Whither Chargeback

Marvin Sirbu (ms6b+@andrew.cmu.edu)
Thu, 5 May 88 10:44:43 -0400 (EDT)

The issues being discussed here regarding chargeback are faced regularly by
every corporation which has a private telecommunications network. Consider the

1. What to do when different networks have different prices?
This is eminently true of today's telecommunications providers. MCI, AT&T, and
Sprint all have different price schedules. You can buy leased lines with flat
rates for service up to a bandwidth limit, WATS lines which are distance
insensitive but usage priced (after a minimum), and regular Direct Distance
Dialed (DDD) service which is priced by both time and distance. Corporations
buy Private Branch Exchanges (PBXs) with Least Cost Routing (LCR) software
which decides on a call-by-call basis which network to use. Calls go by
preference over leased lines since you've paid for them anyway. If the leased
line is busy, there are several alternatives: a) you get a busy signal and the
client places the call again, perhaps specifying an alternate carrier; b) the
call automatically overflows onto the next highest cost facility. As to
chargeback in this environment, again there are several approaches. You can
calculate the average cost per minute over the various networks (leased lines,
WATS, etc.) for all calls from A to B and use that as the basis for chargeback.
 This puts the burden on the telecom manager to optimize the LCR and the
facilities to minimize total costs. Or, particularly with option a) above, the
user pays the cost for the facility used; if he replaces the call on the DDD
network rather than waiting for the tie line to become free, he pays a higher
price for the call. Time of day pricing leads users to defer traffic such as
mail to off peak hours. This reduces the peak traffic and the corresponding
network capacity required. There are lots of variations in between.

2. Connection charges versus usage charges.
Both are clearly required. Much of the network cost is in access, so
connection charges should probably recover a large chunk of the total cost.
But usage charges are also important: how else do you justify investing in
that FTP implementation that uses the restart facility? Usage charges create
incentives to write better software (or to go out and buy better software) that
will cut the usage cost. In the same way, time usage charges on DDD networks
lead customers to justify buying higher speed modems or data compression boxes.
 Right now, there is only the small incentive of minimizing processor
interrupts to get people to write network code that does sensible thinks about
packet acknowledgements.

3. Money for capacity expansion.
In the U.S. the carriers have always financed capacity expansion out of profits
or borrowing. In Europe, for example France before 1970, capacity expansion
had to be funded out of legislative appropriations; all profits were returned
to the treasury. Anyone who ever tried to use a phone in France before 1970
knows how the French underfunded capacity expansion under this regime.
Corporations without chargeback to the internal users have the same problem
justifying appropriations from corporate budget directors.

4. Volume discounts.
Volume discounts can make usage charges fair to both large users and smaller
ones. After all, a T1 link costs less than 24 56 kbps links; large users
enable the network to buy more cost effective transmission links. We have
volume discounts for electric power and for telecommunication users in the
commercial world.

4. Cross subsidies.
There should be subsidies for various "deserving" users, like lifeline
telephone rates. They should be explicitly targeted, not general for everyone.

Most of the issues being discussed have been faced and the consequences of
alternative policies understood by corporate telecom managers. Some research
into what has already been done in other settings would be very useful.

Marvin Sirbu

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