QoS-revenue tradeoff with time-constrained ISP pricing

Usage-based pricing has been recognized as a network congestion management tool. Internet Service Providers (ISPs), however, have limited ability to set time-adaptive usage-price to manage congestion arising from time-varying consumer utility for data. To achieve the maximum revenue, ISP can set its time-invariant usage-price low enough to aggressively encourage consumer´s traffic demand. The downside is that ISP has to drop consumer´s excessive traffic demand through congestion management (i.e., packet dropping), which may degrade Quality of Service (QoS) of consumer´s traffic. Alternatively, to protect consumer´s QoS, ISP can set its time-invariant usage-price high enough to reduce consumer´s traffic demand, thus minimizing the need for congestion management through packet dropping. The downside is that ISP suffers a revenue loss due to the inefficient usage of its network. The tradeoff between ISP´s revenue maximization and consumer´s QoS protection motivates us to study ISP´s revenue maximization subject to QoS constraint in terms of the number of packets dropped. We investigate two different QoS measures: short-term per-slot packet dropping constraint and long-term packet dropping constraint. The short-term constraint can be interpreted as a more transparent congestion management practice compared to the long-term constraint. We analyze ISP´s optimal time-invariant pricing for both constraints, and develop an upper bound for the optimal revenue by considering the specified packet dropping threshold. We quantify the impact of consumer´s price elasticity on ISP´s optimal revenue and show that ISP should carry out a differentiated QoS protection strategy based on consumer´s price elasticity in order to mitigate the revenue loss¹.