Time and Volume Based Optimal Pricing Strategies for Telecommunication Networks

In the recent past, there have been several initiatives by major network providers such as Turk Telekom lead the industry towards network capacity distribution in Turkey. In this study, we use a monopoly pricing model to examine the optimal pricing strategies for “payper-volume” and “pay-per-time” based leasing of data networks. Traditionally, network capacity distribution includes short/long term bandwidth and/or usage time leasing. Each consumer has a choice to select volume based pricing or connection time based pricing. When customers choose connection time based pricing, their optimal behavior would be utilizing the bandwidth capacity fully therefore it can cause network to burst. Also, offering pay-per-volume scheme to the consumer provides the advantage of leasing the excess capacity for other potential customers for network provider. We examine the following issues in this study: (i) What are the extra benefits to the network provider for providing the volume based pricing scheme? and (ii) Does the amount of demand (number of customers enter the market) change? The contribution of this paper is to show that pay-per-volume is a viable alternative for a large number of customers, and that judicious pricing for pay-per-volume is profitable for the network provider.