TR 608 SERVICE PRICING

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TR 608- SERVICE PRICING

• 1.0 Introduction/Rationale
• This course is concerned with pricing issues
  in modern telecommunication networks. Recent
  advances in technology along with deregulation of
  the telecommunication market and proliferation of
  the Internet have created a new and highly
  competitive environment for communication service
  providers. Hence, both technology and economics
  play a key role in the new environment. Services
  are now being sold at competitive prices and a
  fundamental component of the service definition
  is how it should be rationalised and priced.
  Pricing of telecommunications services is an
  important area because pricing affects the way
  services are used and how resources are consumed.
  The value that customers acquire from services
  depends on quality of service. Pricing plays a
  key role as an incentive mechanism to control
  performance and increase market stability.
  Finally, telecommunication services are economic
  goods and must be priced accordingly. There are
  generic service models that capture aspects, such
  as quality and performance and can be used to
  derive optimal prices in a services market.

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Modules

• This course is basically designed for an advanced
  study MSc in ICT
• policy and regulation. It covers the following
  modules -
•  
• Module 1 Overview of service
  pricing
• Module 2 Technology, Demand,
  and Cost
• Module 3 Economics of Tariff
  Structures
• Module 4 Service Price
  Regulation
• Module 5 Interconnection and
  revenue sharing
• Module 6 Service Pricing
  Structure
• Module 7 Service pricing and
  competition
• Module 8 Contemporary issues
  in service pricing

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2.0 Course Objectives

• At the end of the course, the learner should be
  able to -
• a)     Analyze critical factors affecting demand,
  technology and production 
• b) Analyse practical and theoretical issues to
  the study of service price regulation.
• c)     Assess impact of price regulation.
• d)     Distinguish between Internet, fixed phone,
  and mobile service pricing
• d)     Determine the effect of tariff structures
  on demand for services
• f)     Assess the effect of competition in
  service pricing
• g)    Assess the role of economics of service
  pricing in socio-economic policies of respective
  countries
• h)  Undertake comparative analysis of service
  pricing among different African Countries.

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3.0 Course Outcomes/Competencies

• At the end of the course, the learner will be
  able to -
• a)      Identify critical service pricing issues
  relation to interconnection
• b)      Assess the key factors affecting service
  pricing
• c)  Apply the role of international and regional
  organisations dealing with tariffs
• d)      Analyse the domestic and international
  tariff structures
• e)  Apply microeconomic principles in assessing
  service pricing policies
• f)    Review implementation status of
  interconnection agreements with interconnection
  principles articulated in the countrys
  telecommunication act
• g) Develop learners own materials in the field
  of service pricing

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4.0 Prerequisites

• Basic courses in microeconomics and costing

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5.0 Course Outline

• Overview of service pricing
• Technology, Demand, Production and Cost
• Economics of Tariff Structures
• Service Price Regulation
• Interconnection and revenue sharing
• Service Pricing Structure
• Service pricing and competition
• Contemporary issues in service pricing

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6.0 Detailed Module Outlines

• Module 1 Overview of service pricing
• Objectives
• Review emerging definitions of service pricing
• Analyse trends in service pricing in African
  setting
• Module outcomes
• Assess the relevance of service pricing in
  ICTCourse outline
• Module outline
• Definitions
• Pricing
• Costing
• Service pricing
• Nature, Scope, and purpose of service pricing
• Trends in service pricing

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Module 2 Technology, Demand, Production and
Cost

• Module Objectives
• 1)      Assess the current technologies of
  delivery telecommunications services and the
  resultant cost structures that emerge
• 2)      Review telecommunications service, with
  specific reference to demand for telephony and
  Internet services
• 3)      Evaluate telecommunications demand
•  
• Module Outcomes
• At the end of this module, the learner will be
  able to
• a)      Identify various elements and facilities
  of the telecommunication network and their
  implications for costing and service pricing
• b)      Differentiate between accounting costs,
  economic costs and engineering costs as applied
  to telecommunications service pricing
• c)      Explain how telecommunications demand
  affects service pricing
• d)      Explain the relationship between service
  pricing and economics
• e)      Explain trends in telecommunications
  demand
• f)        Explore pricing models and their
  application to telecommunication services in the
  African market
• g)      Draw lessons of experience and relevance
  of telecommunication costing from developed
  countries models.

