

                                                         Preliminary Draft

         Some  Economics  of  the  Internet


                                       by


                  Jeffrey  K.  MacKie-Mason

                             Hal  R.  Varian
                         University of Michigan


                              November 1992
                    Current version: June 14, 1993


Abstract. This is a preliminary version of a paper prepared
for the Tenth Michigan Public Utility Conference at Western
Michigan University March 25--27, 1993.  We describe the
history,  technology and cost structure of the Internet.  We
also describe a possible smart-market mechanism for pricing
traffic on the Internet.
Keywords.  Networks, Internet, NREN.
Address.  Hal R. Varian, Jeffrey K. MacKie-Mason, Depart-
ment of Economics, University of Michigan, Ann Arbor, MI
48109-1220. E-mail: jmm@umich.edu, halv@umich.edu.

                    Some Economics of the Internet

                         Jeffrey K. MacKie-Mason
                                 Hal R. Varian

The High Performance Computing Act of 1991 established

the National Research and Education Network (NREN). The

NREN is sometimes thought of as the ``successor'' to the

NSFNET,  the  so-called  backbone  of  the  Internet,  and  is

hoped  by  some  to  serve  as  a  model  for  a  future  National

Public Network. It is widely expected that substantial public

and private resources will be invested in the NREN and other

high performance networks during the next 5--10 years.  In

this paper we outline the history of the Internet and describe

some of the technological and economic issues relating to it.

We conclude with a discussion of some pricing models for

congestion control on the Internet.



1.  A Brief History of the Internet


In the late sixties the Advanced Research Projects Adminis-

tration (ARPA), a branch of the U.S. Defense Department,

developed  the  ARPAnet  as  a  network  linking  universities

and high-tech defense department contractors. Access to the

ARPAnet was generally limited to computer scientists and

other technical users.

     In the mid-eighties the NSF created six supercomputer

centers  which  it  wanted  to  make  widely  available  to  re-

searchers. Initially, NSF relied on the ARPAnet, Bitnet and
_________________________________________

       We wish to thank Guy Almes,  Eric Aupperle,  Paul Green,  Mark
Knopper, Ken Latta, Dave McQueeny, Jeff Ogden, Chris Parkin and Scott
Shenker for helpful discussions, advice and data.



                                       1

several direct university links for this purpose, but planned

from  the  beginning  to  develop  a  network  connecting  the

centers.  The  planners  of  this  new  network,  the  NSFNET,

designed it to provide connectivity for a wide variety of re-

search and educational uses, not just for the supercomputers.1
     The NSFNET was conceived as a backbone connecting

together a group of regional networks.  A university would

connect  to  its  regional  network,  or  possibly  to  a  neighbor

university  that  had  a  path  to  the  regional  network.   The

regional network hooked into a regional supercomputer. All

of the supercomputers were connected together by the high-

speed NSFNET backbone, and thus the whole network was

linked together.

     This  design  was  quite  successful---so  successful  that

it  soon  became  overloaded.   In  1987  the  NSF  contracted

with  Merit,  the  Michigan  regional  network,  to  upgrade

and manage the NSFNET. Merit, aided by MCI and IBM,

significantly enhanced the capabilities of the network. Since

1985, the Internet has grown from about 200 networks to well

over 11,000 and from 1,000 hosts to over a million.  About

370,000 of these hosts are at educational sites, 300,000 are

commercial sites, and about 130,000 are government/military

sites. NSFNET traffic has grown from 85 million packets in

January 1988 to 26 billion packets in February 1993. This is

a three hundred-fold increase in only five years. The traffic

on  the  network  is  currently  increasing  at  a  rate  of  11%  a

_________________________________________
  1  See Lynch (1993) for a brief but detailed history of the Internet.
                                       2

month.2

     The NSFNET was funded by public funds and targeted for

scientific and educational uses. NSF's Acceptable Use Policy

specifically  excluded  activities  not  in  support  of  research

or  education,  and  extensive  use  for  private  or  personal

business. This policy raised a number of troublesome issues.

For example, should access be made available to commercial

entities that wanted to provide for-profit services to academic

institutions?

     In September of 1990, Merit, IBM and MCI spun off a

new not-for-profit corporation,  Advanced Network & Ser-

vices,  Inc.   (ANS).  ANS  received  $10  million  in  initial

funding from IBM and MCI. One of the main reasons for

establishing ANS was to ``: : :provide an alternative network

that would allow commercial information suppliers to reach

the research and educational community without worrying

about the usage restrictions of the NSFNET.'' (Mandelbaum

and Mandelbaum (1992), p. 76). In November 1992, the re-

sponsibility for managing NSFNET Network Operations was

taken over by ANS. Merit,  however,  retains responsibility

for providing NSFNET backbone services.

     In  1991  ANS  created  a  for-profit  subsidiary,   ANS

CO+RE Systems, Inc., designed to handle commercial traffic

on ANSnet. It seems apparent that the institutional structure

is  developing  in  a  way  that  will  provide  wider  access  to

private  and  commercial  interests.   According  to  the  Pro-

gram Plan for the NREN, ``The networks of Stages 2 and 3

will be implemented and operated so that they can become
_________________________________________
  2  Current traffic statistics are available from Merit Network, Inc. They
can be accessed by computer by using ftp or Gopher to nic.merit.edu.



                                       3

commercialized;  industry will then be able to supplant the

government in supplying these network services.''



2.  Internet Technology and Costs


The Internet is a network of networks that all use connec-

tionless packet-switching communications technology. Even

though much of the traffic moves across lines leased from

telephone common carriers, the technology is quite different

from the switched circuits used for voice telephony. A tele-

phone user dials a number and various switches then open a

line between the caller and the called number.  This circuit

stays open and no other caller can share the line until the call

is terminated.  A connectionless packet-switching network,

by contrast, uses statistical multiplexing to maximize use of

the communications lines.3   Each circuit is simultaneously

shared by numerous users, and no single open connection is

maintained for a particular communications session: part of

the data may go by one route while the rest may take a differ-

ent route.  Because of the differences in technology pricing

models appropriate for voice telephony will be inappropriate

for data networks.

     Packet-switching technology has two major components:

packetization  and  dynamic  routing.  A  data  stream  from  a

computer is broken up into small chunks called ``packets.''

The  IP  (Internet  protocol)  specifies  how  to  break  up  a

datastream into packets and reassemble it, and also provides

the  necessary  information  for  various  computers  on  the

_________________________________________
  3  ``Connection-oriented'' packet-switching networks also exist:  X.25
and frame relay are examples of such.



                                       4

Internet (the routers) to move the packet to the next link on

the way to its final destination.

