I feel sorry for the Iranian people, who by-and-large, are reasonably normal, but are stuck with a crap theocratic government through little fault of their own.
The whole story is a fake allegation about building nationwide network backbone that many countries already have. Right now, a lot of websites owned by Iranian governments are hosted outside the country and the whole network of the country is dependent on servers located in countries like United States that can cause troubles for e-Government systems of Iran with just a few clicks.
So, they've decided to create an Intranet and several data centers for hosting government websites and serving e-Government services. This has nothing to do with the Internet and privately owned Iranian websites. Why give people Internet and then take it from them and give them Intranet? If the report's claim was true, they could simply don't give internet to the people in the first place.
The funny thing is that when other countries create Intranets for fast and seamless access to information in a nationwide network, everybody appreciate the progress. But it seems that any progress in Iran is considered a threat by some technophobes.
If you're really serious, go and stop Google from invading your privacy, if you can, in a non-theocratic democratic peace-loving country like United States!