The initiative is the result of government's deep-seated belief that the West - especially the US - are using the Internet to insidiously "poison" Iranian minds with Western ideas and culture. Their intent is to develop a network that will comply with Islamic law and that will in the future be used not only by Iranians, but by other Muslim countries.
Such a project cannot be realized in one go, so in the beginning, this national Internet would be operating in parallel to the global Internet, but the final goal is to make it the only option for Iranian citizens.
Economy experts have challenged the feasibility of this idea, since even Iran needs the "regular" Internet to do business with China, Russia and other world countries that - unlike the US and most Western countries - don't enforce an economic embargo on the country.
Far more likely is a coexistence of the two Internets, which Cuba has proved possible and North Korea is trying to accomplish.
Along with this news, there have been also reports about the Iranian efforts of building its own computer operating system that should replace Microsoft's Windows, and of manufacturing its own filtering gear for blocking Internet traffic and access to certain websites. And, it seems that an alternative to Google and other search engines is also in the works.
While cost is one of the reason Iran wants to set up a national Internet, the primary reason is definitely about control of information, which ultimately translates into power.
Even though the government has tried to censor the information that got in and out of the country during the presidential election in June 2009, it became clear that a complete media blockade is impossible.
Can this new plan bring the results the government hopes for? I guess only time will tell.