How to Plan for an Upgrading Investment in a Data Network?

How to Plan for an Upgrading Investment in a Data Network?

Frédéric Morlot (Orange Labs, France) and Salah Eddine Elayoubi (Orange Labs, France)
DOI: 10.4018/978-1-60566-194-0.ch025
OnDemand PDF Download:
$37.50

Abstract

We illustrate how a mobile data network operator can plan an upgrading investment to anticipate explosions of the demand, taking into account the expected profit and the customer satisfaction. The former parameter grows with the demand, whereas the latter sinks if the demand is too high, as throughput may collapse. As the equipment price decreases with time, it may be interesting to wait rather than to invest immediately. We then propose and discuss two methods that help in making the decision. The first one is an actualization algorithm, where the upgrade should be performed when the loss of profit, derived analytically, exceeds the expected discount. The second is a real option-like strategy to hedge against the risk that the investment has to be anticipated. The evaluation of the investment date is then performed, in the latter, by a backward dynamic programming approach, using recent improvements based on least-squares estimations, whereas, in the former, a forward actualizing algorithm is investigated through simulations.
Chapter Preview
Top

Introduction

As new multimedia applications are introduced in the market, the traffic is significantly growing in mobile networks. In particular, data flows are growing exponentially, as they have been doing since the middle 90s in the Internet. To face these soaring volumes of data to be transferred, mobile operators must periodically upgrade their equipments to offer higher throughputs and avoid blocking problems. However as the demand does not increase steadily and must be considered as partly random, the upgrade dates are difficult to be forecast (Morlot, et al., 2007).

In this chapter, we consider upgrade investments in a HSDPA (High Speed Downlink Packet Access) cellular network. Note that, when demand increases, the data communication duration becomes longer and longer for each user until the network is saturated. The individual throughput experienced in the network may become very small.

On the other hand, as the demand rises, the operator increases its profit. When the network starts experiencing saturation problems, throughput and profit may fall. The operator must then upgrade its network by adding new frequency carriers, facing the following trade-off:

  • The later the investment, the lower individual throughputs and customer satisfaction. Permanent non-satisfaction will result into churn and additional loss of profit.

  • The sooner the investment, the more expensive the costs of upgrade elements.

This chapter aims at modeling analytically the trade-off. We first derive analytical values for capacity, individual throughput and satisfaction as a function of the demand, and use them to calculate operator's profit, taking into account randomness of the rising demand, and decrease of network element costs according to time. We then propose two decision-making methods.

In the first method, we develop an actualization algorithm that calculates the optimal investment time using the above described analytical modeling, as in our previous work (Morlot et al. (2007)). We base our method on the idea that the upgrade should be performed when the loss of profit, derived using analytical capacity expressions, exceeds the expected discount. As time goes by, we have realizations of the daily demand. These values can thus be used to derive a more precise optimal date than the one we found at time t = 0 assuming demand randomness. Instead of calculating expectations, we can now take in account what really happens during the period. This is the idea of the actualization algorithm, where the expected investment time is calculated using simulations.

We then introduce a second, more analytical method, based on real options to hedge against the risk that demand evolves in an unexpected way, leading to a premature investment decision or a too late one. To perform that, we model the investment as a virtual American call that gives its owner (the mobile operator) the right, but not the obligation, to buy an equipment, until a maturity date. Given the profit analytical model and the option’s parameters, we propose a backward dynamic programming method to obtain the expected best investment date.

Top

Background

The problem of investment under uncertainty has been investigated in several domains. Longstaff & Schwartz (2001) introduced a pricing method for american options in general (this method has been approved in Protter, Clément & Lamberton (2002)). In Laughton (1991), the authors introduced a real options method to evaluate investments in oil fields. A real options framework was also proposed for evaluating investments in sustainable development projects (see Salahaldin & Granger (2005) and Salahaldin (2007)). For a detailing of real option types and correlated bibliography, see Trigeorgis (1993), and for a general economic introduction, see Dixit & Pindyck (1994).

In the telecommunications field, the applications were scarce, although real options are relevant to telecommunications in several areas: strategic evaluation, estimation and cost modelling, as indicated in Alleman (2002).

Key Terms in this Chapter

User Satisfaction: This is an exponential ponderation coefficient of the operator gross profit. It takes into account the user being frustrated if his throughput is too low.