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Detailed Outline

• Introduction
• 1)      Network Elements
• Section A Service Technology
• a)      Switching
• b)     Signalling
• c)      Local Loop
• d)     Inter-Exchange Trunks
• e)      Customer Premises Equipment
• f) Digital Technology
•  
• 2)      Network Facilities
• a)      Wireless Subscriber Access
• b)     Cellular Mobile Access
• c)      Fibre Access
• d)   Internet

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Section B Nature of Costs

• 1)      Accounting-based cost analysis versus
  economic-based models
• a)      Total Costs
• b)     Embedded costs
• c)      Current or Forward Looking costs
• d)     Economics of scale, scope and density
• e)      Average costs
• f)       Estimating marginal costs
• g)      Fixed costs
• h)      Variable costs
• i)        Volume sensitive costs
• j)       Shared costs
• k)      Opportunity costs
•  
• 2)      Methods/Models of Costing and Pricing as
  applied to Telecommunication
• a)      Incremental costing
• b)     Marginal costing
• c)      The full/absorption costing
• d)     Activity based costing (ABC)

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3) Service costing

• a)      Cost terms and concepts
• b)   Factors affecting service pricing
• Organisational goals
• Product mix
• Price/demand relationship
• Competitors and markets
• Peak and off-peak
• Income elasticity
• c) Product versus service costing and pricing

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Section C Telecommunications Demand

• 1)      Nature of demand
• 2)      Access demand model
• 3)      Toll demand
• 4)      Challenge of the future as relating to
  telecommunications demand
•  
• Section D Assignments
• 1)      Which costing models are applied in your
  country and is their significance in regulation?
• 2)      What costing and pricing challenges do
  you meet in your countries?

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Module 3 Economics of Tariff Structures

• Module Objectives
• 1)      To explain the concept of pricing within
  the context of privatisation and liberalisation
  of the telecommunications sector
• 2)      To explain optimal pricing theories in
  relation to telecommunications services
• 3)      To review pricing models that are
  relevant to the African market
•  
• Module Outcomes
• At the end of this module, the learner will be
  able to
• a)      Identify the relationship between costs
  and tariffs
• b)      Explain the current trends in tariff
  structures
• Apply cost pricing in telecommunications tariff
  structure

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Detailed Module Outline

• Section A The Economics of Pricing
• 1)      Economic pricing
• 2)      Pricing of services and tariffs
• 3)      Pricing methods
• 4)      Rate of return on investment
• 5)      Costing and Pricing Challenges in
  Telecommunications
•  
• Section B Cost Based Pricing
• 1)      Subsidy-Free Pricing
• 2)      Fully distributed cost pricing
• 3)      Marginal cost pricing
• 4)      Peak-load pricing (incremental load
  pricing)
•  
• Section C Demand-Based Pricing
• 1)      Two part tariffs
• 2)      Discrete Multipart and Optional two-Part
  Tariffs
• 3)      Ramsey pricing
• 4)      Tying and nbundling

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Detailed Module Outline ctd

• Section D Cost Pricing Applications in
  Telecommunications
• Free trade and impact on pricing
• International accounting and settlement
• Costing in Canada Lessons and experiences
• Section E Assignment
• 1)      By selecting two specific
  telecommunication operators in your country
  compare how the company sets its tariff
  structure, examining cost based pricing and
  demand based pricing
• 2) Discuss the costing and pricing challenges in
  telecommunications in relation to tariff
  structures.

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Module 4 Service Price Regulation

• Module Objectives
• 1)      To assess service pricing regulation and
  its application
• 2)      To apply the theory of service pricing in
  price determination
• 3)  To assess the impact of service price
  regulation on various stakeholders
• 4)     To distinguish the various regulatory
  options  
• Module Outcomes
• At the end of the module, the learner will be
  able to
• a)    Review the objectives of service price
  regulation
• b)    Differentiate the types of service price
  regulation
• c)    Explain the challenges in assessing the
  rate structure of a regulated price structure in
  African market
• d)   Design an effective service pricing
  regulation.

