Mạng và viễn thông P35

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Charging and Accounting for Network Use So far we have concerned ourselves entirely with the technical and operational side of running networks and providing telecommunications services. Network operators, if they wantto stay in business, also need to think about capital and operational costs, and how to recover them from their customers.

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Networks and Telecommunications: Design and Operation, Second Edition. Martin P. Clark Copyright © 1991, 1997 John Wiley & Sons Ltd ISBNs: 0-471-97346-7 (Hardback); 0-470-84158-3 (Electronic) 35 Charging and Accounting for Network Use So far we have concerned ourselves entirely with the technical and operational side of running networks and providing telecommunications services. Network operators, if they wantto stay in business, also need to think about capital and operational costs, and how to recover them from their customers. For a network to be financially sound and independent its tariff structure needs to cover the total expenditure made up of 0 provision of lineplant, exchanges and buildings (i.e. capital costs) 0 servicemaintenance and administration costs 0 interest on capital 0 depreciation of equipment 0 researchanddevelopment 0 futurecapitalinvestment 0 profitandshareholders’earnings Government regulation in some countries set tight financial limits on profits and targets, whereas in other countries the tariff structuretailored to meet political ends, and financing is direct from is government coffers. Nonetheless, the financial practices of charging and accounting for network use are common throughout the world, and they reflect the principles explained in this chapter. 35.1 RECOMPENSE FOR NETWORK USE Public telecommunications customers will be familiar with the arrival of their monthly or quarterly bill, comprising both subscription charges (paying for the rental of their line), and a charge for usage (the number of calls made, or packets of data sent, etc.). The practice of charging for network use is not confined to public networks; private network operators, especially the large corporations, are increasingly levying internal 647
648 CHARGING AND FOR NETWORK ACCOUNTING USE ‘transfercharges’ individual on departments their for use of telecommunications services. This is to keep close control of areas of company activity representing either ‘profit centres’ or ‘cost centres’. Additionally, accounting between telecommunications operators is becoming more common, as a result of the recent large increase in the interconnection of networks. ITU-T defines two different types of financial transaction, to each of which different practices and a very particular vocabulary apply. The two types financial transaction of are described below, and a number of key items of vocabulary are highlighted. 35.1.1Charging (Also CalledBilling) This is the namegiven to the practice of recovering financial costs end-users for their from use of the network. Charges, including subscription charges and usage charges, are accumulated over a standard period, typically three months, and are billed to the cus- tomer. Monies are then collectedfrom the customer, typically a telephone line subscriber. 35.1.2 Accounting The term accounting is normally applied only to the practice of financial settlement between different network operators, where they mutually cooperate to provide ser- vices. An accounting settlement is usually made by the owner of the originating network (i.e. the one collecting the customer charges) to all the other operators participating in the connection. This reimburses the other operators for the use of their networks. 35.2 CUSTOMER SUBSCRIPTION CHARGES Customer charges, also known as tarzffs, usually comprise two parts, a subscription charge and a usage charge. The subscription charge is made to offset the standing or jixed costs, for example, the rental of a telephone or other end terminal, the provision and upkeep of the local exchange and of the access line, and the operator’s general administrative overheads. The actual rate of the subscription charge depends on the type of access line,the end equipment provided, and the services to which the customer subscribes. They are easily calculable from a fixed formula and are usually charged by quarterly bill.Examples of services which attracta highersubscriptionchargeare circuits specially designedfor carriage of data, orlines with supplementary services such as closed user group ( C U G ) , diversion of incoming calls (on customer busy or customer absent), three-party-call facility, etc. 35.3 CUSTOMER USAGE CHARGES Customer usage charges are madein addition to subscription charges, to offset the use- dependent (the variable) costs of network provision. As we have seen in the chapter on