     Packetization  allows  for  the  efficient  use  of  expensive

communications lines. Consider a typical interactive terminal

session to a remote computer.  Most of the time the user is

thinking. The network is needed only after a key is struck or

when a reply is returned. Holding an open connection would

waste most of the capacity of the network link. Instead, the

input line is collected until the return key is struck, and then

the line is put in a packet and sent across the network.  The

rest  of  the  time  the  network  links  are  free  to  be  used  for

transporting packets from other users.

     With dynamic routing a packet's path across the network

is  determined  anew  for  each  packet  transmitted.   Because

multiple paths exist between most pairs of network nodes,

it is quite possible that different packets will take different

paths through the network.4

     The postal service is a good metaphor for the technology

of  the  Internet  (Krol  (1992),  pp.  20--23).   A  sender  puts

a message into an envelope (packet),  and that envelope is

routed through a series of postal stations, each determining

where to send the envelope on its next hop.  No dedicated

pipeline is opened end-to-end, and thus there is no guarantee

that envelopes will arrive in the sequence they were sent, or

follow exactly the same route to get there.

_________________________________________
  4  Dynamic routing contributes to the efficient use of the communications
lines, because routing can be adjusted to balance load across the network.
The other main justification for dynamic routing is network reliability, since
it gives each packet alternative routes to their destination should some links
fail.  This was especially important to the military, which funded most of
the early TCP/IP research to improve the ARPANET.



                                       5

     So that packets can be identified and reassembled in the

correct order, TCP packets consist of a header followed by

data.  The header contains the source and destination ports,

the sequence number of the packet, an acknowledgment flag,

and so on.  The header comprises 20 (or more) bytes of the

packet.

     Once  a  packet  is  built  TCP  sends  it  to  a  router,  a

computer that is in charge of sending packets on to their next

destination.  At this point IP tacks on another header (20 or

more bytes) containing source and destination addresses and

other information needed for routing the packet. The router

then calculates the best next link for the packet to traverse

towards  its  destination,  and  sends  it  on.    The  best  link

may change minute-by-minute, as the network configuration

changes.5  Routes can be recalculated immediately from the

routing table if a route fails. The routing table in a switch is

updated approximately continuously.

     The data in a packet may be 1500 bytes or so. However,

recently the average packet on NSFNET carries about 200

bytes of data (packet size has been steadily increasing).  On

top of these 200 bytes the TCP/IP headers add about 40; thus

about  17%  of  the  traffic  carried  on  the  Internet  is  simply

header information.

     Over the past 5 years, the speed of the NSFNET backbone

has grown from 56 Kbps to 45 Mbps (``T-3'' service).6 These
_________________________________________
  5  Routing is based on a dynamic knowledge of which links are up and
a static ``cost'' assigned to each link.  Currently routing does not take
congestion into account. Routes can change when hosts are added or deleted
from the network (including failures), which happens often with about 1
million hosts and over 11,000 subnetworks.

  6  In fact, although the communications lines can transport 45 Mbps, the
current network routers can support only 22.5 Mbps service.  ``Kbps'' is


                                       6

lines can move data at a speed of 1,400 pages of text per

second; a 20-volume encyclopedia can be sent across the net

in half a minute. Many of the regional networks still provide

T1 (1.5Mbps) service, but these too, are being upgraded.

     The  transmission  speed  of  the  Internet  is  remarkably

high.  We recently tested the transmission delay at various

times of day and night for sending a packet to Norway. Each

packet traversed 16 links, and thus the IP header had to be

read and modified 16 times, and 16 different routers had to

calculate  the  best  next  link  for  the  transmission.   Despite

the  many  hops  and  substantial  packetization  and  routing

overhead, the longest delay on one representative weekday

was only 0.333 seconds (at 1:10 pm); the shortest delay was

0.174 seconds (at 5:13 pm).



Current Backbone Network Costs


The postal service is a good metaphor for packet-switching

technology,  but  a  bad  metaphor  for  the  cost  structure  of

Internet services. Most of the costs of providing the Internet

are  more-or-less  independent  of  the  level  of  usage  of  the

network; i.e., most of the costs are fixed costs. If the network

is  not  saturated  the  incremental  cost  of  sending  additional

packets is essentially zero.

     The NSF currently spends about $11.5 million per year

to operate the NSFNET and provides $7 million per year of

grants to help operate the regional networks.7  There is also
_________________________________________
thousand (kilo) bits per second; ``Mbps'' is million (mega) bits per second.

  7  The regional network providers generally set their charges to recover
the remainder of their costs, but there is also some subsidization from state
governments at the regional level.



                                       7

an NSF grant program to help colleges and universities to

connect to the NSFNET. Using the conservative estimate of

1  million  hosts  and  10  million  users,  this  implies  that  the

NSF subsidy of the Internet is less than $20 per year per host,

and less than $2 per year per user.

     Total salaries and wages for NSFNET have increased by

a little more than one-half (about 68% nominal) over 1988-

-1991, during a time when the number of packets delivered

has increased 128 times.8  It is hard to calculate total costs

because  of  large  in-kind  contributions  by  IBM  and  MCI

during the initial years of the NSFNET project, but it appears

that  total  costs  for  the  128-fold  increase  in  packets  have

increased by a factor of about 3.2.

     Two  components  dominate  the  costs  of  providing  a

backbone network: communications lines and routers. Lease

payments for lines and routers accounted for nearly 80% of

the 1992 NSFNET costs.  The only other significant cost is

for the Network Operations Center (NOC), which accounts

for roughly 7% of total cost.9   In our discussion we focus

only on the costs of lines and routers.

     We have estimated costs for the network backbone as of

1992--93.10  A T-3 (45 Mbps) trunk line running 300 miles

between two metropolitan central stations can be leased for
_________________________________________
  8  Since  packet  size  has  been  slowly  increasing,  the  amount  of  data
transported has increased even more.

  9  A NOC monitors traffic flow at all nodes in the network and trou-
bleshoots problems.

 10  We estimated costs for the network backbone only, defined to be links
between common carrier Points of Presence (POPs) and the routers that
manage those links.  We did not estimate the costs for the feeder lines to
the mid-level or regional networks where the data packets usually enter and
leave the backbone, nor for the terminal costs of setting up the packets or
tearing them apart at the destination.



                                       8

about  $32,000  per  month.   The  cost  to  purchase  a  router

capable of managing a T-3 line is approximately $100,000,

including operating and service costs.  Assuming 50 month

amortization at a nominal 10% rate yields a rental cost of

about $4900 per month for the router.


 Table 1.