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Detailed Module Outline

• Section A The Needs for and the Objectives of
  Service Price Regulation
• 1)      Economic theory of pricing
• 2)      Liberalisation, deregulation and pricing
  of services
•  Section B Types of Service Price Regulation
• Discretionary Price Regulation
• 1)      Incentive Price Regulation
•         Rate of return
•         Earnings sharing
•         Revenue sharing
•  2)      Price Cap Regulation
•         The X-factor determination
•         Time intervals between reviews
•         Mid-stream corrections (z-factor)
•  Section C Mechanics of Service Price Regulation
• 1)      Designing effective regulation
• 2)      Stages in regulation impact assessment
• 3)      Implementing and enforcing service price
  regulation
• 4)      Achieving service price regulation
  compliance

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• Section D Assessing Rate Structure
• 1)      Revenues
• 2)      Operating costs
• 3)      Financial statements
• 4)      Cost determination
•  
• Section E Assignment
• Critically evaluate the service pricing
  regulation in your country, pointing out which
  ones have been implemented and if not give
  reasons as policy recommendations.
•  

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Module 5 Interconnection and Revenue sharing

• Module Objectives
• 1)      Illustrate telecommunications pricing in
  the context of interconnection
• 2)      Assess the need for the regulating both
  the Internet and interconnection and the methods
  of regulating them.
• 3)     Assess the interconnection issues in
  relation to various service pricing methodologies
•  
• Module Outcomes
• At the end of this module, the learner should be
  able to
• a)      Describe the various elements of the
  Internet and their associated costs.
• b)      Analyse the key regulatory issues with
  regard to the Internet.
• c)      Critically examine the challenges in
  assessing rate structure when applied to the
  Internet.
• d)      Explain benchmarking, yard sticking and
  unbundling measures taken by your countrys
  national regulator.
• e)      Analyse the effect of interconnection on
  telecommunication service pricing.
• f)        Determine costing and pricing of mobile
  phones in your country.

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Detailed Module Outline

• Section A Basic Economic Concepts
• 1)      Charging for services
• 2)      The consumer problem
• 3)      Welfare maximisation
• 4)      Network extension
•  
• Section B Elements of Internet Network Costs and
  Internet Service Pricing
• 1)      Role of Internet in economic development
• 2)      Internet as complementary service
•  
• Section C Regulating the Internet
• 1)      Rationale for regulating the Internet
• 2)      Access and infrastructure
• 3)      Interconnection with Internet exchange
  points
• Section D Interconnection
• 1) Technology aspects
• 2) Commercial cost and
  revenue
• 3) Legal aspect of pricing

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• Section E Measuring Efficiency
• 1)      Benchmarking
• 2)      Yardsticking
• 3)      Unbundling
• Section F Assignment
• 1)      Review the Internet services, regulations
  and operations in your country and show how they
  can be improved.
• 2)   Determine the Internet service pricing in
  your country and explain how it is affected by
  competition.

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Module 6 Service Pricing Structure

• Module Objectives
• 1)    To assess conditions that encourage
  cross-subsidisation and why
• cross-subsidisation distorts market
  operations
• 2)     To assess the range of subsidy free
  pricing options
• 3)     To review price regulation and its
  applications
• 4)     To explore spectrum pricing applications
  and options
• Module outcomes
• At the end of this module, the learner should be
  able to
• a)      Analyze the factors related to subsidy
  free pricing
• b)      Assess rate structures applied to
  universal service pricing
• c)      Apply the basic concepts in spectrum
  pricing
• d) Review service-pricing structures in other
  countries to the African context