PULSE METERING 649 teletraffic theory, the greater the amount of traffic between any two exchanges, the greater the number of trunks that are required between them. The cost of these extra trunks is recovered in the usage charge, which usually calculated on a cost-plus-mark- is up basis to reflect the network resources required to provide the service. The charge for any given call (or for the carriage of a data message) thus usually depends on the following parameters 0 the type of network used 0 the duration in time of the call, or 0 the volume of data carried, and 0 the distance of the communication In addition, more sophisticated factors may also be taken into account. 0 whether operator assistance, or some other value-added service was provided 0 whether the call (or message) was conveyed during the network’s peak usage period (the charge may be time-of-day dependent) 0 how many call attempts (whether abortive or not) were made; making a charge for each call attempt dissuades users from congesting the network by incessantly re- calling busy numbers To calculate the charge due from each individual customer, the network operator must have a means of monitoring and recording each incidence of usage. In most networks charges are levied only on the call (or message) originator (so that the receiver does not pay). Usage is normally monitored by the originating exchange, which must determine the origin and destination of each call (or message), its duration, and the time-of-day when conveyed. In a circuit-switched network the origin of a call can be determined simply by detecting which incomingline is in use. The destinationis then determined by analysis of the number dialled during call set-up. The chargeable duration of the call (the call duration) is normally taken to be the conversation time, which is determined by timing the period between the answer signal and the cleardown signal at the end of the call. Call duration on manual networks, or of calls established semi-automatically, can bemeasureddirectly by the human operator, but for automatic networks different procedures are used. There are two principal means for automatic customer charge monitoring: pulse metering and electronic ticketing, as explained next. 35.4 PULSE METERING The older and simpler charging method (still used in many telephone networks) is to levy call charges on the basis of the number of pre-determined intervals of time used in .the courseof the call. This method is called pulse metering. In it a fixed price is charged fora smalltimeperiod or unit of theconversationphase.Whenthecall is first of answered, the first unit (of time) commences. After a pre-determined period time (the
650 CHARGING AND ACCOUNTING FOR NETWORK USE length of which will depend on the location of origin and destination and the time of day), the first unit will expire and a second unit of time will commence. The charge payable is calculated by multiplying the number of units usedby the fixed price per unit. The customer is usually unaware when each unit ends and the next begins, or indeed how much of a partially used unit remains. On different calls, e.g. to destinations at different distances away, or on calls to the same destination made at different times of day, the time duration of a unit may be varied. In this way, the average per-minute-charge made for different calls be varied. can One caution, however: it is not generally understood that the upper limit of metering pulse rate may not actually be determined by the capability of the pulsing unit, but on the ability of the transmission line to carry the pulse correctly and the meter to clock properly. Over a given period of time (say three months) the number of units used by the cus- tomer is accumulated on a counting device (called a cyclic meter), located at the ex- change. Location at the exchange eases the job of reading the meters, and reduces the scope for customer fraud. During the courseof individual calls, thecyclic meter is triggered to step onward one count at the beginning of each new unit of time. This is done by sending a perodic electrical pulse to the meter. The customer’s invoice shows the total number of units used, and a financial charge which is calculated by multiplying this figure by the fixed price per unit. While calls are being set up by the exchange, the exchangecontrol and routingsystem (common equipment) obtains the destination of the call from the number dialled, to determine the appropriate outgoing route and charge rate. For routing, as we described in Chapter 28, a fair number of digits may need examined to decide to which precise to be exchange the call should next be routed. However, although the same piece of common equipment may determine both the route and the call charge rate, itis likely that fewer digits will need to be analysed for charging purposes. This is because most network operators choose to run chargeband schemes, in which destinations within a fairlywide geographical zone (or chargeband) are charged at the same rate. This eases the admin- istration of the scheme and the customer’s comprehension of it. As an example of a simple chargeband scheme, a public telephone company might opt to levy charge for international calls based onlyon thefirst digit of the country code.This would dividethe world into eight distinct zones, as saw inChapter 29 (North America, Africa, Europe, we South America, Far East Asia, Russia and ex-Socialist Republics, Middle East, and Central Asia). A similar national chargeband scheme could equally well be developed corresponding to the area code digits of the national telephone number. Each of the chargebands needs a charging programme. The programme divides the day into a numberof time periods, for eachof which a different per-minute-charge will apply. At the busiest times, we expect higher rates, whereas cheap rates at off-peak times may help to stimulate extra traffic and revenue without needing more equipment. As an example, within United the Kingdom, British Telecomsub-dividesits chargebands into times of day called peak rate (corresponding to the busiest times of day, when highest the per-minute-charge is levied), cheap rate (corresponding to periods of low activity, when the lowest per-minute-charge is made) and standard rate (for which a medium charge is made). Over the course of a weekday, peak rate applies from 9 a.m. to 1 p.m.; standard rate from 1 p.m. to 6 p.m., and from 8 a.m. to 9 a.m.;
