Come the Revolution – Network Dimensioning, Service Costing and Pricing in a Packet Switched Environment Gareth Davies, Michael Hardt and Frank Kelly 1 Abstract 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 Introduction The telecommunications industry is going through a technological revolution, involving a transition from networks based primarily on circuit-switched technologies to those based on packet switching. At the same time, multiple networks, each designed to meet the needs of a particular service or traffic category, are giving way to integrated networks, able simultaneously to support the requirements of a wide range of services. These trends are evident in both mobile and fixed networks. The development plans of mobile operators revolve around the growth of 3G networks, designed to carry a wide variety of traffic types, from conventional voice, to interactive data, video and messaging. Many of the major fixed network operators are also busy planning the migration from a circuit-switched, PSTN environment to integrated, multi-service networks based on packet switched technologies. The switch is likely to take 5-10 years to complete, but it is clearly happening. The casualties of this revolution will be many, and they will include the approaches currently used within the industry to dimension networks, and to cost and price the services carried over them. New methods are required, first to enable network planners and commercial managers to quantify the relationship between traffic 1 Gareth Davies was until recently a Partner in IBM Business Consulting’s Telco Strategy Group, based in London. He can be contacted on tel. +44 (0) 7802 917975 or by e-mail at garethddavies@btconnect.com. Dr Michael Hardt is a Managing Consultant in IBM Business Consulting’s Telco Strategy Group, based in London, tel. +44 (0)7808 904351, fax. +44 (0)20 7928 4464, e-mail: michael.hardt@uk.ibm.com. Frank Kelly is Professor of the Mathematics of Systems at the University of Cambridge, tel. +44 (0)1223 337963, fax. +44 (0)1223 337956, e-mail: f.p.kelly@statslab.cam.ac.uk. 1