An Innovative Pricing Method for Telecommunication Services Pricing through American Options

Abstract

With the evolution of telecommunication networks and of their services the role of service provider is changed, so nowadays there is a coexistence of Network Operators and Virtual Operators. The difference between these players is not in the way they offer a service but primarily in their economic objectives and risk attitudes. Essentially, Network Operators own their infrastructures and typically have to sustain both fixed costs (CAPEX) and recurrent costs (OPEX), while Virtual Operators may have a simpler cost structure, mainly consisting of OPEX for the hire of network resources. Since these two operators can provide the same service in two different markets, their objectives differ substantially: on one hand, Network Operators aim to recover their costs with traditional pricing schemes (flat or time based), while the goal of Virtual Operators is to stay in the market, trying to attract as more users as they can through innovative pricing schemes (time varying, congestion pricing) providing, at the same time, QoS levels comparable to the corresponding ones of Network Operators. From above considerations we can understand the importance for Virtual Operators and for Regulatory Agencies to develop new pricing schemes. To develop a new pricing scheme it is necessary to study a model that shows vs. time the occupancy of network resources and moreover we present a method to estimate the final price of the service offered from Virtual Operator, for a given occupancy state of network resources, which is evaluated by American Options Pricing Scheme. This manner it is possible to address the problems of co-existence in the same communication market of these two service providers and the one of prevention of possible arbitrage, driven by different pricing schemes.