Internet

1
Internet

• Economics 235 Economics of Telecommunications

2
What is the Internet?

• Worldwide network of computer networks that use
  TCP/IP protocols.

3
Where did the Internet come from?

• ARPAnet - late 60's Advanced Research Projects
  Administration - Defense Dept., contractors and
  universities.
• NSFnet - mid 80's linked universities and
  supercomputer centers.
• Privatized as of April 30, 1995

4
Modularity and Layering

• Modularity managing complexity by enabling
  different products to work together through well
  understood rules.
• Layers
• Physical layer millions of networked computers
  joined together
• Logical Layer common computer addressing scheme
  and protocols TCP/IP
• Application layer email/WWW

5
How big is it?
6
(No Transcript)
7
(No Transcript)
8
(No Transcript)
9
(No Transcript)
10
(No Transcript)
11
(No Transcript)
12
(No Transcript)
13
Who runs it?

• No one.

14
Circuit switching vs. Packet switching

• Why do data networks use packet switching?

15
Pricing Internet access (current Small End
Users)

• Connection pricing - fixed bandwidth connection
  with unlimited usage up to the max.
• Marginal packet is priced at zero.

16
Economic Problems

• Over-utilitizing PSTN with Internet
• Congestion on the Internet

17
Local Network Problems

• Data from Pacific Telesis 1995
• Avg voice call is 3.8 minutes
• Avg Internet connection is 20.8 minutes
• 10 of Internet calls last 6 hours or more
• Peak hour is 10 pm not daytime
• LECs called for Access Charge pricing for ISPs

18
(No Transcript)
19
(No Transcript)
20
(No Transcript)
21
(No Transcript)
22
Local Network Solutions

• People starting buying second lines increasing
  LEC revenue
• ADSL shifts burden from PSTN and enhances LEC
  revenue even more

23
Congestion on the Internet

• Problem of commons/externality
• Each packet that I send imposes a cost on all
  other users because the resources that I am using
  are not available to them - may result in delay
  or lost packets.

24
Non-Price Mechanisms to control congestion

• Prioritize packets/impossible to enforce
• Voluntary efforts to reduce usage
• Over provisioning to handle peak demands

25
Pricing Mechanisms to control congestion

• Usage-based pricing
• Committed Information Rate pricing (CIR)
• Expected Capacity Price

26
Usage-based pricing - Difficulties

• Accounting for each packet is infeasible
• Want to track individual user who is causing the
  cost can only track host computer.
• People have a flat rate bias

27
Committed Information Rate pricing (CIR)

• Two part tariff
• Price based on connection fee (flat fee)
• Price based on guaranteed flow to customer
• Committed Information Rate is the amount sent to
  a single user if all users were on the network /
  worst case rate

28
What should be priced?

• Three main elements of costs - prices should be
  matched to costs
• Cost of connecting to the net. Already priced.
• Cost of providing additional network capacity.
  Charge organization for usage during the peak
  time.
• Social cost of congestion. Vickrey auction - bid
  for packet to go thru - all charged lowest bid
  price that went thru.

29
How much would a Vickrey Auction cost?

• Less than .50/person/month.

30
Non-Congestion Pricing

• Once capacity is in place, direct usage and is
  negligible by itself not worth charging for given
  accounting and billing costs.
• ISP's local access same as switched access but
  price discriminated.

31

32
Broadband to the Home

• Cable Modems
• ADSL

33
(No Transcript)
34
(No Transcript)
35
Cable Modems ATT and Open Access

• Residential neighborhoods
• Shared

36
Major Cable Modem Providers by Subscribership, Q1
2005
37

• Distance from CO
• Ubiquitous
• Res Bus

38
Major DSL Providers by Subscribership, Q1 2005
39
(No Transcript)
40
New Plans

• ATT is using FTTN (Fiber to the Node) 250 per
  subscriber predicting 20 penetration for
  IP-based video services
• Verizon is using FTTP (Fiber to the Premises)
  1,100 per subscriber