Operator Gross Profit: This is the cash the operator can expect to charge his users for downloading a given amount a data.

Actualization Algorithm: This is the first method presented above. If an optimal investment date is found at a given time, then it is wise to actualize it regularly in the future, taking into account new information about traffic evolution.

PMC: This means ”Profit minus Cost”. When the operator considers his total profit over a given period, taking into account a necessary investment, he has to deduce the equipment cost.

Upgrade Investment: If the user satisfaction becomes low, the operator net profit decreases, and the operator has to plan an investment, in order to increase the capacity of the network.

Operator Net Profit: This is equal to gross profit ponderated by user satisfaction.

Real Option: It gives the operator the choice between investing at once, or waiting for hopefully better conditions.

Dynamic Programming: After simulating several trajectories of the traffic demand, dynamic programming consists in building a decision tree in a time-backward manner.

Complete Chapter List

Search this Book:
Reset
Editorial Advisory Board
Table of Contents
Acknowledgment
In Lee
Chapter 1
Walter Distaso, Paolo Lupi, Fabio M. Manenti
In this chapter the authors provide evidence of the effectiveness of European National Regulatory Authorities in applying the basic principles of... Sample PDF
Static and Dynamic Efficiency in the European Telecommunications Market: The Role of Regulation on the Incentives to Invest and the Ladder of Investment
$37.50
Chapter 2
James E. Prieger, Daniel Heil
Regulatory policy in telecommunications must balance short-term efficiency (low prices) against the firms’ incentives to innovate, which have longer... Sample PDF
Is Regulation a Roadblock on the Information Highway?
$37.50
Chapter 3
Claudio Feijóo, José Luis Gómez-Barroso, Asunción Mochón
Wireless/mobile technologies are absolutely necessary for any agent who wants to participate in the new information and communication technologies... Sample PDF
Reforms in Spectrum Management Policy
$37.50
Chapter 4
Ricardo Gonçalves, Álvaro Nascimento
The deployment of Next Generation Access networks (NGAs) is likely to have a significant impact on the telecommunications’ value chain and... Sample PDF
Next Generation Access Networks and their Regulatory Implications
$37.50
Chapter 5
Carol C. McDonough
The United States’ wireless telephone industry has evolved from a minor segment of the communications industry to a major provider of voice, and... Sample PDF
The Impact of Government on the Evolving Market Structure of the U.S. Wireless Telephony Industry
$37.50
Chapter 6
Indrit Troshani, Sally Rao Hill
The adoption and diffusion of mobile services has achieved a spectacular growth in many countries around the world. However, regulators in these... Sample PDF
Shaping Regulation in the Australian Mobile Industry
$37.50
Chapter 7
Stefan Hüsig
This chapter covers an important issue in the area of telecommunications planning and technology management: The ex ante analysis of potential... Sample PDF
Analyzing the Disruptive Potential in the Telecommunications Industry
$37.50
Chapter 8
John B. Meisel, Timothy S. Sullivan
The local exchange telephone market is no longer considered to be a natural monopoly as a result of technological advancements. In particular, the... Sample PDF
Convergence of the Internet and Telecommunications
$37.50
Chapter 9
Moon-Soo Kim
Since 1986, the Internet has developed into a global network enabling users worldwide to connect to each other to exchange information and data. The... Sample PDF
International Internet Interconnection Service in Asia-Pacific Region
$37.50
Chapter 10
Dong Hee Shin
The purpose of this study is to examine cross-national data in order to identify possible factors related to the observable patterns of Mobile... Sample PDF
A Techno-Economic Analysis of Mobile Virtual Network Operators
$37.50
Chapter 11
Riku Laanti, Fred McDougall, Georges Baume
This chapter focuses on the internationalisation processes of national telecommunications companies (telcos) from small and open economies (SMOPECs)... Sample PDF
Evolving Value Networks and Internationalisation of National Telecommunication Companies from Small and Open Economies
$37.50
Chapter 12
Zulima Fernández, Belén Usero Sánchez
This chapter analyzes the role of non-market actions (NMAs) in the competitive position of firms in the European mobile telecommunications industry.... Sample PDF
