Telecommunication Network Economics

Transcription

1 Telecommunication Network Economics Presenting a balance of theory and practice, this up-to-date guide provides a comprehensive overview of the key issues in telecommunication network economics, as well as the mathematical models behind the solutions. These mathematical foundations enable the reader to understand the economic issues arising at this pivotal time in network economics, from business, research, and political perspectives. This is followed by a unique practical guide to current topics, including app stores, volume-based pricing, auctions for advertisements, search engine business models, the network neutrality debate, the relationship between mobile network operators and mobile virtual network operators, and the economics of security. The guide discusses all types of players in telecommunications, including users, access and transit network providers, service providers (including search engines, cloud providers and content delivery networks), content providers, and regulatory bodies. Ideal for graduate students, researchers, and industry practitioners working in telecommunications. PatrickMaillé has been with the Networks, Security and Multimedia Department of Telecom Bretagne (Institut Mines-Telecom) since He has written or co-written more than 60 papers on game theory and economic concepts applied to telecommunication ecosystems. Bruno Tuffin has been with Inria in Rennes, France, since He has written or co-written more than 100 papers and two books on Monte Carlo and quasi-monte Carlo simulation techniques for the performance evaluation of telecommunication systems, and on developing new Internet-pricing schemes and telecommunication-related economic models.

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3 Telecommunication Network Economics From Theory to Applications PATRICK MAILLÉ Telecom Bretagne BRUNO TUFFIN Inria

4 University Printing House, Cambridge CB2 8BS, United Kingdom Published in the United States of America by Cambridge University Press, New York Cambridge University Press is part of the University of Cambridge. It furthers the University s mission by disseminating knowledge in the pursuit of education, learning and research at the highest international levels of excellence. Information on this title: / Cambridge University Press 2014 This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2014 Printed in the United Kingdom by CPI Group Ltd, Croydon CR0 4YY A catalogue record for this publication is available from the British Library ISBN Hardback Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.

5 Contents Preface page ix 1 Introduction: telecommunications evolution and the set of actors The evolution of telecommunications and the associated economic models The need for modeling and analysis The tragedy of the commons The Braess paradox Spectrum auctions The network neutrality debate A description of the actors Goals of the book Outline of the book 21 2 Mathematical foundations: optimization, game theory, auctions Basic economic theory Representing actor preferences Effect of prices on demand Global performance of an outcome Mathematical tools Continuous optimization methods Fixed-point results Game theory Vocabulary and definitions Non-atomic games Bayesian games Congestion games Potential games Stackelberg games Repeated games Further reading Mechanism design and auctions General principles and desirable properties 77

6 vi Contents The revelation principle Auctions: a specific type of mechanism First-price auctions Iterative open auctions Second-price auctions Revenue-equivalence results Vickrey Clarke Groves auctions Combinatorial auctions Double-sided auctions Towards computational mechanism design Conclusion 86 3 Economics of access service providers History and evolution of access pricing models Expectations of users and ISPs, impact on other actors Flat-rate pricing Volume-based pricing Congestion and value-based pricing Pricing and connection acceptance control Multiclass pricing Auctions Interference-based pricing for wireless networks The Kelly mechanism Economics of bundling Economics at the content and application level A bit of history Advertising Auctioning for advertising slots: basic principles Auctions between advertisers Extensions of the basic auction model Pay-per-click or pay-per-view? Learning Existing tools/companies Paid applications versus free applications with advertisements Economics of clouds/grids Economics of peer-to-peer systems Economics of content delivery networks Interactions among network service providers Introduction Auctions for wireless spectrum 163

