[e2e] why fair sharing? ( Are we doing sliding window in the Internet?)

Bob Briscoe rbriscoe at jungle.bt.co.uk
Wed Jan 24 11:12:40 PST 2007


At 00:47 14/01/2007, Vadim Antonov wrote:

>Dado - ISPs are not interested in reducing amount of traffic; quite
>opposite. It is their product, and as any producer they are interested in
>increasing volume - if you remember Econ 101, in the long term the
>profitability of all kinds of businesses tends to converge to the same
>norm. (Business segments with higher-than-average ROI attract more
>invenstments - and competition, thus reducing profitability;
>underperforming segments lose capital and consequently have less
>competitive pressure, thus allowing increase in profitability).
>In the established markets, where the initial period of rapid growth (on
>the S-curve) is over, the only sustainable way to make more money and
>increase value of business shares is to increase volume.

Agreed (assuming by 'established' you mean highly competitive / commoditised)

>So it makes no sense for ISPs whatsoever to penalize users for causing
>congestion (thus reducing the demand). Instead, they want to encourage
>users to pay more for bigger share of the network resources - the
>congestion is their friend, if they can differentiate service (who would
>pay for premium service when regular service is quite good?)

[First, a caveat: I'm going to talk in terms of charging for congestion, as 
that's how your conversation started. However, limiting a customer's 
congestion is probably much more acceptable than charging for it, and I say 
below why the two are equivalent.]

It only /seems/ to make no sense for ISPs to penalize users for causing 
congestion on a superficial first look.

Econ 101 also says that a business doesn't want to supply a customer if the 
cost of supply is higher than that which the customer is willing to pay. 
Those customers willing to pay for congestion are saying "if you supplied 
more capacity I'd pay for it". Those unwilling to pay for congestion are 
saying "ok, you've hit my limit, I don't actually want more capacity so 
much that I'd be willing to pay as much as it will cost you to provide it".

The key to this is to understand that congestion charges /complement/ 
capacity subscription charges - it certainly wouldn't make sense to /only/ 
charge for congestion whilst not charging subscriptions. The idea isn't 
that an ISP adds congestion charges on top of subscriptions. Increasing one 
should reduce the other, so that overall the user pays the same. It's just 
a question of tying a proportion of the charge to the user's traffic behaviour.

In fact, if you'd attended the Econ 103 class ;) you would have been able 
to predict what the usage proportion will tend to in a competitive market. 
Let's say an ISP's costs are 60% capacity-related and 40% operational costs 
(faults, customer service, marketing, billing and so on). We're only 
concerned here with the 60%. It turns out that an ISP's most competitive 
strategy will be to get proportion p of its capacity-related revenues (the 
60%) from usage using this simple formula:

         p = 1/e

where e is the elasticity of scale. e measures how the cost of capacity 
flattens out as the ISP buys more (aka. economy of scale).

This formula comes from Hal Varian & Jeffrey MacKie-Mason's seminal 1995 
paper "Pricing Congestible Network Resources". It comes from optimising 
what an ISP would do in a scenario where ISPs all compete by charging the 
same in total, but varying the proportions due to usage vs. subscription. 
If you want to argue that pricing congestion makes no sense in networks, 
that's the paper to argue against. No-one has successfully done that, so 
good luck.

One (unpublished) study found the cost of optical capacity (interface cards 
and links) rose with capacity by about a square-root law, implying e=2. If 
everything were optical and the market was perfectly competitive, this 
would imply a successful ISP would aim to tie 30% of its revenue to usage 
(if capacity related costs are 60%, half should be usage).

So what's the intuition behind all this? I think you will agree ISPs will 
probably want to limit the amount of congestion one user can cause. 
Otherwise that customer reduces the value of the ISP's business for all the 
other customers. If the ISP doesn't limit each user's ability to cause 
congestion, customers will switch to another ISP that does. To be 
competitive, an ISP does well to aim for p=1/e.

Returning to my initial caveat: Why is limiting congestion equivalent to 
charging for it?

Many people prefer a 'fixed price contract' to 'pay as you go'. Basically 
the ISP would be saying "For your $10/month, you're getting up to X 
capacity and up to Y congestion." It's not actually saying X capacity costs 
$7 and Y congestion costs $3. But you would be able to infer the internal 
prices the ISP is using for X and Y if the same ISP also sells X capacity 
and 2Y congestion for say $13/month.

Many people think congestion charging is all theoretical clap trap. 
However, it's actually what is happening all around us already. However, in 
practice, an ISP can't measure how much congestion each user causes in 
other networks. So instead we see various attempts to limit congestion 
using other more convenient levers:
- Volume caps are one crude proxy for congestion.
- DPI against p2p is a really crude attempt to limit congestion.
- TCP congestion control is the nearest we have to a perfect example of 
congestion charging. Except it's a voluntary reduction in rate /as if/ the 
TCP algorithm were being charged for congestion. But it's certainly not 
perfect (my fairness-religion I-D that John W mentioned explains why TCP is 
myopic in time and myopic across flows).

BTW, I've posted a more convenient version of the paper in CCR On-line that 
prints in 10pp (not 32pp of I-D format bloat). I've also updated it to say 
specifically what's wrong with the fairness in TCP, TFRC, WFQ and XCP as 

>Also, congested network is the network operating at full capacity -
>meaning that there is no overinvestment.  If a provider has underloaded
>network it, basically, means that its business people made a mistake and
>overinvested (driving ROI - and share prices - lower).

Congestion is excess load over offered load (another way of saying loss 
rate). Loosely, you can think of congestion charges as the part of the 
charge that pays for the capacity needed to serve the traffic that isn't 
being served (what Econ 101 calls 'marginal cost of capacity'). 
Subscriptions recover past investment in capacity. Together they cover the 
average cost of capacity. In fact economists usually calcualte elasticity 
of scale from

         1/e = marginal cost / average cost,

which is why 1/e = p, the proportion of congestion charge to total charge.

In summary, it makes absolute sense for ISPs to limit congestion, which is 
equivalent to setting aside part of the monthly charge as if they are 
charging for congestion.



Bob Briscoe, <bob.briscoe at bt.com>      Networks Research Centre, BT Research
B54/77 Adastral Park,Martlesham Heath,Ipswich,IP5 3RE,UK.    +44 1473 645196 

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