The Effect of Non-Market Strategies in the Mobile Industry
$37.50
Chapter 13
Barney Warf
Fiber optics forms the pivotal telecommunications technology of the contemporary global economy, offering greater speed and security than other... Sample PDF
Spatiality and Political Economy of the Global Fiber Optics Industry
$37.50
Chapter 14
Hyun-Soo Han, Heesang Lee, Yeong -Wha Sawng
In South Korea, the home network industry has been the object of great expectations among the government and business community. Thus far, however... Sample PDF
Digital Convergence and Home Network Services in Korea: Part 1 - Recent Progress and Policy Implications
$37.50
Chapter 15
Hyun-Soo Han, Heesang Lee, Yeong -Wha Sawng
In this chapter, we proposed managerial implications and strategic alliance opportunities of the home network service providers in Korea. Based on... Sample PDF
Digital Convergence and Home Network Services in Korea: Part 2 – Business Models and Strategic Alliances
$37.50
Chapter 16
Brian Low, Wesley J. Johnston
Despite massive investment, few foreign firms doing business in China’s telecommunication sector can claim success. Such failures can be explained... Sample PDF
Mixing and Matching Organizational Network Legitimacy Practices to China's Telecommunication Market
$37.50
Chapter 17
Chin Wei Chong, Siong Choy Chong
This chapter aims to create a unified model capturing and generalising the different arrays of preliminary knowledge management (KM) implementation... Sample PDF
Preliminary Knowledge Management Implementation in the Telco Industry
$37.50
Chapter 18
Maria Major, Trevor Hopper
This chapter examines an implementation of an Activity-based Costing (ABC) system in a Portuguese telecommunications firm called Marconi. It is... Sample PDF
Activity-Based Costing in the Portuguese Telecommunications Industry
$37.50
Chapter 19
Antonios D. Kargas, Dimitris Varoutas
This chapter explains what organizational culture is and analyzes its importance for the management of any company. Organizational culture must not... Sample PDF
The Role of Organizational Culture to the Management of Telecommunication Companies: I. Background and Motivation
$37.50
Chapter 20
Antonios D. Kargas, Dimitris Varoutas
This chapter analyzes the importance of organizational culture through a set of strategies and enterprising practices in order to emphasize the... Sample PDF
The Role of Organizational Culture to the Management of Telecommunication Companies: II. Applications and Case Studies
$37.50
Chapter 21
Hannu Verkasalo
Many case examples in the mobile market have indicated that the success of mobile services (e.g. Internet browsing, email messaging or streaming... Sample PDF
Dynamics of Mobile Service Adoption
$37.50
Chapter 22
Moon-Koo Kim, Myeong-Cheol Park, Jong-Hyun Park
In communications services, the continued competitiveness and growth of a company depends vitally on customer value. In Korea’s maturing mobile... Sample PDF
When Customer Satisfaction Isn't Good Enough: The Role of Switching Incentives and Barriers Affecting Customer Behavior in Korean Mobile Communications Services
$37.50
Chapter 23
Jiayin Qi, Yajing Si, Jing Tan, Yangming Zhang
In the highly competitive environment, the real-time and dynamic customer demand analysis technology is required by the enterprise information... Sample PDF
Telecommunication Customer Demand Management
$37.50
Chapter 24
Jiayin Qi, Yuanquan Li, Chen Li, Yingying Zhang
This chapter proposes an integrated methodological system of telecommunication customer detainment management, including telecommunication customer... Sample PDF
Telecommunication Customer Detainment Management
$37.50
Chapter 25
Frédéric Morlot, Salah Eddine Elayoubi
We illustrate how a mobile data network operator can plan an upgrading investment to anticipate explosions of the demand, taking into account the... Sample PDF
How to Plan for an Upgrading Investment in a Data Network?
$37.50
Chapter 26
Georgios N. Angelou, Anastasios A. Economides
Recognizing the inadequacy of traditional quantitative cost-benefits analysis for evaluating telecommunications investments, researchers suggest... Sample PDF
Telecommunication Investments Analysis: A Multi-Criteria Model
$37.50
Chapter 27
Rebecca De Coster
Mobile networking refers to wireless technologies which provide communications between devices. Applications for mobile networking have a broad... Sample PDF
A Business Planning Framework for WiMAX Applications
$37.50
Chapter 28
Nicoletta Corrocher, Roberto Fontana, Claudia Parlanti
