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.