PULSE METERING 651 and cheap rateapplies each evening from p.m. to 8 a.m. Theper-minute-charge during 6 the peak rate period is made more expensive by reducing the time duration of the unit (remember that the units have a fixed price). Figure 35.1 illustrates the relationship between price-per-minute and unit duration on the British Telecom scheme, and shows the pulsing signal required to step the customer’s meter. Exchanges which employ pulse metering to charge their customers usually have a number of machines or electronic devices to generate the meter pulse signals, one for each of the pulse supplies. A selector device, controlled by the dialled number analysis and by the time-of-day, connects the customer meter the appropriatepulse supply for to any particularcall. More than one pulse meter supply may exist. example, local calls For will be pulsed from the local exchange (if metered at all). However, trunk and inter- national call charge pulses will most likely be generated at the trunk or international exchange which analyses the destination country code digits. A simplified diagram of a pulse metering device is shown in Figure 35.2. A very simple form of pulse metering, in which only one meter pulse generated for is each call, independentof call duration, is used in some networks, particularlyfor meter- ing local calls. The advantage of such a charging philosophy is the simplicity of the Price per minute Peak rate - Standard rate Cheap rate I 1 I I I I I 1 08 09 13 18 day Timeof l24h) ‘Unit’ time duratlon I Tirneof day Meter pulsing signal UL U Figure 3 . Pulse metering 51
652 CHARGING AND FOR USENETWORK ACCOUNTING Pulse signol selector Pulse (time-of-day and supply equtpment number onalysls controlled) I Figure 35.2 Pulse metering selector or ‘tariff equipment’ equipment required and the ease of administration. However, as the need to recover usage-dependent costs becomes more acute with the boom in demand (e.g. night-time dial-in calls to the Internet), so the method is falling into obsolescence. Another draw- back is the tendency to promote network congestion and phone box queues! 35.5 ELECTRONIC TICKETING Electronic ticketing (also called automated message accounting or toll ticketing) is far moreaccurateand reliable than pulse metering, and it is becoming common in consequence of the spread of stored program control exchanges. In this method the exchange control computer monitors and records information about each call, including the number dialled, the duration, the time of call set up, the time of call clear, etc. The information is stored in an electronic cull record, usually on computer storage disk or magnetic tape, until the time when the customer is due to be invoiced. The invoice is calculated by adding the amounts due fromeach individual call, derived from the details on the individual call records. Electronic ticketing provides the scope formore complexchargebandstructures,andthecapability(muchdemanded by customers) for an itemized record of the details and cost of each call made. 35.6 ACCOUNTING Accounting is the methodof financial settlement between network operators, when more than one network is traversed by a call. Accounting has historically been necessary to allow reimbursement between the networks different countries in recompense their of for handling of international calls, but in addition accounting is also becoming common even between networks operating in the same country, as deregulation allows or even demands ever greater interconnection. Most accounting is nowadaysundertaken usingcomputermonitoring devices to record the details of individual calls in a manner resembling electronic ticketing. The financial settlementis made on the basis of total usage over agiven period of time, and is
ACCOUNTING 653 paid from the call originating network directly to all other network operators. Alterna- tively, the accounting settlements maybe cascaded between network operators, starting at the originating end, if more than two networks have been used (see Figure 35.3). The direct method of accounting settlement (Figure 35.3(a)) is only possible when the owner of network A knows the exact path taken by calls in reaching network C, after traversingnetwork B. For example, if there were alsoa routefromnetwork B to network C via a fourth network E, then the direct settlement method may not be possible, because owner A may not be able to calculate an apportionment in settlement for E. This is the main reason for theuse of the cascade method of settlement shown in Figure35.3(b). In thismethodthetransitpartysettlementsareproportionedand cascaded in sequence. Accounting settlements depend on total usagemeasuredin paidminutes. As we learned in Chapter 3 the number of accountable or paid minutes on each call is equal 1, to the total useful time that has passed between answer and call cleardown. The settle- ment is calculated by multiplying the paid minute total by the accounting rate. The accounting rate itself is fixed by negotiation directly between the interconnected net- work operators, and is intended to reflect the costs associated with 0 the destination of the call and the distance 0 the services used ( Network 1 € 1 ( a ) Simple (direct) settlement ( b ) Cascadedsettlement ----I Call path, Accounting settlement Figure 35.3 Cascaded settlement of account