We provide evidence on the determinants of diffusion of Voice over IP (VoIP) applications in a sample of public and private organizations in Italy.... Sample PDF
Adoption of VoIP Applications in Public and Private Organizations
$37.50
Chapter 29
Richard A. Gershon
Today, innovation is much more about much than just developing new products. It is about reinventing business processes and building entirely new... Sample PDF
Intelligent Networking and Business Process Innovation: A Case Study Analysis of Home Box Office and Dell Computers
$37.50
Chapter 30
Stan Kurkovsky
Mobile commerce is a special area of electronic commerce that utilizes mobile wireless devices to conduct commercial transactions. Unique features... Sample PDF
Can M-Commerce Benefit from Pervasive Computing?
$37.50
Chapter 31
Katalin Tarnay
The purpose of this chapter is to provide a simple understandable approach to the basics of telecommunications management. This chapter is composed... Sample PDF
Basics of Telecommunication Management
$37.50
Chapter 32
Katalin Tarnay
In this chapter, the fundamentals of communication protocols are presented, and then a special application area, the telecommunications management... Sample PDF
Telecommunication Management Protocols
$37.50
Chapter 33
Marc St-Hilaire, Samuel Pierre
The cellular industry is evolving at a very fast pace. In fact, cellular networks have experienced significant changes over the last few years. In... Sample PDF
Cellular Network Planning: Evolution from 2G to 4G
$37.50
Chapter 34
Faouzi Kamoun
IP network connectivity is becoming so important for business that it is being compared today to basic utilities, such as water and electricity. As... Sample PDF
IP Address Management: Challenges, Solutions and Future Perspectives
$37.50
Chapter 35
Ran Wei, Zizhong Zhao
This chapter focuses on digital cable TV networks as a convergent network with telecommunications networks and the Internet that provides... Sample PDF
Digital Cable TV Networks: Converging Technologies, Value-Added Services and Business Strategies
$37.50
Chapter 36
Tobias Kollmann, Christoph Stöckmann, Carsten Schröer
The diffusion of a Web 2.0 product or services is, unlike to traditional consumer or industrial goods, not only based on purchase. Full acceptance... Sample PDF
Diffusion and Oscillation of Telecommunications Services: The Case of Web 2.0 Platforms
$37.50
Chapter 37
Phillip Olla
A fundamental goal of the wireless industry is to economically offer ubiquitous broadband access to a large number of people in diverse geographical... Sample PDF
The Diffusion of WiMax Technology: Hurdles and Opportunities
$37.50
Chapter 38
David Bell, Sunil Hazari
VoIP is the use of Internet protocols to provide telephone services that have previously been delivered over traditional telephone networks.... Sample PDF
VoIP Quality and Security Issues for Consumers and Small Businesses
$37.50
Chapter 39
S. S. Manvi, M. S. Kakkasageri
This chapter presents the emerging security issues in Vehicular Ad hoc Networks (VANETs) for e-business along with some of the solutions provided by... Sample PDF
Emerging Security Issues in VANETS for E-Business
$37.50
Chapter 40
Sotirios K. Goudos, Angeliki Z. Agorogianni, Zaharias D. Zaharis
Network planning and management in a large organization such as a university, is a complex task. A large university is an inherently demanding... Sample PDF
Telecommunications Network Planning and Operations Management in an Academic Environment: The Case Study of the Aristotle University of Thessaloniki
$37.50
Chapter 41
Károly Farkas, Csaba A. Szabó, Zoltán Horváth
The objective of this chapter is to discuss the applications, state-of-the-art technologies, planning methods and business models for wireless... Sample PDF
Planning of Wireless Community Networks
$37.50
Chapter 42
David Golightly
Technology has to be fit for purpose in order to deliver its promised business impact. An important component of this is making sure technology... Sample PDF
Human Factors for Business Mobile Systems
$37.50
Chapter 43
Mohamed Boucadair, Pierre Levis, Pierrick Morand
IP networks are the federative transport networks for a large set of emerging services. These services demand hard guarantees in term of the service... Sample PDF
Towards QoS-Inferred Internet
$37.50
Chapter 44
Mirko Luca Lobina, Luigi Atzori, Fabrizio Boi
IP Telephony provides a way for an enterprise to extend consistent communication services to all employees, whether they are in main campus... Sample PDF
The Playout Control Management: An Issue for the IP Telephony Service Providers
$37.50
Chapter 45