 Communications and Router Costs

_(Nominal_$_per_million_bits)1_________________________________________________*
 *_______

__Year________Communications_____________Routers______Design_Throughput________*
 *_______

  1960                         1.00                           2.4 kbps

  1962                                    10.00*

  1963                         0.42                          40.8 kbps

  1964                         0.34                          50.0 kbps

  1967                         0.33                          50.0 kbps

  1970                                     0.168

  1971                                     0.102

  1974                         0.11        0.026             56.0 kbps

__1992____________________0.00094_______0.00007_______________45_mbps__________*
 *_______


Notes: 1. Costs are based on sending one million bits of data approximately
1200 miles on a path that traverses five routers.
Sources:  1960--74 from Roberts (1974).  1992 calculated by the authors
using data provided by Merit Network, Inc.


     The costs of both communications and switching have

been dropping rapidly for over three decades. In the 1960s,

digital  computer  switching  was  more  expensive  (on  a  per

packet  basis)  than  communications  (Roberts  (1974)),  but

switching has become substantially cheaper since then.  We

have estimated the 1992 costs for transporting 1 million bits

of data through the NSFNET backbone and compare these

to estimates for earlier years in Table 1.  As can be seen in

1992 the line cost is about eight times as large as the cost of

routers.


                                       9

     The topology of the NSFNET backbone directly reflects

the cost structure: lots of cheap routers are used to manage

a limited number of expensive lines. We illustrate a portion

of the network in Figure 1.  Each of the numbered squares

is an RS6000 router; the numbers listed beside a router are

links to regional networks. Notice that in general any packet

coming on to the backbone has to move through two separate

routers at the entry and exit node.  For example, a message

we  send  from  the  University  of  Michigan  to  a  scientist  at

Bell Laboratories will traverse link 131 to Cleveland, where

it passes through two routers (41 and 40). The packet goes to

New York, where it again moves through two routers (32 and

33) before leaving the backbone on link 137 to the JVNCnet

regional  network  that  Bell  Labs  is  attached  to.   Two  T-3

communications links are navigated using four routers.


Figure 1. Network Topology Fragment


                                       10

Technological and Cost Trends


The decline in both communications link and switching costs

has been exponential at about 30% per year (see the semi-log

plot in Figure 2). But more interesting than the rapid decline

in costs is the change from expensive routers to expensive

transmission links. Indeed, it was the crossover around 1970

(Figure 2) that created a role for packet-switching networks.

When  lines  were  cheap  relative  to  switches  it  made  sense

to  have  many  lines  feed  into  relatively  few  switches,  and

to open an end-to-end circuit for each connection.  In that

way, each connection wastes transmission capacity (lines are

held open whether data is flowing or not) but economizes on

switching (one set-up per connection).

Figure  2.   Trends  in  costs  for  communications  links  and

routers.



     When switches became cheaper than lines the network is

more efficient if data streams are broken into small packets

and sent out piecemeal, allowing the packets of many users

to share a single line. Each packet must be examined at each


                                       11

switch along the way to determine its type and destination,

but this uses the relatively cheap switch capacity.  The gain

is that when one source is quiet, packets from other sources

use the same (relatively expensive) lines.

     Although the same reversal in switch and line costs oc-

curred for voice networks, circuit-switching is still the norm

for voice. Voice is not well-suited for packetization because

of variation in delivery delays, packet loss, and packet or-

dering.11   Voice customers will not tolerate these delays in

transmission (although some packetized voice applications

are beginning to emerge as transmission speed and reliability

increases, see (Anonymous (1986)) ).12



Future Technologies


Packet-switching is not the most efficient technology for all

data communications.  As we mentioned above, about 17%

of the typical packet is overhead (the TCP and IP headers).

Since  the  scarce  resource  is  bandwidth,  this  overhead  is

costly.    Further,  every  packet  from  a  data  stream  must

be  individually  routed  through  many  nodes  (12  seems  to

be  typical  for  a  transmission  within  the  U.S.):  each  node

must read the IP header on each packet,  then do a routing

calculation.   Transferring  a  modest  3  megabyte  data  file
_________________________________________
 11  Our tests found packet delays ranging between 156 msec and 425 msec
on a trans-Atlantic route (N=2487 traces, standard deviation = 24.6 msec).
Delays were far more variable to a Nova Scotia site: the standard deviation
was 340.5 msec when the mean delay was only 226.2 msec (N=2467); the
maximum delay was 4878 msec.

 12  The reversal in link and switch costs has had a profound effect on voice
networks. Indeed, Peter Huber has argued that this reversal made inevitable
the breakup of ATT (Huber (1987)). He describes the transformation of the
network from one with long lines all going into a few central offices into
a web of many switches with short lines interconnecting them so that each
call could follow the best path to its destination.



                                       12

will  require  around  6,000  packets,  each  of  which  must  be

individually routed through a dozen or so switches.13  Since

a  file  transfer  is  a  single  burst  of  demand  there  may  be

little gain from packetization to share the communications

line; for some large file transfers (or perhaps real-time audio

and  video  transmissions)  it  may  be  more  efficient  to  use

connection-oriented systems rather than switched packets.14
     Packetization and connection-oriented transport merge in

Asynchronous Transfer Mode (ATM) which is gaining wide

acceptance as the next major link layer technology.15  ATM

does not eliminate TCP/IP packetization and thus does not

reduce that source of overhead; indeed, ATM adds a 5-byte

header to each 53-byte cell, imposing its own 9% overhead.

However, ATM opens end-to-end connections, economizing

on  routing  computations  and  the  overhead  from  network

layer packet headers. Networks currently under development

offer speeds of 155 and 622 Mbps (3.4 to 13.8 times faster

than  the  current  T-3  lines  used  by  NSFNET).  At  those

speeds  ATM  networks  are  expected  to  carry  both  voice
_________________________________________
 13  The average packet size is 350 bytes for FTP file transfers, but for large
files the packets will be about 500 bytes each. The header overhead for this
transfer would be about 8%.

 14  If there is a slower-speed link on the file transfer path---say 56 kbps---
then higher speed links (T-1 or T-3) on the path will have idle capacity that
could be utilized if the network is packetized rather than connection-oriented.

 15  The link layer is another layer underneath TCP/IP that handles the
routing, physical congestion control and internetworking of packets. Current
examples of such technologies are Ethernet, FDDI and Frame Relay. The
network technology can carry ``anyone's'' packets; e.g., TCP/IP packets,
AppleTalk packets, or Novell Netware packets.  Using the postal service
analogy,  the  TCP/IP  layer  handles  ``get  the  mail  from  New  York  to
Washington;  the link layer specifies ``mail from NY to DC should be
packed in shipping containers and loaded onto a semi-trailer bound for
DC.''



