The main activity of the Network Economics and Services Laboratory lies in bridging the gap between traditional economics and modern telecommunication service technology. It investigates models and concepts where technology, information and economics meet.
Recent advances in technology, combined with the deregulation of the telecommunication market and the proliferation of the Internet, has created a new and highly competitive environment for communication service providers. In this environment both technology and economics play major roles. Technological decisions are influenced by business plans, and these are influenced by issues of competition and pricing. From the start, services should be considered only as technology infrastructures but also with their pricing and revenue producing aspects. Technology itself can place severe restrictions on how a particular service can be priced, thereby influencing the structure and the viability of the business models that the service can support. Thus a continuous feedback between new technology capabilities and market demand, combined with the large network externality effects provided by the Internet connectivity, is determining the shape of new competitive business models and services. The research activity of the laboratory is in the following main areas:
Traditionally, communication services have been conceived by engineers, without attention to economics or marketing issues. This was because such services were deployed by large guaranteed income monopolies. Services were bundled and the pricing aspects of individual services were secondary. Today, services are sold independently in competitive markets and an important part of any service's definition is how it should be priced. For important reasons the pricing of telecommunications services is new and stimulating subject:
Pricing affects the way services are used and the amount of resources consumed, which in turn affects network congestion. The value obtained by customers who use the network services depends on network congestion and so on the way services are priced. Communication service contracts provide for substantial flexibility and pricing plays an important role as an incentive mechanism to control network performance and increase stability. Flat versus usage-based charging may have important effects upon both the short and long term operation of the network and its competitive position. These effects must be made clear to the people designing pricing policies. The stability of the future Internet may well depend on the deployment of incentive-compatible pricing schemes.
The Internet networking technology provides new possibilities for economic signals to be exchanged in fast time scales between the producers and the consumers of network services. This allows the creation of new flexible services, for which customers are in control and can better express their needs for quality and quantity of network resources. Such possibilities were not available a few years ago when the network, rather than customers, statically defined services. Today's technology allows for the creation of an on-line telecommunication services market in which prices are dynamically established to reflect service demand and availability. The underlying complexity of such a system can be hidden from the end users by the deployment of intelligent software that knows their preferences and makes optimal choices on their behalf.
Competition is greatly influenced by network architecture and the ability of a few players to control bottleneck resources in parts of the network, such as the access. The architecture of new networks should provide an open, and competitive environment for all parts in the supply chain of services. If the market cannot itself establish such a competitive environment, regulation must intervene to impose corrective rules. Thus issues of competition and regulation are important in today's telecommunication market, and must take account of new networking technology capabilities.
Communication services are economic goods and must be priced accordingly. There are generic service models that capture aspects such as quality, mobility and performance and which can be used to derive optimal prices in a services market. They can be used to propose pricing models with the appropriate incentive properties by pricing the various service contract parameters. To model the network as a flexible service factory we must carefully consider the specific underlying technology.
The Internet service model allows customers to create their own self-organized structures, with a reduced role for central control. Such peer-to-peer groups benefit from the information available within members of the group but must also share the cost. Customers that benefit more may try to hide this fact so that they pay a smaller share. Similarly, new wireless technology allows for the creation of ad-hoc networks that compete for spectrum resources, and which must share such costs among their customers. Internet multicasting is another example in which a group of customers benefits from the size of the group by sharing transmission costs. How should the cost of the service be shared among customers? How should customers providing higher value to the group be rewarded? Under what conditions are such distributed service models sustainable? Clearly, economics rather than technology plays the crucial role.
How will Internet traffic evolve? Most of today's Internet traffic is generated by a relative small number of congestion-aware servers hosting a major part of the information in the Internet. The use of the TCP protocol for transmitting the majority of the web traffic is the reason for the stable operation of the Internet. In the near future, more machines (gadgets, appliances, etc.) than humans will be connected to the Internet, and peer-to-peer service, rather than central servers, will be the dominant source of Internet traffic. It is not clear that this new traffic will be TCP compliant, and so the stability margin in the new Internet may be reduced. Pricing such traffic sources may play an important role in providing the incentives for shaping traffic and for maintaining stability.
Network service providers need tools with which they can measure demand and differentiate their services appropriately. It is not trivial to define the correct market segments and tune the corresponding services in terms of quality and pricing policies; this requires measurements of the user demand. Today's accounting and billing tools permit the collection of vast amounts of data, which must be analysed to infer properties of the user demand functions. Mapping such large data warehouse information into service shaping decisions is an important task of practical interest.