Nikolaos D. Tselikas, Georgia M. Kapitsaki, Dimitrios G. Makris, Iakovos S. Venieris
The role of open Application Programming Interfaces (APIs) and protocols for advanced service provisioning and the corresponding state of the art... Sample PDF
Open APIs and Protocols for Services and Applications in Telecoms
$37.50
Chapter 46
Lisandro Zambenedetti Granville, Ricardo Neisse, Ricardo Lemos Vianna, Tiago Fioreze
The management of telecommunication and data networks has been based on standards defined in historical contexts quite different than the current... Sample PDF
On the Management Performance of Networked Environments Using Web Services Technologies
$37.50
Chapter 47
Raquel Barco, Pedro Lázaro
In the near future, several radio access technologies will coexist in Beyond 3G mobile networks (B3G) and they will be eventually transformed into... Sample PDF
Automated Fault Management in Wireless Networks
$37.50
Chapter 48
Cajetan M. Akujuobi, Nana K. Ampah
Most of the existing networks (e.g., telecommunications, industrial control, enterprise networks etc.) have been globally connected to open computer... Sample PDF
Modeling Intrusion Detection with Self Similar Traffic in Enterprise Networks
$37.50
Chapter 49
Dimitris Kanellopoulos
This chapter presents high-speed networking technologies and standards such as Asynchronous Transfer Mode (ATM), Fast Ethernet, 10 Gigabit Ethernet... Sample PDF
High-Speed Multimedia Networks: Critical Issues and Trends
$37.50
Chapter 50
J. Joaquín Escudero-Garzás, Ana García-Armada
The goal of this chapter is to introduce the novel concept of cognitive radio (CR) for wireless telecommunications. Cognitive radios are a new type... Sample PDF
Emerging Telecommunications Technologies: Cognitive Radio
$37.50
Chapter 51
J. Joaquín Escudero-Garzás, Ana García-Armada
The aim of this chapter is to address the role of a novel concept in wireless telecommunications: Game theory. Game theory is a branch of applied... Sample PDF
Game Theory for PHY Layer and MAC Sublayer in Wireless Telecommunications
$37.50
Chapter 52
S. S. Manvi, L. B. Bhajantri
This chapter brings out various issues in M-Commerce and describes various agent-based product negotiation models in mobile commerce environment.... Sample PDF
Agent Based Product Negotiation Models in Mobile Commerce
$37.50
Chapter 53
James M. McKinion
Precision agriculture has been made possible by the confluence of several technologies: geographic positioning systems, geographic information... Sample PDF
Role of Telecommunications in Precision Agriculture
$37.50
Chapter 54
Franz Hartleb, Gerhard Haßlinger, Sebastian Kempken
An ongoing challenge in telecommunication is the integration of a variety of services on broadband access platforms at increasing transmission... Sample PDF
Network Planning and Dimensioning for Broadband Access to the Internet Regarding Quality of Service Demands
$37.50
Chapter 55
Gerhard Haßlinger
Service and content delivery over the Internet is currently supported by overlay architectures of different types. There is a trend towards... Sample PDF
Overlay Networks: New Techniques for Global Service and Network Provisioning
$37.50
Chapter 56
James Salter, Nick Antonopoulos
Distributed Hash Tables (DHTs) have been used in Peer-to-Peer networks to provide query lookups in typically O(log n) messages whilst requiring... Sample PDF
Optimising P2P Networks by Adaptive Overlay Construction
$37.50
Chapter 57
Susan J. Chinburg, George Scheets
The network carrier must utilize the full potential of existing physical infrastructure before any new investments can be considered. Much work has... Sample PDF
Designing a New Service Overlay on a Carrier Network Using the Efficient Frontier
$37.50
Chapter 58
Mohamed Zaki, Salah Ramadan
The cellular principle is an effective way to guarantee efficient utilization of the offered radio band. Although PCS networks use the cellular... Sample PDF
Combining Small and Large Scale Roaming Parameters to Optimize the Design of PCS
$37.50
Chapter 59
Kaiqi Xiong, Harry Perros
This chapter considers a set of computer resources used by a service provider to host enterprise applications for customer services subject to a... Sample PDF
Secure Resource Optimization in Distributed Service Computing
$37.50
Chapter 60
Jadranka Skorin-Kapov, Darko Skorin-Kapov
Due to the enormous proliferation of internet traffic, including video on demand and transfer of datarich documents, the use of optical networking... Sample PDF
Trends, Optimization and Management of Optical Networks
$37.50
About the Contributors