654 CHARGING AND FOR NETWORK ACCOUNTING USE 0 the call duration 0 the time of day 0 thetype of switching 0 theroutetaken. etc. The accounting rate may be set in any accepted international currency (e.g. US Dollars, Sterling, gold Francs, special drawing rights (SDRs)), and may either be negotiated by the bilateral agreement of the parties, or in case of difficulty paid at standardized rates such as those recommended by the ITU-T D-series recommendations. 35.7 ROUTE DESTINATION ACCOUNTING When there is more than one route to a given destination, route destination accounting must be undertaken; an example is shown in Figure 35.4, where calls between network A and network B may either be routed directly or may overflow via network C. Correct reimbursement of both operators B and C is possible only if operator A records total paid minutes by route and destination (further sub-divided into peak, standard and cheap rates according to time of day if necessary). Destination settlement is due to the operatorof network B for all calls, whether routed directly or not, but the payment may be slightly lower for calls transiting network C. This would reflect an apportioning of revenue to operator C and also the effective cost saving that results from the reduced number of direct (A-B) circuits that are required. ITU-T recommendations demand that the operator of network A periodically (e.g. monthly or quarterly) declares two Route-Destination (or RD) accounts, corresponding to the total originated paid minutes sent 0 to Destination B; by Route direct 0 to Destination B; by Route via C Figure 35.4 ‘Routedestination’accounting
CHARGING AND ACCOUNTING ON DATA NETWORKS 655 Declaration of accounts between network operators consists of exchanging informa- tion about each other’s total originated paid minutes of traffic, categorized as Route/ Destination and peak/standard/cheap time-of-day (as necessary). The due payment is calculated as the difference between outpayments due for outgoing traffic and revenue duefromincomingcalls;andone of the operators pays theoutstandingbalance accordingly.Whenincoming andoutgoing traffic are roughlybalanced, very little settlement is required, but usually there is a net financial gainfor settling accounts with an incomingbalance of traffic, and a netoutpayment when most of the traffic is outgoing. For some developing countriesthe net balance can either provide a significant service of hard currency, influencing the speed of development of their networks. For others, the debt is a severe problem and embarrassment. 35.8 CHARGING AND ACCOUNTING ON DATANETWORKS When dataarecarried by acircuit-switchednetwork,customercharges andinter- operatoraccountsareusuallycalculatedaccordingtothetotaltimeforwhichthe circuit was available to the end users. The usage time, or paid time, is the time that elapses betweenthe answer signal and the circuit cleardown. This period equivalent to is the conversation time of circuit-switched telephone network, and the same principles applyashavealready been described. Inadditionasubscriptioncharge is usually applied to the use of each customer network port. Data network types charged and accounted in this way include telex, circuit-switched data networks and ISDN. In cases where data is carried by a packet-switched, frame relay or ATM (i.e. cell- switched) network, the accounting and charging principles are usually different. The subscription charges are typically on a per-port basis, but in addition, further charges mayapplyaccording to thenumber of simultaneous logical channels (i.e. virtual channels) which may be set up. Subscription charges may also apply for supplementary services including, for example, the closed user group (CUG) facility which allows only members of the CUG to communicate with one another. This may a useful featurein be a corporate data network, where the corporation does not wish outsiders to be able to access their computers. Usage charges in data networks are usually based on one or more of the following factors 0 the speed of theconnectionestablished (i.e. thebitrate,typicallythe committed information rate, CIR) is the determinor 0 the duration of the connection in time 0 the number of packets, frames orcells sent or some other measure of the transmitted volume of data In packet-switched (i.e. X.25-based) networks it is usual to charge andaccount according only to the total volume data carriedby the network. The volume quoted of is in segments. The standard segment size is 64 octets (or bytes), equivalent to X 8 = 512 64 bits. (Confusingly, however, a segment of SMDS data is only 48 bytes long.)
