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Talk OutlineTalk Outline Real Options Approach Market Uncertainty Network Architecture A simple real options model What is network neutrality Model applied to network neutrality
Link the excepted ARPU to market uncertainty
Real Options Approach Market Uncertainty Network Architecture A simple real options model What is network neutrality Model applied to network neutrality
Traditional networks metricsTraditional networks metrics
What are traditional methodologies good for If I know what users want
What if we don’t understand what users want? What services, with what features? How much will they pay for them? Does uncertainty imply more value to network neutrality
Real options value uncertainty and choice
What are traditional methodologies good for If I know what users want
What if we don’t understand what users want? What services, with what features? How much will they pay for them? Does uncertainty imply more value to network neutrality
What is Experimentation Features in devices and services
Distributed management structure is easy to experiment with Don’t need permission Don’t need to change network infrastructure A bad experiment only affects a few users
Centralized management makes experimentation hard Need to change network infrastructure Need to ask permission Many users affected with bad experiment
What is Experimentation Features in devices and services
Distributed management structure is easy to experiment with Don’t need permission Don’t need to change network infrastructure A bad experiment only affects a few users
Centralized management makes experimentation hard Need to change network infrastructure Need to ask permission Many users affected with bad experiment
Centralized managementPeople, Equipment and Data centralized managedEfficient use of resourcesKnow users and usageConsistency of environmentHard to changeIn-flexible for new applications
Distributed managementP,E,D locally managedEasy to experiment withUser control Small scale non-intrusive experimentation possiblePoor use of resources
Best of Many Attempts to Meet the Market(When is experimentation worthwhile?
When market uncertainty is high)
Best of Many Attempts to Meet the Market(When is experimentation worthwhile?
When market uncertainty is high)
Each attempt is an implementation with a particular feature set Extreme order statistics – Value of best of many attempts High market uncertainty => someone wins big (maybe you), low market
uncertainty => no big winners because its easy to satisfy users
Each attempt is an implementation with a particular feature set Extreme order statistics – Value of best of many attempts High market uncertainty => someone wins big (maybe you), low market
uncertainty => no big winners because its easy to satisfy users
Normal Density Function
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
-3 -2 -1 0 1 2 3
Experiment Value
Probability
S.D=1
s.d.
34.13% 13.59
%13.59
%
34.13%
2%2%
E(X) = V = MeanU10
U100
Normal Density Function
00.20.40.60.8
11.21.41.61.8
-3 -2 -1 0 1 2 3
Experiment Value
Probability
S.D=1
S.D=.25
Ux = V + s.d * Q(x) Q(x) is number of s.d.’s from the mean
Distributed PBX compared to centralized Centrex Shift to centralized in 1996
Low MU because good market predictions, stable feature set Market uncertainty is likely cause of this shift Technology or regulation can’t explain this shift
Distributed PBX compared to centralized Centrex Shift to centralized in 1996
Low MU because good market predictions, stable feature set Market uncertainty is likely cause of this shift Technology or regulation can’t explain this shift
Openness in 700MHz SpectrumOpenness in 700MHz Spectrum Google wanted in the 700MHz C block:
“Open applications: consumers should be able to download and utilize any software applications, content, or services they desire;
Open devices: consumers should be able to utilize a handheld communications device with whatever wireless network they prefer;
Open services: third parties (resellers) should be able to acquire wireless services from a 700 MHz licensee on a wholesale basis, based on reasonably nondiscriminatory commercial terms; and
Open networks: third parties (like internet service providers) should be able to interconnect at a technically feasible point in a 700 MHz licensee's wireless network. “ - http://googlepublicpolicy.blogspot.com/2007/07/promise-of-open-platforms-in-upcoming.html
FCC wants: Any device and application
Carriers want their devices, applications, services, and no wholesale network pricing!
Google wanted in the 700MHz C block: “Open applications: consumers should be able to download and utilize any software
applications, content, or services they desire; Open devices: consumers should be able to utilize a handheld communications
device with whatever wireless network they prefer; Open services: third parties (resellers) should be able to acquire wireless services
from a 700 MHz licensee on a wholesale basis, based on reasonably nondiscriminatory commercial terms; and
Open networks: third parties (like internet service providers) should be able to interconnect at a technically feasible point in a 700 MHz licensee's wireless network. “ - http://googlepublicpolicy.blogspot.com/2007/07/promise-of-open-platforms-in-upcoming.html
FCC wants: Any device and application
Carriers want their devices, applications, services, and no wholesale network pricing!
