U.S. Said to Play Favorites in Promoting Nationwide Computer Network

By John Markoff
The New York Times

December 18, 1991

Just one week after President Bush signed legislation calling for the creation of a nationwide computer data "superhighway," a debate has erupted over whether the government gave an unfair advantage to a joint venture of IBM and MCI that built and manages a key part of the network.

The IBM-MCI venture, known as Advanced Network and Services, manages a network called NSFnet, which connects hundreds of research centers and universities. NSFnet also manages links to dozens of other countries. All these networks are collectively known as Internet.

Some private competitors say Advanced Network and Services uses its favored position to squeeze them out of the data-transmission market by establishing rules that make it difficult to connect to NSFnet.

NSFnet was founded by the National Science Foundation, a federal agency, and is composed of leased telephone lines that link special computers called routers, which transmit packages of data to three million users in 33 countries. Data traffic over the NSFnet backbone has doubled in the last year.

The government wants to develop a national data highway for electronic commerce, digital video transmissions to homes and vast electronic libraries that could be drawn on by the nation's schools.

Advanced Network and Services, based in Elmsford, N.Y., was set up last year as a non-profit corporation with $10 million from International Business Machines Corp. and MCI Communications Corp.  Earlier this year it set up a for-profit subsidiary, called ANS CO+RE, to sell computer network services.  That led some competitors to complain that Advanced Network and Services would be able to compete unfairly because of its arrangement with the government.

People involved in planning for a national data network say it is essential to provide for fair competition, which will lead rival companies to offer creative and entrepreneurial services in the hope of building market share. Without competition, they say, the government will have created a monopoly that has little incentive to innovate.

"This is the first major communication business to be born under the deregulation era," said David Farber, a computer scientist at the University of Pennsylvania and a pioneer in data networking. "This hasn't happened since the growth of the telephone industry. You want it to be a business that doesn't repeat the errors of the past."

In recent years, the National Science Foundation has tried to shift its operations and ownership of NSFnet to Advanced Network and Services. And it will try to establish competition through contracts for networks to compete with NSFnet next year.

But there is no level playing field, complained William L.  Schrader, president of Performance Systems International Inc., a Reston, Va., company that provides commercial data connections to Internet.

He made public two letters between officials of Advanced Network and Services and the National Science Foundation that he said gave the company unfair control over access to the network. The result, he added, was that the government turned over valuable public property to a private company.

"It's like taking a federal park and giving it to Kmart," Schrader said. "It's not right, and it isn't going to stand. As a taxpayer, I think it's disgusting."

Performance Systems and several other companies have set up an alternative to NSFnet, known as a CIX.

Schrader said his company and the venture of IBM and MCI were competing for the same customers but unlike his rival he lacked a federal subsidy. He said he might ask the Internal Revenue Service to look at the business relationship between Advanced Network's non-profit and for profit operations.

Allan Weis, the president of Advanced Network, disputed that his company had an unfair advantage. "It's a very competitive environment right now," he said. "We have lost quite a few bids to PSI and to other competitors as well."

At the National Science Foundation, Stephen Wolff, director of its networking division, said IBM and MCI had overbuilt the network and were selling commercial service based on the excess capacity that was available.

A number of organizations are working informally to settle the dispute.

"I think it's a mess," said Mitchell D. Kapor, the founder of Lotus Development Corp. and now head of the Electronic Frontier Foundation, a public-interest group focusing on public policy issues surrounding data networks. "Nobody should have an unfair advantage. This is important because we're talking about something that is in its infancy but that one day could be on the order of the personal computer industry."

c.1991 N.Y. Times News Service