656 CHARGING AND FOR USENETWORK ACCOUNTING Most frame relay networks were built up offering only PVC (permanent virtual cir- cuit) service. A frame relay PVC can be setup only by subscription, and is a permanent connection between two defined endpoints. So far as the end customer is concerned, a frame relay PVC appears much like a leaseline with a bitrate equal to the committed information rate (CZR), at times of low network usage the customer maybe able to but send much higher speed data for short bursts (excess bursts). Frame relay connections have thus to date been charged in a similar manner to leaselines, based on a fixed monthly subscription charge according to theCIR. As switched virtual circuit ( W C ) or virtual call ( V C ) frame relay connections become possible, these are more likely to be charged on a volume-related basis similarto the approach discussed above which used is in X.25 packet networks. ATM networks are just emerging, and nofixed pattern is yetestablished. AsATM only is expected to be a ‘universal’ technology capable of providing many different types of voice, data and video transport services, I expect the emergence of different types of customer-charging principles, mimicking the charge structures the equivalent services of provided using ‘legacy’ technologies. Methods of charging and invoicing customers, and for accounting and settling the inter-network account, are in general similar to the electronic ticketing technique used in circuit-switched networks. 35.9 CHARGING AND ACCOUNTING FOR MANUAL (OPERATOR)ASSISTANCE Calls set up on behalf of the end user, and controlled by the network operator (i.e. manual or semi-automatic calls), are normally charged and accounted according to the details of the call, as recorded on the operator’s paper ticket or electronic equivalent. The chargeable (and accountable) time on an operator call is usually less than the total conversationtime (thetime between thecalled-subscriber-answer and the call- clear). This is because some time is taken up by the operator before the two end parties of can speak. According to the nature the call, the unchargeable conversation time may have been used by the operator to confirm that a particular person has answered the call, if a personal call has been requested 0 to check that the receiver is willing to acceptcallcharges if a collect (i.e reverse charge) call has been requested 0 for some other similarreason Operator-controlled calls often carry a premium charge. This offsets the cost of the operator’s time, and the extra unchargeable network time required at the commence- ment of each call. Operator-assisted calls are also accounted between network operators at aslightly higher rate automatic than calls, for similarreasons. The manual accounting rate is used when a second operator is also used in the terminating country, otherwise the semi-automatic accounting rate applies.
CHARGING AND ACCOUNTING CIRCUITS LEASED FOR 657 As we learned in Chapter 14, semi-automatic calls which route via automatic exchanges may be recognized by the presence of a language digit in the dialled number train, rather than by the automatic call discrimination digit (i.e. language digit value ‘0’). Thisfactpreventsthepossibilityofaccountingthesamecall twice, once onthe operator’s ticket and once on the automaticexchange accounting record. 35.10 CHARGING AND ACCOUNTING FOR LEASED CIRCUITS Besides providingswitched services, network operators are often willing to provide transmission bandwidth on a point-to-point basis. Circuits conforming to any of the standard bandwidths may be leased from the network either by private individuals as private circuits (otherwise calledleased circuitsor leaselines) or by international network operators (from other international operators) as administration leases. For both types charges andaccounting rates are normallyappliedaccording to thestraightline distance either between the end points the leased sectionof the circuit or between the of countries’ capital cities. For private circuits, commercial market rates are set by the network operators, but for administration leases, a lower accounting rate (nearer to cost) may be used. Within Europe, TEUREM accounting rates used to govern the charges made between network operators for administration leases. Nowadays these rates are tending to disappear under competitive pressure as deregulation leads to a more open market. 35.11 CHARGING PAYPHONE CALLS Payphones presentparticular a challenge network for designers. Unlikenormal subscription telephones, the call charges must be collected prior to or during the call, because to attempt to collect the money afterwards, or by invoice, is an invitation to fraud. Special telephones are required the for purpose; collect money they the ‘up-front’, calculate when the period paid for is about to run out and then they prompt the caller to insert more money. Forced clearingis applied to the callif the caller failsto insert more money when the paid time has expired. As with operator-controlled calls, charges for payphone calls are generally slightly higher than normal calls. The extra charge offsets the greater costs of the telephone, its maintenance, and upkeep of the kiosk, which clearly cannot be defrayed against a subscription charge. 35.12 CUSTOMER BILLING Compared with some of the other administrative and management tasks associated with running a network, the process billing is relatively straightforward, involving collect- of ing the available information from several sources and calculating an ‘amount due’ sum relevant to each customer based on a series of product-dependent tariff formulae and
