ISP Service Tier Design

Internet Service Provider design of service tiers are modeled and analyzed, based on demand for web browsing and video streaming. A basic model that considers user willingness to pay, network capacity, and application performance is formulated to determine when multiple tiers maximize profit. An extended model that also considers the time that users devote to each application is formulated to determine the optimal network capacity, tier rates, and tier prices. We show that an Internet Service Provider may simplify tier and capacity design by allowing its engineering department to set network capacity, its marketing department to set tier prices, and both to jointly set tier rates. Numerical results are presented to illustrate the magnitude of the decrease in profit compared to the optimal profit resulting from such a simplified design.