{"69306":{"#nid":"69306","#data":{"type":"news","title":"Georgia Tech Study Confirms Benefits of Tiered Pricing for Internet Service","body":[{"value":"\u003Cp\u003E\u003Cstrong\u003EATLANTA \u2013 Aug. 17, 2011 \u2013\u003C\/strong\u003E Wholesale broadband providers can enhance their profit margins by instituting a small number of pricing \u201ctiers,\u201d concludes a new study by Georgia Tech College of Computing researchers, and those companies that already do so should be satisfied to learn they are likely implementing near-optimal pricing structures.\u003C\/p\u003E\u003Cp\u003ERecently U.S. Internet service providers (ISPs) have begun charging consumers based on the amount of data they send and receive. Eventually, ISPs might offer tiered pricing that charges customers depending on the time of day they send and receive traffic (as cellular providers already do) or the physical distance a user\u2019s data must travel. Theoretically an ISP could earn the greatest profit through a near-infinite number of tiers, but the study shows that by instituting just a few tiers\u2014perhaps three or four\u2014the provider could realize nearly all of those profits.\u003C\/p\u003E\u003Cp\u003ETo investigate the effect of tiered pricing on ISP profitability, Associate Professor Nick Feamster and his colleagues studied how charging customers different prices depending on the distance the traffic must travel would affect an ISP\u2019s profits. They studied pricing practices in \u201ctransit\u201d Internet service providers\u2014essentially high-capacity service offered by large providers, often to corporate or other large consumers (such as smaller ISPs). The research is described in a paper, \u201cHow Many Tiers? Pricing in the Internet Transit Market,\u201d to be presented at SIGCOMM 2011, Aug. 15-19 in Toronto.\u003C\/p\u003E\u003Cp\u003E\u201cThe price of Internet transit service continues to plummet as competition among major providers becomes more fierce,\u201d Feamster said. \u201cAs a result, providers are abandoning the \u2018all you can eat\u2019 pricing model in favor of more sophisticated pricing structures that more accurately reflect the cost of carrying that traffic. When it comes to destination-based pricing, we found that ISPs indeed can maximize profits by slicing up their service offerings into multiple tiers. Fortunately, they can achieve near-optimal profit gains with only three or four tiers.\u201d\u003C\/p\u003E\u003Cp\u003ETo arrive at this finding, the research team first developed an economic model that could predict how an ISP\u2019s profits would be affected by varying its number of pricing tiers. In developing this model, one of the major challenges is that predicting ISP profits typically requires knowledge of costs, revenue and how customer traffic demand would vary as the ISP changed its pricing strategy. The team developed a model that can predict how profits change in response to different tiered pricing strategies\u2014armed only with knowledge of network configurations and current customer traffic demands.\u003C\/p\u003E\u003Cp\u003E\u201cWe talked to both operators and customers to find out how transit providers are pricing bandwidth,\u201d said Ph.D. candidate Vytautas Valancius, the research paper\u2019s primary author. \u201cThe traffic itself was the one thing we had, but we didn\u2019t have the ISPs\u2019 pricing, nor did we have information about the precise cost to the ISP for carrying traffic.\u201d\u003C\/p\u003E\u003Cp\u003EISPs could create a different pricing tier for each traffic flow, depending on its destination, but in practical application, a large number of tiers is difficult both for the ISP to manage and for customers to understand. In fact, Valancius said, just a few tiers yield nearly all of the benefit. The researchers also confirmed that transit providers whose costs for carrying traffic vary widely (depending on where it is destined) would enjoy the greatest benefit from tiered pricing. \u003C\/p\u003E\u003Cp\u003E\u201cOne of the most interesting aspects of this work is that network operators can use this model to design pricing tiers for their own customers, using only knowledge of current traffic demands,\u201d Feamster said. \u201cThrough our conversations with network operators, we found that many ISPs\u2019 pricing structures are still based on rough intuition, as opposed to thorough empirical analysis. We have developed the first economic model that takes real traffic data as input to understand the impact of tiered, destination-based pricing on an ISP\u2019s profit. ISPs can use this model to either confirm their current practices or design new pricing structures.\u201d\u003C\/p\u003E\u003Cp\u003EThe study focused on how tiered pricing can benefit ISPs, but Valancius added that a future direction for the research would be to apply the same model to study tiered pricing in consumer ISPs, delving more deeply into \u201cuser surplus\u201d, which would capture the value consumers get from the service they are receiving, relative to the price they are paying.\u003C\/p\u003E\u003Cp\u003EFor more information on this and other Georgia Tech papers at SIGCOMM 2011, visit \u003Ca href=\u0022http:\/\/www.gtsigcomm.com\u0022 target=\u0022_blank\u0022\u003Ewww.gtsigcomm.com\u003C\/a\u003E.\u003C\/p\u003E","summary":null,"format":"limited_html"}],"field_subtitle":[{"value":"Pricing traffic based on data destination can yield greater profit for ISPs"}],"field_summary":[{"value":"\u003Cp\u003EWholesale broadband providers can enhance their profit margins by \ninstituting a small number of pricing \u201ctiers,\u201d concludes a new study by Nick Feamster (\u003Cem\u003EComputer Science\u003C\/em\u003E) and colleagues. \u003Cem\u003ESource: Office of Communications \u003C\/em\u003E\u003C\/p\u003E","format":"limited_html"}],"field_summary_sentence":[{"value":"Broadband providers can enhance profit margins by instituting a small number of pricing \u201ctiers,\u0022 researchers found."}],"uid":"27174","created_gmt":"2011-08-15 11:37:53","changed_gmt":"2016-10-08 03:09:55","author":"Mike Terrazas","boilerplate_text":"","field_publication":"","field_article_url":"","dateline":{"date":"2011-08-15T00:00:00-04:00","iso_date":"2011-08-15T00:00:00-04:00","tz":"America\/New_York"},"extras":[],"hg_media":{"65456":{"id":"65456","type":"image","title":"Nick Feamster","body":null,"created":"1449176831","gmt_created":"2015-12-03 21:07:11","changed":"1475894579","gmt_changed":"2016-10-08 02:42:59","alt":"Nick Feamster","file":{"fid":"193222","name":"091201R007_0.jpg","image_path":"\/sites\/default\/files\/images\/091201R007_0.jpg","image_full_path":"http:\/\/www.tlwarc.hg.gatech.edu\/\/sites\/default\/files\/images\/091201R007_0.jpg","mime":"image\/jpeg","size":4993716,"path_740":"http:\/\/www.tlwarc.hg.gatech.edu\/sites\/default\/files\/styles\/740xx_scale\/public\/images\/091201R007_0.jpg?itok=Ic7pXWaY"}}},"media_ids":["65456"],"groups":[{"id":"1217","name":"Digital Lounge - Digital Life"}],"categories":[],"keywords":[{"id":"3388","name":"Broadband"},{"id":"14002","name":"internet modeling"},{"id":"14001","name":"internet pricing"},{"id":"10637","name":"nick feamster"}],"core_research_areas":[],"news_room_topics":[],"event_categories":[],"invited_audience":[],"affiliations":[],"classification":[],"areas_of_expertise":[],"news_and_recent_appearances":[],"phone":[],"contact":[{"value":"\u003Cp\u003E\u003Ca href=\u0022mailto:bstreich@cc.gatech.edu\u0022\u003EBrendan Streich\u003C\/a\u003E\u003C\/p\u003E\u003Cp\u003E404-313-5944\u003C\/p\u003E","format":"limited_html"}],"email":["bstreich@cc.gatech.edu"],"slides":[],"orientation":[],"userdata":""}}}