658 CHARGING AND FOR NETWORK ACCOUNTING USE customer-specific negotiated discount schemes (as recorded in the contract archive). This does not mean to say that it is done well. Many of the world’s public network operators have enormous problems with their billing systems The most challenging partof a good billing systemis achieving sufficient flexibility in the tariff models which maybe applied to products, and sufficient reliability to achieve high turnout of bills at month end and to satisfy even the most stringent auditor. Simultaneously to providing all this flexibility in software routines, the same system must be capable processing quantities of huge of data accurately, reliably and auditably, meeting the billing date each month. 35.13 SETTING CUSTOMER CHARGES AND ACCOUNTING RATES Settingcustomercharges (turifls) andaccountingrates is a skilledtaskin which network operators have not only to ensure coverage of their costs, a reasonable profit, and a returnon investment, but also togive customers a ‘fair deal’. The setting turifs of and accountingrates thereforedemandscarefulconsideration,togetherwithacute awareness of market expectations and willingness-to-pay. Anticipation competitors’ of reactions is important, as tariff or accounting rate changes, particularly increases, tend to have a deterrent effect on demand, and may have adverse political or public relations consequences, factors which network operators cannot afford to ignore. Figure 35.5 illustrates revenue breakdowns for the originated and terminated traffic of an imaginary network. The calls or connections have been connected in cooperation with another operator and relevant account settlements are shown. In Figure 35.5(a), the overall revenue (area the pie chart) is large, reflecting thecall of collections from telephone user tariffs. Unfortunately, however, over halfof this revenue has needed to be paid out to the terminating network operatorsettlementof accounts. in Staffcosts Staff costs and administrative and administrative overheads P r oI f it Transmission plant costs SGitching plant c05 t S Figure 35.5 Apportionment of revenue
CHARGES CUSTOMER SETTING AND ACCOUNTING RATES 659 You might think it fairerthat the settlement should be almost exactly halfof the collec- tion revenue, and historically this was so; but although thecost of equipment has fallen and the tariffs charged for calls have been forced down by market pressures, inter- connection charges and international accounting rates have not always fallen approp- riatelyquickly.Both interconnectioncharges and internationalaccountingrates are typically difficult to negotiate down because the balance of traffic (and therefore the net payment) often favours the other or more dominant network operator. Thus there is a network outflow of traffic, the high interconnection charges and accounting rates which exist for historic reasons can be heavily penalizing. This is a particularly acute problem for national telephone companies in developing countries, and can a major problem be for the ‘new’ operators emerging as competitors to the old state monopoly telephone companies in the developed nations. In developing countries it is often the case that an outdated and congested national network is the cause of more successful outgoing international calls than incoming ones. The net outpayment settling the account canan extreme embarrassment and problem be for the country’s overall balance of trade. Surprisingly perhaps, even between more advanced nations, a PTO (public telecommunications operator) may make considerably more money from incoming calls received from the distant PTO than from outgoing ones generated from its own customers. This despite the fact that his own outgoing customer tariff may be nearly twice his compatriot PTO’s price for incoming calls! In time this accounting rate injustice is likely to be redressed, but as you can imagine itis a very sensitive issue between world governments. In the case of interconnectioncharges it has been realized by most national tele- communicationsregulatorsthatthesechargescancreateamajorobstacleinthe establishment of a more open and deregulated market. The interconnection charges set by dominantmarket players arethusnowadaysusuallykeptunderclosescrutiny. Nonetheless, it is very difficult for regulators, given the difficulty in allocating the costs of the ex-statetelephonemonopolies, to determinewhatrealisticfairchargesfor interconnection should be. Many regulators have determined interconnection charges, having observed continuing unresolved disputes between encumbent operators andnew players, but their success in setting fair charges has been varied. Some new operators receive the assurance of a new business ‘on a plate’, enabling them easily to undercut the prices of their established competitor. In other countries thenew players struggle to develop market share because of difficulties in achieving an adequate financial margin. The next major element of expenditure shown in the pie chart of Figure 35.5 is the transmission plant costs, then the company overheads and finally the switching costs. All this leaves the margin available for profit. For a contrast, look at the terminated(i.e. incoming) call revenue breakdown shown in Figure 35.5(b). The overall revenue size of the pie chart) is smaller, but it greater (the is than half of the outgoing call revenue (provided that the accounts settlement is more than half of the outgoing collections, and there a rough balanceof traffic). Meanwhile is the costs are similar (for similar traffic demand), so much larger amount of the revenue goes to profit. The example of Figure 35.5 is typical of the revenues and profits that an international telephone network operator may earn from a given overseas route. Note the extreme sensitivity of the profits and revenue to the call charge tariff and the accounting rate. Note also the difference in profitability between originated and terminated accounts.
