Saturday, March 23, 2013

Charging for wireless services by auction

I've been thinking about this for a while now. All mobile network operators have a rigid price structure, in some markets, like Canada, with outrageous costs. Yet when certain areas of the network are idle, due to low traffic, the network equipment remains unused, and is producing no revenue. It strikes me as    a very inefficient way to allocate and manage resources. I believe an auction-based model, where available capacity is up for bidding would be more efficient.

Once the costs of laying out a network have been sunk, the ongoing cost of operations should dwarf the initial investment, and should allow for a wide range of pricing to make economic sense. That is, the cost of allowing access to a spare channel of communication between a mobile device and the network shouldn't be much higher than the cost of keeping that channel unused, on stand-by. I'd venture to guess that most of the additional cost is for the energy used to power the transmission.

Hence the opportunity, if I'm a customer in the right place at the right time, and the cell covering that location has plenty of spare capacity at that particular time, I should be given the opportunity to get access to the network at a rate lower than the going rate. Whereas I would almost never pay the $10/GB going rate, I would be willing to pay a lower price. Because of the rigid pricing, however, this opportunity goes wasted. I don't get to use the service, the service provider doesn't get paid. Lose-lose scenario. Flexible pricing would turn it in a win-win.

Conversely, sometimes you might find yourself in an area that's highly congested, with no physical ability to accommodate everyone, even at the going rate. Some calls will need to be dropped. Flexible pricing would be a way to guarantee a connection for the higher bidders. So sometime I would be willing to pay above the $10/GB rate.

Such flexibility would benefit all parties. Sure there would be some complexity added to metering and billing, and some signalling mechanisms should be devised for dealing with the bidding process, but the gains may far outweigh the costs. Why nobody implemented something like this, especially for pre-paid or pay-per-use plans, remains a mystery.

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