                                       13

and data simultaneously.  A related alternative is Switched

Multi-Megabit Data Service (SMDS) (Cavanaugh and Salo

(1992)).

     ATM  is  promising,  but  we  may  need  radically  new

technologies  very  soon.   Current  networks  are  meshes  of

optic  fiber  connected  with  electronic  switches  that  must

convert light into electronic signals and back again. We are

nearing the physical limits on the throughput of electronic

switches.   All-optical  networks  may  be  the  answer  to  this

looming bottleneck.

     The  NSFNET  backbone  is  already  using  fiber  optic

lines.  A single fiber strand can support one thousand Gbps

(gigabits), or about 22,000 times as much traffic as the current

T-3 data rate. To give some sense of the astonishing capacity

of  fiber  optics,  a  single  fiber  thread  could  carry  all  of  the

phone network traffic in the United States, including the peak

hour of Mother's Day in the United States (Green (1991)).

Yet  a  typical  fiber  bundle  has  25  to  50  threads  (McGarty

(1992)), and the telephone companies have already laid some

two million miles of fiber optic bundles (each being used at

no more than 1/22,000th of capacity) (Green (1991)).

     Thus, although switches are cheaper than lines at the rates

that current technology can drive fiber communications, in

fact we should expect communications bandwidth to be much

cheaper than switching before long. Indeed, it is already an

electronic bottleneck that is holding us back from realizing

the seemingly limitless capacity of fiber.  When capacity is

plentiful networks will use vast amounts of cheap bandwidth

to avoid using expensive switches.

     ``All-optical'' networks may be the way to avoid elec-

tronic switches.  In an all-optical network data is broadcast


                                       14

rather than directed to a specific destination by switches, and

the recipient tunes in to the correct frequency to extract the

intended signal.  A fully-functional all-optical network has

been created by Paul Green at IBM. His Rainbow I network

connects 32 computers at speeds of 300 megabits per second,

or a total bandwidth of 9.6 gigabits---200 times as much as

the T-3-based NSFNET backbone (Green (1992)).

     Despite their promise, all-optical networks will not soon

eradicate  the  problem  of  congestion.   Limitations  on  the

number  of  available  optical  broadcast  frequencies  suggest

that  subnetworks  will  be  limited  to  about  1000  nodes,  at

least in the foreseeable future (Green (1991), Green (1992)).

Thus, for an internet of networks it will be necessary to pass

traffic  between  optical  subnetworks.  The  technologies  for

this are much further from realization and will likely create a

congested bottleneck. Thus, although the physical nature of

congestion may change, we see a persistent long-term need

for access pricing to allocate congested resources.



Summary


We  draw  a  few  general  guidelines  for  pricing  packet-

switching backbones from our review of costs. The physical

marginal cost of sending a packet, for a given line and router

capacity,  is  essentially  zero.   Of  course,  if  the  network  is

congested, there is a social cost of sending a new packet in

that response time for other users will deteriorate.

     The fixed costs of a backbone network (about $14 million

per year for NSFNET at present) are dominated by the costs of

links and routers, or roughly speaking, the cost of bandwidth

(the  diameter  of  the  pipe).   Rational  pricing,  then,  should


                                       15

focus  on  the  long-run  incremental  costs  of  bandwidth  and

the  short-run  social  costs  of  congestion.   More  bandwidth

is  needed  when  the  network  gets  congested,  (as  indicated

by unacceptable transmission delays).  A desirable pricing

structure is one that allocates congested bandwidth and sends

appropriate signals to users and network operators about the

need for expansion in capacity.



3.  Congestion problems


Another  aspect  of  cost  of  the  Internet  is  congestion  cost.

Although congestion costs are not paid for by the providers

of  network  services,  they  are  paid  for  by  the  users  of  the

service.   Time  spent  by  users  waiting  for  a  file  transfer

is  a  social  cost,  and  should  be  recognized  as  such  in  any

economic accounting.

     The  Internet  experienced  severe  congestion  problems

in  1987.    Even  now  congestion  problems  are  relatively

common in parts of the Internet (although not currently on

the T-3 backbone). According to Kahin (1992): ``However,

problems  arise  when  prolonged  or  simultaneous  high-end

uses start degrading service for thousands of ordinary users.

In  fact,  the  growth  of  high-end  use  strains  the  inherent

adaptability of the network as a common channel.''  (page

11.)   It  is  apparent  that  contemplated  uses,  such  as  real-

time video and audio transmission, would lead to substantial

increases in the demand for bandwidth and that congestion

problems  will  only  get  worse  in  the  future  unless  there  is

substantial increase in bandwidth:

          If  a  single  remote  visualization  process  were
     to  produce  100  Mbps  bursts,  it  would  take  only  a


                                       16

     handful  of  users  on  the  national  network  to  gener-
     ate  over  1Gbps  load.   As  the  remote  visualization
     services move from three dimensions to [animation]
     the  single-user  bursts  will  increase  to  several  hun-
     dred  Mbps  : : :Only  for  periods  of  tens  of  minutes
     to several hours over a 24-hour period are the high-
     end requirements seen on the network.  With these
     applications, however, network load can jump from
     average to peak instantaneously.'' Smarr and Catlett
     (1992), page 167.


     There are cases where this has happened.  For example

during the weeks of November 9 and 16, 1992, some packet

audio/visual broadcasts caused severe delay problems, espe-

cially at heavily-used gateways to the Internet NSFNET, and

in several mid-level networks.

     To investigate the nature of congestion on the Internet

we timed the delay in delivering packets to seven different

sites  around  the  world.    We  ran  our  test  hourly  for  37

days  during  February  and  March,  1993.   Deliveries  can

be delayed for a number of reasons other than congestion-

induced  bottlenecks.   For  example,  if  a  router  fails  then

packets  must  be  resent  by  a  different  route.   However,  in

a  multiply-connected  network,  the  speed  of  rerouting  and

delivery of failed packets measures one aspect of congestion,

or the scarcity of the network's delivery bandwidth.

     Our results are summarized in Figure 3 and Figure 4; we

present the results only from four of the 24 hourly probes.

Figure 3 shows the average and maximum delivery delays by

time of day.  Average delays are not always proportional to

distance: the delay from Michigan to New York University

was  generally  longer  than  to  Berkeley,  and  delays  from

Michigan to Nova Scotia, Canada, were often longer than to

Oslo, Norway.


