Network dimensioning, service costing and pricing in a packet switched environment

Gareth Davies, Michael Hardt and Frank Kelly

Telecommunications Policy 28 (2004) 391-412.
"Come the revolution - network dimensioning, service costing and pricing in a packet switched environment"


The telecommunications industry is going through a technological revolution, involving a transition from multiple voice and data networks to integrated service networks using packet switching technologies. The paper describes a new framework (the IPCP Framework) for capacity planning and costing in an IP network environment. Capacity Planning is carried out in four stages, the first of which is based on the concept of Effective Bandwidth, with the other three addressing the needs of different classes of traffic (Real Time, Interactive Data and Streaming, and Delay-Tolerant Services). The Framework enables network operators to reduce costs by optimising their capacity requirements and, with the aid of the IP Costing Module, to determine the costs of the various services that use integrated IP networks, each of which may have a different set of service quality requirements. Illustrative results show that capacity requirements and costs per Mbit vary significantly by service type, a finding with far-reaching implications for business planning and pricing. The approach has been extended to support the design of the new pricing models that will be required in an IP environment and to provide a basis for decisions on traffic management and product portfolio optimisation. The paper also describes the policy implications of the migration to multi-service, packet-based networks, and emphasises the need for regulators, as well as operators, to gain an understanding of the new economics of service provision.

Keywords: IP networks; packet switching; capacity planning; service costing; pricing, regulation

Available as pdf.

Citations, from Google Scholar.

Gareth Davies was until recently a Partner in IBM Business Consulting's Telco Strategy Group, based in London, and is now Director of Competition Policy at Ofcom, the regulatory agency for the UK communications sector. Dr Michael Hardt was a Managing Consultant in IBM Business Consulting's Telco Strategy Group, and is now with PricewaterhouseCoopers in London. Frank Kelly is Professor of the Mathematics of Systems at the University of Cambridge.