ISSN : 1796-2056
Volume : 4    Issue : 1    Date : February 2009

An Innovative Pricing Method for Telecommunication Services Pricing through American Options
Giuseppe D’Acquisto, Pietro Cassarà, and Luigi Alcuri
Page(s): 65-74
Full Text:
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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.

Index Terms
American option, Ornstein-Uhlenbeck process, Virtual Operator, congestion pricing.