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Detailed Module Outline

• Section A Subsidy-Free Pricing
• 1)      Definition
• 2)      Detecting and remedying cross subsidy
• 3)      Fully distributed cost techniques
• 4)      Stand alone cost techniques
• 5)      Total service long-run incremental costs
  (TSLRIC) price flows
• 6)      Imputation techniques
•  
• Section B Assessing Rate Structure
• 1)      Definition
• 2)      Rationale for universal service pricing
• 3)      Optional tariffs (second price
  discrimination)
• 4)      Cross-Subsidies
•  
• Section C Spectrum Pricing
• 1)      Case studies
• 2)      Criteria for Replication
•  
• Section D Assignment

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Module 7 Service pricing and competition

• Module Objectives
• 1. Assess the effect of competition on
  service pricing
• 2. Analyze the impact of competition
  policies on pricing of services
• Module outcomes
• At the end of this module, the learner
  should be able to
• 1. Justify competitive prices for the various
  telecommunications services
• 2. Protect the user against unfair pricing
• 3. Protect the non-dominant operator against
  anti-competitive pricing practices
• 4. Competently regulate tariffs of various
  services
• Module Service pricing and competition
• 1)    Competition policy
• 2)    Long distance competition
• 3)    Mobile telephone
• 4)    Local Access network Competition
• 5)   Competition and service differentiation
•  

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Module 8 Contemporary issues in service pricing

• Module Objectives
• 1. Explore challenges for pricing new and
  emerging services
• 2. Analyze the impact of new services on the
  tariff structures
• 3. Review the relevance of price regulation
  taking into account technological developments
  and innovation
• Module outcomes
• At the end of this module, the learner
  should be able to
• 1. Develop relevant policies in pricing for
  new services
• 2. Review the effect of theoretical and
  empirical issues in service pricing
• 3. Review the relevance of the pricing models
  and government policies in the contemporary
  market environment
• 4. Assess the effect of globalization on
  service pricing
• Module Contemporary issues in service pricing
• VOIP pricing
• Different pricing models
• Government policies
• Globalization
• Section D Assignment

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7.0 Recommended Credit Hours

• There will be 36 credit hours. However, this
  will be harmonised with other modules.

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8.0 Mode of Delivery

• The course will take the form of lectures,
  reading assignments/tutorials/industrial/ field
  surveys, group discussions/presentations.

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9.0 Assessment Method

• The course will be examined by 40 coursework and
  60 final written examination which together will
  add up to 100. Coursework will constitute
  written continuous assessment tests, field
  surveys, group discussions, case studies and
  presentation.

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10.0 Recommended Reading List

• 1)      Costas Courcoubetis and Richard Weber.
  2003. Pricing Communication Networks Economics
  Technology and Modelling. Wiley San Francisco.
• 2)      Cremer, J., P. Rey and J. Tirole, 1999.
  Interconnection in Commercial Internet.
• 3)      Gomez-Lobo, A. 1997. Three Essays in
  Applied Regulation. Ph.D. Thesis, London School
  of Economics, London.
• 4)      Jean-jacques, Laffort and Jean Tirole,
  2002. Competition in Telecommunications. London
  The MIT Press.
• 5)      Martin E. Cave, Sumit Majumdar and Ingo
  Vogelsang. 2002. Handbook of Telecommunications
  Economics. Vol. 1. Structure, Regulation and
  Competition. Elsevier, Boston.
• 6)      Rochet, J.C. and T. Tirole. 1999.
  Co-operation among Competitors The Economics of
  Credit Cards Association.
•  
• Online References
• 1)      CISCO (2001). Service Level Management
  Defining and Monitoring Service Levels in the
  Enterprise. www.cisco.com/warp/public/cc/pd/wr2k/s
  umnso/prodlit/sr/m-wp-htm
• 2)      CISCO (2002a). CISCO IOS Release 12.0
  Quality of Service Solutions Configuration Guide.
  www.cisco.com/univercd/cc/td/doc/product/software/
  ios120/12cgcr/qos-c/.
• 3)      CISCO (2002b). Technology Innovations.
  newsroom.cisco.com/dlls/innovations
• 4)      Weber, R.R. (2001). Lecture Notes for
  Optimation. www.statslab.cam.ac.uk