                                       17

Figure 3.  Maximum and Average Transmission Delays on

the Internet

     There  is  substantial  variability  in  Internet  delays.   For

example, the maximum and average delays in Figure 3 are

quite different by time of day.  There appears to be a large

4pm peak problem on the east coast for packets to New York

and Nova Scotia, but much less for ATT Bell Labs (in New

Jersey).16  The time-of-day variation is also evident in Figure

5, borrowed from (Claffy, Polyzos, and Braun (1992)).17
_________________________________________
 16  The high maximum delay for the University of Washington at 4pm is
correct, but appears to be aberrant. The maximum delay was 627 msec; the
next two highest delays (in a sample of over 2400) were about 250 msecs
each.  After dropping this extreme outlier, the University of Washington
looks just like UC Berkeley.

 17  Note that the Claffy et al. data were for the old, congested T-1 network.



                                       18




Figure 4. Variability in Internet Transmission Delays


Figure 5.  Utilization of Most Heavily Used Link in Each

Fifteen Minute Interval (Claffy et al. (1992))


     Figure 4 shows the standard deviation of delays by time
_________________________________________
We reproduce their figure to illustrate the time-of-day variation in usage;
the actual levels of link utilization are generally much lower in the current
T-3 backbone.



                                       19

of  day  for  each  destination.    The  delays  to  Canada  are

extraordinarily variable, yet the delays to Oslo have no more

variability  than  does  transmission  to  New  Jersey  (ATT).

Variability in delays itself fluctuates widely across times of

day, as we would expect in a system with bursty traffic, but

follows no obvious pattern.

     According  to  Kleinrock  (1992),  ``One  of  the  least  un-

derstood aspects of today's networking technology is that of

network  control,  which  entails  congestion  control,  routing

control, and bandwidth access and allocation.''  We expect

that if access to Internet bandwidth continues to be provided

at  a  zero  cost  there  will  inevitably  be  congestion.   Essen-

tially,  this  is  the  classic  problem  of  the  commons:  unless

the congestion externality is priced, there will inevitably be

inefficient use of the common resource. As long as users face

a zero price for access, they will continue to ``overgraze.''

Hence, it makes sense to consider how networks such as the

Internet should be priced.

     As  far  as  we  can  tell  this  question  has  received  little

attention. Gerla and Kleinrock (1988) have considered some

engineering aspects of congestion control. Faulhaber (1992)

has considered some of the economic issues.  He suggests

that  ``transactions  among  institutions  are  most  efficiently

based on capacity per unit time. We would expect the ANS

to  charge  mid-level  networks  or  institutions  a  monthly  or

annual  fee  that  varied  with  the  size  of  the  electronic  pipe

provided  to  them.   If  the  cost  of  providing  the  pipe  to  an

institution were higher than to a mid-level network : : :the

fee would be higher.''

     Faulhaber's suggestion makes sense for a dedicated line--

-e.g., a line connecting an institution to the Internet backbone.


                                       20

But  we  don't  think  that  it  is  necessarily  appropriate  for

charging for backbone traffic itself.  The reason is that the

bandwidth on the backbone is inherently a shared resource-

--many packets ``compete'' for the same bandwidth.  There

is an overall constraint on capacity, but there are is no such

thing as individual capacity level on the backbone.18

     Although  we  agree  that  it  is  appropriate  to  charge  a

flat  fee  for  connection  to  the  network,  we  also  think  that

it  is  important  to  charge  on  a  per  packet  basis,  at  least

when the network is congested.  After all,  during times of

congestion the scarce resource is bandwidth for additional

packets.19   The problem with this proposal is the overhead,

or, in economics terms, the transactions cost. If one literally

charged for each individual packet,  it would be extremely

costly  to  maintain  adequate  records.   However,  given  the

astronomical units involved there should be no difficulty in

basing  charges  on  a  statistical  sample  of  the  packets  sent.

Furthermore, accounting can be done in parallel to routing

using much less expensive computers.

     Conversely  when  the  network  is  not  congested  there

is  very  small  marginal  cost  of  sending  additional  packets

through  the  routers.   It  would  therefore  be  appropriate  to

charge users a very small price for packets when the system

is not congested.
_________________________________________
 18  Although  it  may  be  true  that  an  institution's  use  of  the  backbo*
 *ne
bandwidth is more-or-less proportional to the bandwidth of its connection
to the backbone.   That is,  the size of an institution's dedicated line to
the backbone may be a good signal of its intended usage of the common
backbone.

 19  As we have already pointed out the major bottleneck in backbone
capacity is not the bandwidth of the medium itself, but the switch technology.
We use the term bandwidth to refer to the overall capacity of the network.



                                       21

     There  has  been  substantial  recent  work  on  designing

mechanisms for usage accounting on the Internet.  The In-

ternet  Accounting  Working  Group  has  published  a  draft

architecture for Internet usage reporting (Internet Account-

ing: Usage Reporting Architecture, July 9, 1992 draft). ANS

has  developed  a  usage  sampling  and  reporting  system  it

calls  COMBits.   COMBits  was  developed  to  address  the

need  to  allocate  costs  between  government-sponsored  re-

search and educational use, and commercial usage, which is

rapidly growing. COMBits collects an aggregate measure of

packets and bytes usage,  using a statistical sampling tech-

nique.  However,  COMBits only collects data down to the

network-to-network level of source and destination.  Thus,

the resulting data can only be used to charge at the level of the

subnetwork;  the local network administrator is responsible

for splitting up the bill, if desired (Ruth and Mills (1992)).20



4.  Current Pricing Mechanisms


NSFNET,  the  primary  backbone  network  of  the  Internet,

has been paid for by the NSF, IBM, MCI and the State of

Michigan until the present.21  However, most organizations

do not connect directly to the NSFNET. A typical university

will  connect  to  its  regional  mid-level  network;  the  mid-

level maintains a connection to the NSFNET. The mid-level

networks (and a few alternative backbone networks) charge

their customers for access.
_________________________________________
 20  COMBits has been plagued by problems and resistance and currently
is used by almost none of the mid-level networks.

 21  NSF restricts the use of the backbone to traffic with a research or
educational purpose, as defined in the Acceptable Use Policies.



                                       22

     There  are  dozens  of  companies  that  offer  connections


to the Internet.  Most large organizations obtain direct con-


nections,  which  use  a  leased  line  that  permits  unlimited


usage subject to the bandwidth of the line. Some customers


purchase ``dial-up'' service which provides an intermittent


connection, usually at much lower speeds.  We will discuss


only direct connections below.
     Table 3 summarizes the prices offered to large universi-


ties by ten of the major providers for T-1 access (1.5 mbps).22


There are three major components: an annual access fee, an


initial connection fee and in some cases a separate charge


for the customer premises equipment (a router to serve as


a  gateway  between  the  customer  network  and  the  Internet


provider's network).23  The current annualized total cost per


T-1 connection is about $30--35,000.