7 Contents vii Why use auctions? Auction rules and evolution Evolving from simultaneous ascending auctions to incentive auctions Competition between access providers Association models based on user utility Aggregated demand models Providers competing in multiple-time-scale decision games To license or not to license resources? Client but competitor: the (unsustainable?) situation of MVNOs Exploiting secondary markets Can MNO MVNO associations survive? Observations from different countries Can MNO MVNO associations survive? Theoretical approaches The economics of interconnection An example The problem of incentivizing intermediate entities Some proposals for ad-hoc networks or multi-hop cellular networks The economics of community networks Interactions among content or application service providers Introduction Competition at the content level General models Online TV competition An illustrative model of competition among free CPs with advertising A specific case: competition between search engines The economics of network security Economic models for security analysis Competition among security providers Collaboration/competition issues Relations between content/application providers and access service providers The evolution of economic relations between content/application and network providers Value chain, vertical integration Value chain and multi-sided markets Vertical integration The network neutrality issue Introduction and historical facts Arguments of proponents and opponents of neutrality 250

8 viii Contents Modeling content and network providers interactions and analyzing neutrality issues Search neutrality The debate Do search engines return biased results? Do we need regulatory intervention? Neutral versus non-neutral search engines: a simple model The case of a general set of keywords Personalization of search results: what I want to see versus what I need to see 271 References 272 Index 288

9 Preface Network economics is a very hot topic, at the same time from a research point of view (with several conferences devoted to the theme, plus a devoted section in most of the other main telecommunication conferences), from a political point of view (as highlighted by the network neutrality debate, the increasing discussion on volume-based pricing, etc.), and of course from a business point of view (encompassing advertisement pricing definition, spectrum selling and sharing, bundling of offers, etc.). We believe that it is very good timing to release a book on the issue, describing both the theory and key specific applications, because of all the economic issues that constantly pop up in telecommunications. It is probably a cornerstone time for a redefinition of the Internet business model. While writing (scientific) papers on network economics, we also had the feeling that there was some room for a (new) book in the area. Indeed, there was to the best of our knowledge no recent work mixing mathematical theory and deep analysis of the economic stakes that had appeared in telecommunications. As illustrations of the issues we have in mind, we can mention the network neutrality debate, the relations between mobile network operators and mobile virtual network operators, the management of application stores, the economics of security, auctions for advertisements on different media (content pages, applications, or search engines), etc. In all those cases the interactions among their components need to be described, together with a solid scientific foundation, leading towards a careful analysis. Our book is designed to have a balance between theory and practice. Finally, after around ten years of research experience in the area, we think that this book is an opportunity to put together all the pieces of our activity and to push the analysis one step further. This book is a monograph, but we believe that it can be also considered as a textbook at the Master level, for instance, because it will include all the necessary theoretical material. We would like to thank Mia Balashova, Samantha Richter and Phil Meyer from Cambridge University Press for their assistance, encouragement, and patience during the preparation of this book. We also express our gratitude to Dr Steven Holt for his careful reading and the numerous improvements he suggested, and to Arindam Bose for helping implement them. Finally, we thank Maria Maillé for providing the cover picture. Any mistake, error of judgement, or treatment imbalance in the book is our sole responsibility.

10 x Preface About the authors Patrick Maillé graduated from the Ecole Polytechnique and Telecom ParisTech, France, in 2000 and 2002, respectively. He has been with the Networks, Security and Multimedia department of Telecom Bretagne since 2002, where he obtained his PhD in applied mathematics in 2005, followed by a six-month visit to Columbia University in His research interests are in game theory and economic concepts applied to telecommunication ecosystems (resource pricing, routing, consequences of user selfishness for network performance). He has authored or co-authored more than sixty papers on those topics. Bruno Tuffin received his PhD in applied mathematics from the Université de Rennes 1 (France) in Since then, he has been with Inria in Rennes. He spent eight months as a postdoc at Duke University in His research interests include developing Monte Carlo and quasi-monte Carlo simulation techniques for the performance evaluation of telecommunication systems, and developing new Internet-pricing schemes and telecommunication-related economic models. He has published more than one hundred papers on those issues. He has also led or participated in several French and European projects, and co-organized several conferences. He is currently Associate Editor of INFORMS Journal on Computing, ACM Transactions on Modeling and Computer Simulation, and Mathematical Methods of Operations Research. He has written or cowritten two books devoted to simulation: Rare Event Simulation Using Monte Carlo Methods, published by John Wiley & Sons in 2009, and La simulation de Monte Carlo (in French), published by Hermes Editions in 2010.