June 27, 2007 FIND Meeting, 2007 1
From Packet-Switching to Contract-Switching
Aparna GuptaShivkumar Kalyanaraman
Rensselaer Polytechnic Institute Troy, NY
Murat YukselUniversity of Nevada – Reno
Reno, NV
June 27, 2007 FIND Meeting, 2007 2
Implied ChallengesMotivation Current problems:
Users cannot express value choices at sufficient granularity – only at access level
Providers do not have economic knobs to manage risks involved in
investing innovative QoS technologies and
business relationships with other providers
flexibility in time:
forward/option pricing
flexibility in space:
user-defined inter-domain
routes
capability to provide e2e
higher quality services
money-back guarantees,
risk/cost sharing
June 27, 2007 FIND Meeting, 2007 3
Contract-switching: A paradigm shift…
Circuit-switching
Packet-switching
Contract-switching
ISPA
ISPC
ISPB
e2e circuits
ISPA
ISPC
ISPB routable
datagrams
ISPA
ISPC
ISPB contracts
overlaid on routable datagrams
June 27, 2007 FIND Meeting, 2007 4
Basic Building Block: Intra-domain dynamic contracts
An ISP is abstracted as a set of “contract links”
Contract link: an advertisable contract between peering/edge
points i and j of an ISP with flexibility of advertising
different prices for edge-to-edge intra-domain paths
Contract components Performance component Time component Financial component
June 27, 2007 FIND Meeting, 2007 5
A Contract-Switched Network Core Contracts: a practical way to manage “value flows”
Technologies to support QoS
Economic considerations for service definition and delivery
Scalability, Efficiency and Fairness
Contract timescales Cost recovery Pricing the risk in QoS
guarantees Single-domain and end-to-end
contracts
June 27, 2007 FIND Meeting, 2007 6
Pricing End-to-end QoS Contracts End-to-end contract characterized by
source-destination (s-d) pair other specifications, eg. QoS specs, contract duration
Two-component pricing model (Pe = Pbw + V*) Pbw component for cost recovery (single domain and e-2-e) V* component for risk management of QoS assurance provides appropriate scaling between Pbw and V*
Balance between customer demand for vanilla bandwidth and additional QoS assurance
Determined by cross sensitivity between demand for vanilla bandwidth and additional QoS guarantees
Develop to handle complexity and offer efficiency - improve profitability, risk sharing, customer welfare, and utilization
June 27, 2007 FIND Meeting, 2007 7
Pricing Bandwidth for Cost Recovery
Nonlinear pricing model to recover provider’s cost Bandwidth purchase cost from constituent ISPs Fixed cost to setup and maintain transit nodes
Price schedule responds to customer demand Categorization based pricing for complexity management
Distance from s to d: hop counts h Speed of traffic from s to d: bottlenecks b
Bandwidth pricing problem:
max Consumer Surplus + Revenues - Total Costs
. . Revenues Total Costss t
June 27, 2007 FIND Meeting, 2007 8
Pricing of Risk in End-to-end QoS Guarantee Single-domain contracts stitched to create end-to-end QoS assured contracts
Risks in end-to-end QoS assurance from Constituent contracts Stitch nodes
Risk management using pricing Contract with N ISPs
Intra-domain contracts specified with
End-to-end contract Definition of end-to-end contract (QoS assurance) Pricing strategies
0 0, , , ( , , )i u u ii i i i it T G V G t T
0 0, , , ( , , )u ut T G V G t T
June 27, 2007 FIND Meeting, 2007 9
Model for Pricing Risk in End-to-end QoS Price specified by contract: s—d pair QoS (Loss) guarantee Temporal characteristics, etc
determined by lowest price over all likely concatenations to deliver between s—d pair
*( )uV S
*( )uV S
uS
uS
,,
{ , }path
,N,
path
,N,
min min ( )
. .
, 0
ui r N
ui i r Nr bh S V
i r
u u ui r
i r
u ui r
V S V
s t S S S
S S
June 27, 2007 FIND Meeting, 2007 10
Putting it together – Contract switching, Routing, Financial Engineering End-to-end QoS services
Contract Routing Pricing Risk management tools
Spot contracts Forward contracts Options on Forward
Flexibility to innovate services
June 27, 2007 FIND Meeting, 2007 11
Thank you!
Questions/Comments?
June 27, 2007 FIND Meeting, 2007 12
Definition of End-to-end Loss Guarantee Type of contractThe per minute loss rate of the customer’s data over contract duration T starting from t0 does not exceed
Constituents of end-to-end loss
Definition of end-to-end loss guarantee
( ).u uiS S
N,contract ,contracti j
i j
l l l
,N
contract
u u ui
i
S S S
June 27, 2007 FIND Meeting, 2007 13
Pricing of Risk in Loss Guaranteed Intra-domain Services
Sample Contract:
“The per minute maximum loss rates are less than 0.5% (Siu)
over the contract duration of 1 hour.” Per Minute Loss Rate lt:
Provision of loss based QoS guaranteed services is risky. Due to the uncertainties caused by the competing traffic. Outcome of loss process in favor of or against the provider.
60
,1, 60
,1
.t jj
i t
t jj
Ll
I
June 27, 2007 FIND Meeting, 2007 14
Pricing of Risk in Loss Guaranteed Intra-domain Services
Payoff defined as
where is the upper barrier (provider’s promised loss rate guarantee), and is the indicator function defined as
Price for the risk:
where -- total number of minutes of the contract duration, -- the risk neutral measure from provider’s SPD.
(0,1) ( ) ,ut t tY I l l S
if
otherwise
1, ;(0,1)
0, .
utl S
I
5%0.uS
(0,1)0
( ) ,N
uo Q t tV E I l l S
Q
(0,1)I
N
June 27, 2007 FIND Meeting, 2007 15
Pricing of Risk Using State Price Density Price of Risk needs to be assigned for unhedgeable risk.
State Price Density (SPD)
(3)
SPD describes a representative provider’s preferences for the future outcomes of the loss process.
Assumptions of the provider’s preference: The provider would expect losses to be rare events. The provider would not get rewarded for large losses.
Two alternative forms of SPD functions: A monotonously decreasing SPD. A SPD peaking at a positive loss rate.
,
where is the .
ss
kk
s
pq
p
p state price
June 27, 2007 FIND Meeting, 2007 16
Constructing a State-Price Density
p1
p2
p3
T=0 T=1
0 Mb
1 Mb
100 Mb
5c
1c
0c
5/6
1/6
0/6
Ten such time steps with (8, 1, 1) realization of each outcome imply a value of 8*5/6 + 1*1/6 + 1*0/6 = 41/6.
June 27, 2007 FIND Meeting, 2007 17
Sample Choice of State-Price Densities Study price evolutions with
different SPD’s Network settings
Capacity Customer’s traffic It
the Aggregate At
Sample SPD’sSPD 1: Exp(0.02)
SPD 2: Beta(1.5, 100.5)
SPD 3: Beta(1.5, 167.2)
SPD 4: Beta(1.05, 100.95)
June 27, 2007 FIND Meeting, 2007 18
Price Variations with Different SPD’s
A decreasing SPD (SPD 1) produces performance based prices.
A SPD that does not reward zero losses produces congestion sensitive prices.
Among the beta SPD’s, the SPD that rewards higher for smaller losses is more favorable to the provider.