_________________________________________
 22  The  fees  for  some  providers  are  dramatically  lower  due  to  public
subsidies.
 23  Customers will generally also have to pay a monthly ``local loop''
charge to a telephone company for the line between the customer's site and
the Internet provider's ``point of presence'' (POP), but this charge depends
on mileage and will generally be set by the telephone company, not the
Internet provider.


                                       23




     All of the providers use the same type of pricing: annual

fee  for  unlimited  access,  based  on  the  bandwidth  of  the

connection.   This  is  the  type  of  pricing  recommended  by

Faulhaber (1992).  However, these pricing schemes provide

no incentives to flatten peak demands, nor any mechanism for

allocating network bandwidth during periods of congestion.

It  would  be  relatively  simple  for  a  provider  to  monitor  a

customer's usage and bill by the packet or byte. Monitoring

requires only that the outgoing packets be counted at a single

point: the customer's gateway router.

     However,  pricing  by  the  packet  would  not  necessarily

increase the efficiency of network service provision, because

the  marginal  cost  of  a  packet  is  nearly  zero.  As  we  have

shown, the important scarce resource is bandwidth, and thus


                                       24

efficient prices need to reflect the current state of the network.

Neither a flat price per packet nor even time-of-day prices

would come very close to efficient pricing.



5.  Proposals for pricing the network


We  think  that  it  is  worthwhile  thinking  about  how  such  a

pricing mechanism might work. Obviously, our suggestions

must be viewed as extremely tentative.  However, we hope

that an explicit proposal, such as we describe below, can at

least serve as a starting point for further discussion.

     We wholeheartedly adopt the viewpoint of Clark (1989)

who says ``It is useful to think of the interconnected [net-

works] as a marketplace, in which various services are of-

fered and users select among these services to obtain packet

transport.''  We take this point of view further to examine

what kind of pricing policy makes sense in the context of a

connectionless, packet-switched network.

     There are many aspects of network usage that might be

priced.   Cocchi,  Estrin,  Shenker,  and  Zhang  (1992)  make

this point quite clearly and describe how a general network

pricing problem can be formulated and analyzed. However,

we  will  analyze  only  one  particular  aspect  of  the  general

network pricing problem in this paper:  pricing access and

usage of the network backbone.

     The backbone has a finite capacity, so if enough packets

are  being  sent,  other  packets  will  not  be  able  to  be  sent.

Furthermore, as capacity is approached, the quality of ser-

vice deteriorates, imposing congestion costs on users of the

system.  How  should  a  pricing  mechanism  determine  who

will be able to use the network at a given time?


                                       25

6.  General observations on pricing


Network engineers tend to take the behavior of the network

users  as  fixed,  and  try  to  adapt  the  technology  to  fit  this

behavior.  Economists tend to take the technology as fixed

and  design  a  resource  allocation  mechanism  that  adapts

the  users'  behavior  to  the  technological  limitations  of  the

network. Obviously these approaches are complementary!

     Let us consider some traditional pricing models for net-

work  access.  One  traditional  model  is  zero-priced  access.

This is commonly used in highway traffic, for example. This

has the well-known defect of the problem of the commons-

--if  each  user  faces  a  zero  price  for  access,  the  network

resources tend to become congested.

     Most common forms of pricing for network access use

posted prices: a fixed price schedule for different priorities of

access at different times. For example, the post office charges

a fixed price for different priorities of delivery service, and

telephone companies provide a fixed charge for connections

to different locations at different times of day.

     The trouble with posted prices is that they are generally

not  sufficiently  flexible  to  indicate  the  actual  state  of  the

network at a particular time.  If, at a point in time, there is

unused capacity,  it would be efficient to sell access to the

network at marginal cost, which is presumably close to zero.

Conversely,  if the network is at capacity,  some users with

high willingness-to-pay may be unable to access the network,

even though other users with lower willingness-to-pay have

access.  Pricing by time-of-day helps to achieve an efficient

pattern of usage of network capacity, but it is a rather blunt


                                       26

instrument to achieve a fully efficient allocation of network

bandwidth.24



7.  An ideal but impractical solution


An ``ideal'' model for network access would be a continuous

market in network availability. At each point there would be

a price for access to the network. Users who were willing to

pay the price for delivery of a packet would be given access;

users who weren't would be denied access. The price would

be set so as to achieve an optimal level of congestion.

     How should the access price be determined? One mech-

anism  would  be  a  ``Walrasian  tatonnement.''   A  tentative

access price would be set.  Users would examine the access

price and see if they wanted access. If the sum of the demands

for access exceed the network capacity the price would be

adjusted upward, and so on.

     The  trouble  with  this  scheme  is  that  the  user  has  to

observe the current price in order to determine whether or not

he wants access. If the time pattern of usage were completely

predictable,  there would be no problem.  However,  packet

traffic on the Internet usage is known to be highly ``bursty.''



8.  A smart market


One way to alleviate this problem is to use a ``smart market''

for setting the price of network access at different priorities.25
_________________________________________
 24  Posted, flat prices have some benefits. First, accounting and billing use
resources too, and may be too high to justify.  Second, many planner and
budget officers want predictable prices so they can authorize fixed funding
levels in advance.

 25  The term ``smart market'' seems to be due to Vernon Smith.  The
version we describe here is a variation on the Vickrey auction.



                                       27

In a smart market users have only to indicate the maximum

willingness-to-pay for network access. We will refer to this

maximum willingness to pay as the user's ``bid'' for network

access. The router notes the bid attached to each packet and

admits all packets with bids greater than some cutoff value.

     We depict the determination of the cutoff priority value

in Figure 6. The staircase depicted is simply a demand curve-

--it indicates how many packets there are at each different

bid.

Figure 6. Demand and supply for network bandwidth.



     We take the capacity of the network to be fixed, and we

indicate it by a vertical line in Figure 6. In the case depicted

the  demand  curve  intersects  the  supply  curve  at  price  8.

Hence, this is the price charged to all users---even those who

have packets with higher bids.

     Note that the bid price can be interpreted as a priority

price,  since  packets  with  higher  bids  automatically  have

higher priority in the sense that they will be admitted before

packets  with  lower  bids.   Note  how  this  is  different  from

priority-pricing  by  say,  the  post  office.   In  the  post-office

model you pay for first-class mail even if there is enough

excess  capacity  that  second-class  mail  could  move  at  the


                                       28

same speed. In the smart market described here, a user pays

at most their bid.

     The  smart  market  has  many  desirable  features.   It  is

obvious  from  the  diagram  that  the  outcome  is  the  classic

supply-equals-demand  level  of  service.    The  equilibrium

price,  at  any  point  in  time,  is  the  bid  of  the  marginal

user. Each infra-marginal user is charged this price, so each

infra-marginal user gets positive consumer surplus from his

purchase.