660 CHARGING AND FOR NETWORKACCOUNTING USE 35.14 NETWORK COSTSAND HOW TO RECHARGE THEM Networks rely on the cooperation of individuals to share communications, means and costs. No-one would use the public telephone network if he had to pay for it all; it would be far too expensive. Because everyone else in the country subscribes to a line and pays for it, a customer has a wide choice of people that he can call for a moderate and affordable cost. Once a network has reached a certain critical size and has become stable, its financing and its cost allocation become relatively straightforward, based on the average long term marginal cost. We return to exactly what thisis later. For smaller networks, particularly those which are either growing or shrinking, cost allocation is more problematic. If all the cost incurred before the first customer all charged to the first customer, were there would never be a first customer. Not only would he have no-one to call, it would cost him a fortune if he could do so. The problem is that just at the time when most money is needed, the network has least to offer. The usual ways around the problem are first to seek an initial critical mass of customers, so that shared between them both the service and the costs are acceptable. The second way is to accept the need for a fairly lengthy payback period on theproject (i.e. by depreciating the capital cost over a longer period, say ten years instead of seven), so lowering the annual costs which must be recharged to customers. This second approach puts the network operator into a risk venture business. The risks are twofold:first that the equipment will not last the planned lifetime, second that customers find they no longer need the service and stop paying for it earlier than anticipated by the budget. In this case, there may be a temptation to recalculate costs, dividing by the number of remaining customers. The remaining customers in consequence find their costs higher than expected, and are likely to re-evaluate their use of the network. As more customers pull out, the problem only becomes worse. The morals are simple; first recognize that operating a network is a business risk venture. Second, a direct division of telecommunication network costs between all the customers is not necessarily a good approach to determining appropriate charges. Consider a value-added service provider installing a new voicemail system. Let us imagine that the minimum size of equipment which may be installed would serve 100 customers and that this can subsequently be outfitted for the needs of individual extra users up to a maximum of 400 customers. To provide for the needs of more than 400 users a second system must be purchased. The overall costs (capital investment) plotted against the number of users are then as shown in Figure 35.6. The question is, what is the right price to set for the initial customers, assuming that the limit of 400 customers will be relatively quickly surpassed? We discuss two possibil- ities, shown as pricing line 1 and pricing line 2 in Figures 35.6 and 35.7. You may consider pricing line 1 (Figure 35.6) to be the fairest method of recharging users. This represents the exact division of the costs for a fully utilized (400-user) system between the 400 users.Thiswould be the averagelong termmarginal cost that we discussed earlier. Using it at start-up leads to almost certain problems. First, if the system is onlyeversubscribed to by 350 usersthenthereisalotofmoney short (because the cost line on our diagram is above the price line(i.e. recouped costs) at this point. Worse still, if 401 users turn up then virtually the entire initial cost($200) of the second system will be in arrears.
COSTS NETWORK AND HOW TO RECHARGE THEM 661 -price line 1 (straight line) - l *. * l . s S ~ ~ ~ 1 ~ ~m m m 9 ~ 9 ; ~s : ~ 6 ~ a ~ , 6 ~ number ol customers Figure 35.6 Alternative pricing strategies based on average long term marginal cost Figure 3 . 57 Alternative pricing strategies: initial recovery of investment A better pricing line to use initially is pricing line 2 (Figure 35.7). This divides the full cost of the first 400 user system and the costs of the initial part of the second system between the first 400 users. This has two benefits; first, the venture is in profit after about 200 users are added to thefirst system. Second, there is enough money available to install the second system as soon as the need arises. However, as other businessmen notice the market potential they are likely to enter the market with their own competing services. In the long term, therefore, the price will be oriented to the average long term marginal cost (pricing line 1) because this represents the minimum cost per customer. The end-customer price in an established market is likely to be this cost plus a reason- able profit margin.
662 CHARGING AND FOR NETWORK ACCOUNTING USE It is theaveragelongtermmarginalcostwhich is the goal of regulators when determining interconnection charges. The problem is in trying to find out exactly what these costs are (which costs of a large ex-monopoly should be apportioned to which customers and services?). 35.15 FUTUREACCOUNTINGAND CHARGING PRACTICES More and more new telecommunications services emerge and the world is becoming litteredwith new andcompetingnetworkoperators, new chargingandaccounting methods and new monitoring techniques. They are bound tobe more complicated than those that we have already, and they will demand skilful administrators and engineers to realize them and set the rates.