Architecture Vs NeutralityArchitecture Vs Neutrality
Centralized networks such as the PSTN and Cellular are easy to control and do not promote network neutrality But, then can be neutral if the central manager allows it
Distributed networks such as the Internet promote neutral network But, it is possible for ISPs to bias traffic
The PSTN has grown more distributed, and the Internet has become more centralized
Centralized networks such as the PSTN and Cellular are easy to control and do not promote network neutrality But, then can be neutral if the central manager allows it
Distributed networks such as the Internet promote neutral network But, it is possible for ISPs to bias traffic
The PSTN has grown more distributed, and the Internet has become more centralized
Neutrality ModelNeutrality Model R(SCP) = total revenue from customers for services and content to the provider(s)
Sum of revenue for all non-transport services and content. R(TSP) = total revenue from customers for transport service to the transport
provider We assume the value of R(TSP) is proportional to the value of R(SCP), the more the
services and content is worth, the more the pathway to these services and content is valued by users
Let “P” be this proportionality constant, then: R(TSP) = “P” * R(SCP)
This is similar to metered pricing that charges by byte, however in this case the “network tax” is related to the value of the service to the user, not the network resources consumed by the service
In this simple model the total value of the network is just R(SCP) + R(TSP) V(Total) = R(SCP) * (1 + “P”) – Total value of the network infrastructure.
V(Total) has two components, the transport service (i.e. R(SCP) * “P”) and the service component (i.e. R(SCP))
R(SCP) = total revenue from customers for services and content to the provider(s) Sum of revenue for all non-transport services and content.
R(TSP) = total revenue from customers for transport service to the transport provider We assume the value of R(TSP) is proportional to the value of R(SCP), the more the
services and content is worth, the more the pathway to these services and content is valued by users
Let “P” be this proportionality constant, then: R(TSP) = “P” * R(SCP)
This is similar to metered pricing that charges by byte, however in this case the “network tax” is related to the value of the service to the user, not the network resources consumed by the service
In this simple model the total value of the network is just R(SCP) + R(TSP) V(Total) = R(SCP) * (1 + “P”) – Total value of the network infrastructure.
V(Total) has two components, the transport service (i.e. R(SCP) * “P”) and the service component (i.e. R(SCP))
Value of Non-Neutral Network(No Market Uncertainty)
Value of Non-Neutral Network(No Market Uncertainty)
In this case, R(SCP) = the number of subscribers, times the fixed price. The fixed price with no market uncertainty is just “AP” the mean of the no longer random variable describing the value of a set of services selected by the service provider
In this case, R(SCP) = the number of subscribers, times the fixed price. The fixed price with no market uncertainty is just “AP” the mean of the no longer random variable describing the value of a set of services selected by the service provider
Value of Neutral Network (Market Uncertainty)Value of Neutral Network (Market Uncertainty) V(Total) = (revenue of services from transport provider) + (revenue from services for other providers) + (revenue from new users) + (transport revenue)
V(Total) = (“N/8” * AP) + /25% of the 50% of users that value the /bundled service the most - Very Happy ((3/8) * “N” * Ux) + /rest of the 50% don’t get the bundle, but /they pay more - i.e. Ux
((34/100) * “N” * Ux) + /68% of the 50% of non-users become /users because they have choice, they pay Ux “P” * ((“N/8” * AP) + ((3/8) * “N” * Ux)) + ((34/100) * “N” * Ux))) /Transport
= (1+P) * (“N/8” * AP + (71.5/100) * “N” * Ux)
Total service revenue is (“N/8” * AP + (71.5/100) * “N” * Ux), and the network transport tax is P times this service revenue
V(Total) = (revenue of services from transport provider) + (revenue from services for other providers) + (revenue from new users) + (transport revenue)
V(Total) = (“N/8” * AP) + /25% of the 50% of users that value the /bundled service the most - Very Happy ((3/8) * “N” * Ux) + /rest of the 50% don’t get the bundle, but /they pay more - i.e. Ux
((34/100) * “N” * Ux) + /68% of the 50% of non-users become /users because they have choice, they pay Ux “P” * ((“N/8” * AP) + ((3/8) * “N” * Ux)) + ((34/100) * “N” * Ux))) /Transport
= (1+P) * (“N/8” * AP + (71.5/100) * “N” * Ux)
Total service revenue is (“N/8” * AP + (71.5/100) * “N” * Ux), and the network transport tax is P times this service revenue