     The  major  differences  from  the  textbook  demand  and

supply story is that no iteration is needed to determine the

market-clearing price---the market is cleared as soon as the

users have submitted their bids for access.26  This mechanism

can also be viewed as a Vickrey auction where the n highest

bidders gain access at the n + 1st  highest price bid.27

     We  have  assumed  that  the  bid-price  set  by  the  users

accurately  reflects  the  true  willingness-to-pay.  One  might

well ask whether users have the correct incentives to reveal

this value: is there anything to be gained by trying to ``fool''

the smart market?  It turns out that the answer is ``no.''  It

can be shown that it is a dominant strategy in the Vickrey

auction to bid your true value, so users have no incentive to

misprepresent their bids for network access. By the nature of

the auction, you are assured that you will never be charged
_________________________________________
 26  Of course,  in real time operation,  one would presumably cumulate
demand over some time interval.   It is an interesting research issue to
consider how often the market price should be adjusted. The bursty nature
of Internet activity suggests a fairly short time interval. However, if users
were charged for packets, it is possible that the bursts would be dampened.

 27  Waldspurger,  Hogg,  Huberman,  Kephart,  and Stornetta (1992) de-
scribes some (generally positive) experiences in using this kind of ``second-
bid'' auction to allocate network resources. However, they do not examine
network access itself, as we are proposing here.



                                       29

more  than  this  amount  and  normally  you  will  be  charged

much less.



9.  Remarks about the smart market solution


Here we consider several aspects of using efficient prices for

packet access to the Internet.



Who sets the bids?


We expect that choice of bids would be done by three parties:

the local administrator who controls access to the net,  the

user  of  the  computer,  and  the  computer  software  itself.

An organization with limited resources, for example, might

choose low bid prices for all sorts of access. This would mean

that they may not have access during peak times,  but still

would have access during off peak periods.  Normally, the

software program that uses the network would have default

values for service---e-mail would be lower than telnet, telnet

would  be  lower  than  audio,  and  so  on.   The  user  could

override these default values to express his own preferences-

--if he was willing to pay for the increased congestion during

peak periods.

     Note that this access control mechanism only guarantees

relative  priority,  not  absolute  priority.   A  packet  with  a

high bid is guaranteed access sooner than a low bid, but no

absolute guarantees of delivery time can be made.28  Rejected

packets would be bounced back to the users, or be routed to

a slower network.

_________________________________________
 28  It is hard to see how absolute guarantees can be made on a connection-
less network.



                                       30

Partial congestion


In  our  discussion  we  have  taken  the  network  capacity  to

be  exogenously  given.   However,  it  is  easy  to  extend  the

mechanism  to  the  case  where  an  additional  packet  creates

congestion for other packets, but does not entirely exclude

them.  To do this,  we simply need use an upward sloping

marginal cost/supply curve, rather than a vertical one.  We

still solve for the same intersection of supply and demand.


Offline accounting


If the smart market system is used with the sampling system

suggested  earlier  the  accounting  overhead  doesn't  have  to

slow things down much since it can be done in parallel. All

the router has to do is to compare the bid of a packet with the

current value of the cutoff.  The accounting information on

every 1000th  packet, say, is sent to a dedicated accounting

machine  that  determines  the  equilibrium  access  price  and

records the usage for later billing.29   Such sampling would

require changes in current router technology, however. The

NSFNET  modified  some  routers  to  collect  sampled  usage

data; the cost of the monitoring system is significant.


Network stability


Adding  bidding  for  priority  to  the  routing  system  should

help  maintain  network  stability,  since  the  highest  priority

packets  should  presumably  be  the  packets  sent  between

routers that indicate the state of the network. These network

``traffic cops'' could displace ordinary packets so as to get

information through the system as quickly as possible.
_________________________________________
 29  We don't discuss the mechanics of the billing system here. Obviously,
there is a need for COD, third-party pricing, and other similar services.



                                       31

Routing


As we have mentioned several times, the Internet is a connec-

tionless network. Each router knows the final destination of a

packet, and determines, from its routing tables, what the best

way is to get from the current location to the next location.

These routing tables are updated continuously to indicate the

current  topology  (but  not  the  congestion)  of  the  network.

Routing tables change to reflect failed links and new nodes,

but they do not change to reflect congestion on various links

of the network. Indeed, there is no standard measurement for

congestion available on the current NSFNET T-3 network.

     Currently, there is no prioritization of packets: all packets

follow the same route at a given time. However, if each packet

carried a bid price, as we have suggested, this information

could be used to facilitate routing through the Internet.  For

example, packets with higher bids could take faster routes,

while packets with lower bids could be routed through slower

links.

     The  routers  could  assign  access  prices  to  each  link  in

the net, so that only packets that were ``willing to pay'' for

access to that link would be given access.  Obviously this

description is very incomplete, but it seems likely that having

packets bid for access will help to distribute packets through

the network in a more efficient way.



Capacity expansion


It is well-known that optimal prices send the correct signals

for capacity expansion, at least under constant or decreasing

returns  to  scale.   That  is,  if  an  optimally  priced  network

generates sufficient revenue to pay the cost of new capacity,


                                       32

then it is appropriate to add that capacity. It appears from our

examination of the cost structure of the Internet that constant

returns to scale is not a bad approximation, at least for small

changes in scale. Hence, the access prices we have described

should serve as useful guides for capacity expansion.
Distributional aspects


The issue of pricing the Internet is highly politicized. Since

the  net  has  been  free  for  many  years,  there  is  a  large

constituency that is quite opposed to paying for access. One

nice  feature  of  smart  market  pricing  is  that  low-priority

access  to  the  Internet  (such  as  e-mail)  would  continue  to

have a very low cost.  Indeed, with relatively minor public

subsidies to cover the marginal resource costs, it would be

possible to have efficient pricing with a price of close to zero

most of the time, since the network is usually not congested.

     If there are several competing carriers, the usual logic of

competitive bidding suggests that the price for low-priority

packets should approach marginal cost---which, as we have

argued, is essentially zero. In the plan that we have outlined

the high priority users would end up paying most of the costs

of the Internet.

     In any case, our discussion has focused on obtaining an

efficient allocation of scarce network resources conditional

on the pre-existing distribution of budgetary resources. Noth-

ing  about  efficient  pricing  precludes  the  government  from

providing cash subsidies for some groups of users to allow

them to purchase network access.

