Case Study: Employing User Data to Derive Service Costs

Every business needs to know the costs of each of its products and services, so that it can be sure that each is making a proper contribution to the overall business, and can take appropriate action if this is not the case.

When different telecoms networks were dedicated to one type of service; for example the PSTN for fixed voice, GSM for mobile voice, and cable networks for TV, allocation of network costs to service types was straightforward. With the spread of all-IP or NGN networks, it has become more difficult to allocate costs meaningfully to the range of different types of services that are carried over them.

The nature of the different types of traffic varies considerably; some, such as IPTV, provide a near constant load, other services such as Internet access are peaky; voice must be delivered in real time, whereas other services are delay-tolerant. Peaky real time services require a higher bandwidth allocation for a given volume of data than steady load delay tolerant services. Simply allocating costs according to bandwidth used cannot therefore reflect the true cost of providing the network capacity required to deliver the services to the desired quality.

Equally the approach of allocating costs according to the bandwidth used during the busy hour is also flawed, as a small change in traffic of one service can result in very large differences in the allocation of costs.  This is illustrated in the following diagram (Figure 1), where an increase in the busy hour traffic of Service 1 by only 2% results in an earlier busy hour, moving from 20.00 to 12.00, with very different bandwidth splits between the three services.  This change causes the bandwidth for Service 1 to rise from 21% of the total to 42%.  Conversely the bandwidth required for Service 2 falls from 43% to 29%.  Use of traffic levels in the busy hour as a basis for cost allocation can therefore be seen to produce very misleading figures.

Figure 1:                Effect of Change in Busy Hour on Bandwidth Utilisation

As the use of NGNs matures, the need for a meaningful operational cost accounting approach is becoming more important. Given the significant NGN asset value in question, accurate cost driver information will need to be gathered frequently. This will allow the calculation of the full cost of IP services and provide support for business planning and current reporting. It will also become a necessary element in providing a sound basis for handling regulatory interventions.

RWH Consulting played a key part in the development of a new approach that combines continuous measurement of traffic within the network with a traffic-charging algorithm that takes account of the different characteristics of the various types of services.  Traffic data is collected from the network in near real time and stored in a database.  The data is then analysed and processed using the algorithm which performs the important task of converting the very large number of data records captured in the database into a small and manageable number of key figures that can be used to drive a cost model.  The data can also be used to establish demand trends and as a basis for the generation of forecasts of future demand.  The approach can be applied to any network, using the traffic data generated by the network equipment.

This approach represents a significant quantitative improvement in several respects:

  • Detailed and comprehensive traffic information is available for cost calculations
  • Regular calculation and reporting of traffic and costs are supported
  • Cost allocation based directly on traffic levels and patterns
  • Forecasts can be generated that are based on accurate historical data

Soundly based cost allocation is standard for data collection in legacy networks. It will need to become standard in IP networks as well.


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