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

David P. Reed dpreed at reed.com
Wed Jan 24 12:21:18 PST 2007

Bob - nice analysis, but beware of simple models being viewed as complete.

The end user values more than just transport, which is all that is 
modeled in this notion of congestion.

"Choices" or "options" also matter to users - whether it is the 
perception that there are "500 channels" a la the US cable system vs. 
the British broadcasting model of a couple of gov't channels and a few 
more gov't granted monopolies called private channels - users will pay 
for choices that they may or may not exercise.

This provides a value to "switching" functions in networks.   The 
freedom to channel surf, or the freedom to assemble a web page from many 
sources, with a small switching latency matters.   But congestion 
directly blocks the ability to switch - it kills option value, and if 
option value is a large part of customer value, then congestion means 
that greedy users who don't value choice can kill value for other users.

The other point is that network infrastructure is at scale a dynamically 
priced thing.    If you study the other literature on "real options" 
(besides that which applies to R&D and network switching options) you 
will find that options or contingent value analysis is crucial to 
pricing such infrastructures as refineries, power plants, cable plants, 
etc. when faced with variable costs such as tooling, plant construction 
costs (think semiconductor fabs and Moore's Law estiimates of demand 

So equilibrium economic models are helpful, but in fact contingent and 
dynamic economic models are far more important than easy analyses like 
these would imply.

Bob Briscoe wrote:
> Vadim,
> 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 examples:
> <http://www.sigcomm.org/ccr/drupal/?q=node/166>
>> 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.
> Cheers
> Bob
> ____________________________________________________________________________ 
> 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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