Hotspot Economics: Procurement of Third-Party WiFi Capacity for Smart Mobile Data Offloading

Abstract

The unprecedented growth of cellular traffic driven by web surfing, video streaming, and cloud-based services is creating challenges for cellular service providers to fulfill the unmet demand. To minimize congestion costs for under-served demand (e.g., dissatisfied customers, or churn), the service provider is willing to pay WiFi hotspots to serve the demand that exceeds capacity. In the present study, we propose an optimal procurement mechanism with contingent contracts for service providers to leverage the advantages of both cellular and WiFi resources. As compared with conventional cellular communication technologies, WiFi hotspots provide data rates with a limited coverage. Our present work contributes to the existing literature by developing an analytical model, which considers this unique challenge of integrating the longer range cellular resource and shorter range WiFi hotspots. We show the procedure of computing the optimal procurement mechanism with a tight integration of economics and computational technology. The model is validated using cellular network data from a large U.S. service provider. The simulation results show that the proposed procurement mechanism significantly outperforms the standard Vickrey-Clarke-Groves (VCG) auction in terms of the service provider's expected payoff.