                                       33

10.  Role of public and private sector


As  we  have  seen,  current  private  providers  of  access  to

the  Internet  generally  charge  for  the  ``size  of  the  pipe''

connecting users to the net.  This sort of pricing is probably

not too bad from an efficiency point of view since the ``size

of  the  pipe''  is  more-or-less  proportional  to  contemplated

peak usage.

     The  problem  is  that  there  is  no  pricing  for  access  to

the common backbone.  In December of 1992, the NSF an-

nounced that it will stop providing direct operational funding

for the ANS T-3 Internet backbone. It is not yet clear when

this  will  actually  happen,  although  the  cooperative  agree-

ment  between  NSF  and  Merit  has  been  extended  through

April 1994. According to the solicitation for new proposals,

the NSF intends to create a new very high speed network

to  connect  the  supercomputer  centers  which  would  not  be

used for general purpose traffic. In addition, the NSF would

provide funding to regional networks that they could use to

pay for access to backbone networks like ANSnet,  PSInet

and Alternet.

     The  NSF  plan  is  moving  the  Internet  away  from  the

``Interstate''  model,  and  towards  the  ``turnpike''  model.

The ``Interstate'' approach is for the government to develop

the ``electronic superhighways of the future'' as part of an

investment in infrastructure. The ``turnpike'' approach is that

the private sector should develop the network infrastructure

for Internet-like operations, with the government providing

subsidies to offset the cost of access to the private networks.

     Both funding models have their advantages and disad-

vantages.   But  we  think  that  an  intermediate  solution  is


                                       34

necessary.  The private sector is probably more flexible and

responsive  than  a  government  bureaucracy.  However,  the

danger is that competing network standards would lead to an

electronic Tower of Babel. It is important to remember that

turnpikes have the same traffic regulations as the Interstates:

there  is  likely  a  role  for  the  government  in  coordinating

standards setting for network traffic. In particular, we think

that  it  makes  sense  for  the  government,  or  some  industry

consortium, to develop a coherent plan for pricing Internet

traffic at a packet level.

     A pricing standard has to be carefully designed to contain

enough  information  to  encourage  efficient  use  of  network

bandwidth,  as  well  as  containing  the  necessary  hooks  for

accounting and rebilling information.  A privatized network

is simply not viable without such standards, and work should

start immediately on developing them.



                                       35

                                Glossary30

Asynchronous Transfer Mode (ATM)

     A method for the dynamic allocation of bandwidth using
a fixed- size packet (called a cell).  ATM is also known as
"fast packet".

backbone

     The top level in a hierarchical network. Stub and transit
networks which connect to the same backbone are guaranteed
to be interconnected. See also: stub network, transit network.

bandwidth

     Technically, the difference, in Hertz (Hz), between the
highest  and  lowest  frequencies  of  a  transmission  channel.
However, as typically used, the amount of data that can be
sent through a given communications circuit.

Bitnet

     An academic computer network that provides interactive
electronic  mail  and  file  transfer  services,  using  a  store-
and-forward  protocol,  based  on  IBM  Network  Job  Entry
protocols.  Bitnet-II encapsulates the Bitnet protocol within
IP packets and depends on the Internet to route them.

circuit switching

     A communications paradigm in which a dedicated com-
munication  path  is  established  between  two  hosts,  and  on
which all packets travel. The telephone system is an example
of a circuit switched network.

connectionless

     The data communication method in which communica-
tion occurs between hosts with no previous setup.  Packets
between  two  hosts  may  take  different  routes,  as  each  is
independent of the other. UDP is a connectionless protocol.

Gopher

     A  distributed  information  service  that  makes  available
hierarchical  collections  of  information  across  the  Internet.
_________________________________________
 30  Most of these definitions are taken from Malkin and Parker (1992).
                                       36

Gopher uses a simple protocol that allows a single Gopher
client  to  access  information  from  any  accessible  Gopher
server,  providing  the  user  with  a  single  "Gopher  space"of
information. Public domain versions of the client and server
are available.
                                       37

header

     The portion of a packet, preceding the actual data, con-
taining source and destination addresses, and error checking
and other fields. A header is also the part of an electronic mail
message that precedes the body of a message and contains,
among other things, the message originator, date and time.

hop

     A  term  used  in  routing.   A  path  to  a  destination  on  a
network is a series of hops, through routers, away from the
origin.

host

     A computer that allows users to communicate with other
host computers on a network. Individual users communicate
by  using  application  programs,  such  as  electronic  mail,
Telnet and FTP.

internet

     While an internet is a network, the term "internet"is usu-
ally used to refer to a collection of networks interconnected
with routers.

Internet

     (note the capital "I") The Internet is the largest internet in
the world. Is a three level hierarchy composed of backbone
networks  (e.g.,  NSFNET,  MILNET),  mid-level  networks,
and stub networks. The Internet is a multiprotocol internet.

Internet Protocol (IP)

     The  Internet  Protocol,  defined  in  STD  5,  RFC  791,  is
the  network  layer  for  the  TCP/IP  Protocol  Suite.   It  is  a
connectionless, best-effort packet switching protocol.

National Research and Education Network (NREN)

     The NREN is the realization of an interconnected gigabit
computer network devoted to Hign Performance Computing
and Communications.

packet

     The unit of data sent across a network. "Packet"a generic
term used to describe unit of data at all levels of the protocol
stack,  but it is most correctly used to describe application
data units.



                                       38

packet switching

     A  communications  paradigm  in  which  packets  (mes-
sages) are individually routed between hosts, with no previ-
ously established communication path.

protocol

     A formal description of message formats and the rules
two computers must follow to exchange those messages. Pro-
tocols can describe low-level details of machine-to-machine
interfaces (e.g.,  the order in which bits and bytes are sent
across  a  wire)  or  high-level  exchanges  between  allocation
programs (e.g.,  the way in which two programs transfer a
file across the Internet).

route

     The  path  that  network  traffic  takes  from  its  source  to
its destination.  Also,  a possible path from a given host to
another host or destination.

router

     A device which forwards traffic between networks. The
forwarding decision is based on network layer information
and routing tables, often constructed by routing protocols.

Switched Multimegabit Data Service (SMDS)

     An  emerging  high-speed  datagram-based  public  data
network service developed by Bellcore and expected to be
widely used by telephone companies as the basis for their
data networks.

T1

     An  AT&T  term  for  a  digital  carrier  facility  used  to
transmit a DS-1 formatted digital signal at 1.544 megabits
per second.

T3

     A  term  for  a  digital  carrier  facility  used  to  transmit  a
DS-3 formatted digital signal at 44.746 megabits per second.

Transmission Control Protocol (TCP)

     An Internet Standard transport layer protocol defined in
STD  7,  RFC  793.   It  is  connection-oriented  and  stream-
oriented, as opposed to UDP.
                                       39

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