14.4 kbps) over voice-grade lines, because these are compatible with existing telephone plant; those homes with integrated services digital network access can communicate at 128 kbps (or twice that, after compression)
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From page 180... ...
To these quantitative concerns must be added qualitative ones: the priorities, timing, and location for adding new facilities and capabilities to the commercial networks may not be directly aligned with the preferences or needs of the research and education communities indeed, this differential was a driver of the NREN program.20 These realities suggest a risk that some members of the research and education community will, in the short or long run, not be served as well by commercial services as they are by the Internet today. The costs of enabling upgrades to the local loop are a key barrier to the rapid and widespread deployment of NII services.
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From page 181... ...
, whereas the University of Colorado, in a more rural setting with greater distance to the nearest network node, estimates that its annual costs could rise by as much as $100,000.2 Averaged across all connections to commercial Internet services today, the average charge for access at 56 kbps is $15,000 per year and the average charge for 1.5Mbps access is $36,000 per year. As access to high-speed services widens (scale again)
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At present, interconnection is provided by the Federal Internet Exchange (serving federal backbone networks) and the Commercial Internet Exchange (serving commercial Internet access providers)
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Having recognized this, the NSF Connections program (and even the NTIA Telecommunications and Information Infrastructure Assistance Program and other elements of the administration's NII proposals) focuses on achieving some kind of an institutional connection as a first step; similarly, NSF's Stephen Wolff has spoken26 of a three-pronged strategy for community access: public-access terminals in a school, a public library, and a county extension office.
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From page 184... ...
These range from adequate local infrastructure, to user training and support, and to access to certain information resources and services available over the network. The Pacific Bell proposal to provide connectivity for public schools and libraries was notable for its provisions to "field dedicated resource teams" to assist in the use of the capabilities being provided as well as to collaborate with universities and colleges to enhance the treatment of educational technology in the teaching curriculum.
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From page 185... ...
These outcomes stem from the focus on the Internet as a research-related enterprise; "free" access to ARPANET and its successors was granted to the institutional communities not only to facilitate the conduct of research, in part by broadening access to such shared resources as federally funded supercomputer centers, but also because of the research value of seeing how use would develop. This access subsidy was apparently provided without making compensating changes either in the overall levels of institutional support or in the allocations of that funding among inputs for which network access and network resources were substitutes or complements.
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From page 186... ...
Imminent Short-term Increases With the move to commercial service, institutions are expected to absorb the costs previously covered by the NSFNET backbone payments and those covered by a declining schedule of support payments for the regional networks. Together, these NSF payments amount to about $30 million;32 divided among connected universities, the increase in cost is expected to average a few thousands of dollars.
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From page 187... ...
A pilot project to connect rural public libraries to the Internet involved an investment of about $3,000 for a single basic package of hardware and software per site.36 The absence of targeted support for local infrastructure means that observed spending reflects trade-offs and choices made among a wide set of alternatives, given the available budgets. However, those trade-offs and choices may be uninformed when decision makers have not experienced network access.
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From page 188... ...
It is easier to gauge changes at the institutional than the individual level, although both will affect the level and kinds of use of networking in the research and education communities. Within institutions, questions remain about how increases in costs will be absorbed, what administrative and management changes will be made in response to an increase in costs, and the extent to which individuals who are disproportionately large users of network services may confront sudden large bills for their use.
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This situation is similar to other network contexts, where, for example, variation in pricing for peak and off-peak use can help to balance network load and accommodate users with fewer resources. However, some applications (such as nontime-sensitive file transfers)
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The Internet offers variable-quality service (and uses technical means to control congestion) for a fixed price, and the telephone network offers a fixed quality of service priced according to the amount used.
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Commercial providers of Internet access, like providers of telecommunications services generally, offer a range of charging schemes; variation in pricing is one dimension along which providers compete.47 There are flat-rate schemes that vary according to the speed of the access line (which is presumed to correlate with volume of communications traffic) , and usage-sensitive schemes that are based on the number of messages transmitted (or other transactions)
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From page 192... ...
These differentials contribute to carrier concerns about proposals to unbundle the basic transmission facilities from some form of basic service. Given observed market conditions, the committee assumes that a variety of pricing schemes will be available to consumers of Internet service.49 It recognizes that flexibility in the way that Internet service is priced would allow those that make light use of the network to avoid the extra cost implicit in a flat-rate price that is also designed to accommodate heavy users.
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From page 193... ...
Usage-sensitive pricing might be preferable in the long run, when network-based applications are as mature and familiar as voice telephony, photocopying, postal service, and other information-related transactions for which usage-sensitive charging already exists.53 Covering User Charges (Subsidies and Mechanisms) Although the level of financial support is relatively small, symbolically the withdrawal of NSF support for the NSFNET backbone and eventually the regional networks signals a need for users to acknowledge and cover the costs of their use of network-based resources.
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From page 194... ...
This has already happened in some instances, and it is typical of for-profit enterprises. On the other hand, a number of mechanisms are available to support networking and access to networked information resources should such expenditures be targeted as a matter of policywhich would be consistent with the overall policy decision to promote an NII.
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Given the administrative problems in routing funds to individuals, it may be more convenient to target funds to service providers rather than to end users directly. This approach seems relatively straightforward in the case of network service providers, but raises additional implementation considerations if "service provider" is expanded to include information service provider.57 That convenience has been implicit in federal procurement of network facilities and services through the NREN program to date.
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To the extent that a funding agency has redirected funds to cover the cost of Internet use, grantees may see no substantial change as a result of the switch to a commercial Internet and user charges. If you do research and your funder thinks that you need high-powered networking, your grant may provide for vBNS access privileges, you may get more resources for networking, you may get access to ESnet or NASA Science Internet.
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From page 197... ...
Recognition of these disparities fueled the growth and broadening of the NREN program from its roots in supporting supercomputer center access for an elite group of researchers. The discrepancies among specific disciplines or institutions may be seen as a reflection of higher-level budget decisions about where limited federal funds are best spent, allocations that result from the political process of determining where federal and state funds are spent among research, education, and other alternatives and within the categories of research and education.
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From page 198... ...
It also intends to work with the Public Utilities Commission to develop a special educational access rate. "Pacific Bell to Link Public Schools and Libraries to Communications Superhighway," February 14,1994, press release distributed electronically.
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Kennedy School of Government, Harvard University, May 26-27, 1993, November 26 version. Note that there are also some labor costs associated with the support of those facilities and the relatively low cost of a Network Operations Center.
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1994. "Continental Cablevision, PSI Launch Internet Service: First Commercial Internet Service Delivered via Cable Available Beginning Today in Cambridge, Massachusetts," news release, March 8.
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. McClure et al., 1994, Connecting Rural Public Libraries to the Internet, p.7.
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53. Specifically, there may be an analogy to the kinds of access charges seen in the telephone system that combine basic network access in the local loop with usage charges for long-haul or special services (e.g., the Exchange Network Facilities for Interstate Access tariff and its progeny)
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Information services are more specific, begging the question of which services might be eligible for coverage in a financial support program.
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