Vertical Integration Between Providers With Possible Cloud Migration

Vertical Integration Between Providers With Possible Cloud Migration

Aleksandra Kostic-Ljubisavljevic (University of Belgrade, Serbia) and Branka Mikavica (University of Belgrade, Serbia)
Copyright: © 2018 |Pages: 10
DOI: 10.4018/978-1-5225-2255-3.ch100

Abstract

All vertically integrated participants in content provisioning process are influenced by bandwidth requirements. Provisioning of self-owned resources that satisfy peak bandwidth demand leads to network underutilization and it is cost ineffective. Under-provisioning leads to rejection of customers' requests. Vertically integrated providers need to consider cloud migration in order to minimize costs and improve Quality of Service and Quality of Experience of their customers. Cloud providers maintain large-scale data centres to offer storage and computational resources in the form of Virtual Machines instances. They offer different pricing plans: reservation, on-demand and spot pricing. For obtaining optimal integration charging strategy, Revenue Sharing, Cost Sharing, Wholesale Price is applied frequently. The vertically integrated content provider's incentives for cloud migration can induce significant complexity in integration contracts, and consequently improvements in costs and requests' rejection rate.
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Background

In order to provide content to the customers, vertical integration between providers is necessary. Term vertical integration refers to interconnection, i.e. physical and logical connecting, among providers operating at different network's levels. For instance, long-distance operator and local operator can be vertically integrated. Intrinsically, interconnection enables customers connected to one network to communicate with customers of the same or different network. It is a set of legal rules, technical and operational arrangements which providers use to connect their equipment, networks and services. Vertical integration is economical, efficient and it enables achievement of economies of scale (Dai & Tang, 2009). Often applied contracts are Revenue Sharing, Cost Sharing and Wholesale Price. Instead of explicitly defined interconnection tariffs, operators often apply Revenue Sharing, which establishes fixed revenue share among providers. This type of contract is characterized with operational simplicity, and it can rebalance providers' returns when retail prices are distorted for any reason. Some of the greatest challenges that providers are dealing with are increasing profitability of the offered services, assuring higher charges for improved services and obtaining a fair share of the increased revenues. A fair Revenue Sharing contract based on the weighed proportional fairness criterion is proposed by He & Warland, (2006). They also show that non-cooperative strategies between providers may lead to unfair distribution of profit and may even discourage future upgrades to the network. Modelling of non-cooperative interaction between service providers and content provider as a Stackelberg game is performed by Wu, Kim, Hande, Chiang & Tsang (2011). These authors propose Revenue Sharing contract between service providers that jointly provide network connectivity between content provider and customers. They introduce profit division factor into the contract with the aim of social profit's maximization. Revenue Sharing contract between content provider and two service providers under network neutrality debate is observed by Coucheney, Maille, & Tuffin (2014). In this model, service providers enable direct connectivity to a fixed proportion of the content and compete in terms of price for customers. Relations between service providers are established using Revenue Sharing contract in order to maximize customers' welfare.

Key Terms in this Chapter

Revenue Sharing: Integration contract which defines modality of revenue shares between providers involved in all forms of provider’s integration. It is characterized with operational simplicity and possibility of rebalancing the returns of the providers when retail prices are distorted.

Cost Sharing: Integration contract which allocates costs to all undertakings in a fair manner. Cost share among providers is defined in accordance with contribution in total costs of each provider in content provisioning process.

Reservation: Cloud providers' customers pay an upfront reservation fee in order to reserve cloud resources for a specific period of time. In return, they receive a significant discount on the hourly resource usage price.

Cloud Migration: Storing a portion of the most popular content provider's contents into the cloud resources with the aim of enabling access to those contents whenever capacity of the self-owned servers is occupied.

Wholesale Price: Integration contract among providers based on the determination of the unit wholesale price for a given service. Demand and traffic volume are highly dependent on defined wholesale price.

Vertical Integration: The term refers to interconnection between all undertakings involved in content provisioning process, enabling physical and logical connecting with the aim of providing the access to contents.

Spot Pricing: An auction-like mechanism where cloud providers' customers submit bids, i.e. maximum price they are willing to pay for specific cloud instance. The access to cloud instances is enabled as long as submitted bid exceeds cloud provider’s last computed market clearing price.

On-Demand: Pricing plan which enables cloud providers' customers to pay only for utilized resources per time unit, usually on the hourly basis. Cloud instances are retained for indefinite time.

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