Anthony J. Pennings, PhD


US Internet Policy, Part 1: The Rise of ISPs

Posted on | March 15, 2020 | No Comments

Much of the early success of the Internet in the USA can be attributed to the emergence of a unique organizational form, the Internet Service Provider or “ISP,” which became the dominant provider of Internet and broadband services in the 1990s. These organizations resulted from a unique set of regulatory directives that pushed the Internet’s development and created a competitive environment that encouraged the proliferation of ISPs and the spread of the World Wide Web.

In this series on Internet policy, I look at the rise of the World Wide Web, the shift to broadband, deregulation, and consolidation of broadband services. Later in the series, I address the issue of net neutrality and raise the question, “Is Internet service a utility? Is it an essential service that should be made universally available to all Americans at regulated prices?

The first ISPs began as US government-funded entities that served research and education communities of the early Internet. Secured by Al Gore in 1991, legislation signed by President George H. Bush created the model of the National Research and Education Network (NREN), a government-sponsored internet service provider dedicated to supporting the needs of the research and education communities within the US. Internet2, Merit, NYSERNET, OARnet, and KanRen were a few of the systems that provided schools and other non-profit organizations access to the World Wide Web. While dialup services like Compuserve existed in the early 1980s, only later were the ISPs released for commercial traffic and services.

While telecommunications carriers had been moving some Internet traffic since the late 1980s, their role expanded dramatically after the Internet began to allow commercial activities. In June of 1992 Congressman Rick Boucher (D-Va) introduced an amendment to the National Science Act of 1950 that allowed commercial activities on the US National Science Foundation Network (NSFNET). “A few months later, while waiting for Arkansas Governor William Jefferson Clinton to take over the Presidency, outgoing President George Bush, Sr. signed the Act into law.” The amendment allowed advertising and sales activities on the NSFNET and marked the advent of online commercial activities.

As part of the National Information Infrastructure (NII) plan, the US government decommissioned the US National Science Foundation Network (NSFNET) in 1995. It had been the publicly financed backbone for most IP traffic in the US. The NII handed over interconnection to four Network Access Points (NAPs) in different parts of the country to create a bridge to the modern Internet of many private-sector competitors.

These NAPS contracted with the big commercial carriers of the time such as Ameritech, Pacific Bell, and Sprint for new facilities to form a network-of-networks, anchored around Internet Exchange Points (IXPs). The former regional Bell companies were to be primarily wholesalers, interconnecting with ISPs. This relatively easy process of connecting routers was to put the “inter” in the Internet but also became sites of performance degradation and unequal power relations.

As the Internet took off in the late 1990s, thousands of new ISPs set up business to commercialize the Internet. The major markets for ISPs were: 1) access services, 2) wholesale IP services, and 3) value-added services offered to individuals and corporations. Access services were provided for both individual and corporate accounts and involved connecting them to the Internet via dial-up, ISDN, T-1, frame-relay or other network connections. Wholesale IP services were primarily offered by facilities-based providers like MCI, Sprint, and WorldCom UUNET (a spinoff of a DOD-funded seismic research facility) and involved providing leased capacity over its backbone networks. Value-added services included web-hosting, e-commerce, and networked resident security services. By the end of 1997, over 4,900 ISPs existed in North America, although most of them had fewer than 3,000 subscribers.[2] See the below video and this response for how much things have changed.

FCC policy had allowed unlimited local phone calling for enhanced computer services and early Internet users connected to their local ISP using their modems over POTS (Plain Old Telephone System). ISPs quickly developed software that was put on CD-ROMs that could be easily installed on a personal computer. The software usually put an icon on the desktop screen of the computer that when clicked on would dial the ISP automatically, provide the password, and connect the user to Internet. A company called Netscape created a popular “browser” that allowed text and images to be displayed on the screen. The browser used what was called the World Wide Web, a system of accessing files quickly from computer servers all over the globe.

The ISPs emerged as an important component to the Internet’s accessibility and were greatly aided by US government policy. The distinctions made in the FCC’s Second Computer Inquiry in 1981 allowed ISPs to bypass many of the regulatory roadblocks experienced by traditional communication carriers. They opened up possibilities and created protections for computer communications. Telcos were to provide regulated basic services and “enhanced services” were to stay unregulated. Dan Schiller explained:

    Under federal regulation, U.S. ISPs had been classed as providers of enhanced service. This designation conferred on ISPs a characteristically privileged status within the liberalized zone of network development. It exempted them from the interconnection, or access, charges levied on other systems that tie in with local telephone networks; it also meant that ISPs did not have to pay into the government’s universal service fund, which provided subsidies to support telephone access in low-income and rural areas. As a result of this sustained federal policy, ISPs enjoyed a substantial cross-subsidy, which was borne by ordinary voice users of the local telecommunications network.[3]

ISPs looked to equip themselves for potential new markets and also connect with other companies. For example, IBM and telecom provider Qwest hooked up to offer web hosting services. PSINet bought Metamor to not only transfer data but to host, design, and move companies from the old software environment to the new digital environment. ISPs increasingly saw themselves as not only providers of a transparent data pipe but also as a provider of value-added services such as web hosting, colocation, and support for domain name registration.

The next part of this series will discuss the shift to higher speed broadband capabilities. Later, the consolidation of the industries starting in 2005 when the FCC changed the regulatory regime for wireline broadband services.


[1] Hundt, R. (2000) You Say You Want a Revolution? A Story of Information Age Politics. Yale University Press. p. 25.
[2] McCarthy, B. (1999) “Introduction to the Directory of Internet Service Providers,” Boardwatch Magazine’s Directory of Internet Service Providers. Winter 1998-Spring 1999. p. 4.
[3] Schiller, D. (1999) Digital Capitalism. The MIT Press. p. 31.


AnthonybwAnthony J. Pennings, PhD is Professor and Undergraduate Director at the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he taught at Hannam University in South Korea and from 2002-2012 was on the faculty of New York University. Previously, he taught at St. Edwards University in Austin, Texas, Marist College in New York, and Victoria University in New Zealand. He has also spent time as a Fellow at the East-West Center in Honolulu, Hawaii.


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    Professor at State University of New York (SUNY) Korea since 2016. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, digital economics, and strategic communications.

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