Cost-based tariff system SURFnet Walter van Dijk

Highlights SURFnet SURFnet is the Dutch National Research & Education Network (NREN) Services, innovation, knowledge Not for profit Task organisation of SURF = ICT collaboration of higher education & research Institutions fulfil two roles: - strategic control / policy - customer A small operation serving a large community: 85 employees 180 connected institutions 1 million end-users Turnover 31 million Euro 12 million: innovation subsidies 19 million: tariffs incurred to customers

Guiding Principles Government funding solely used for innovation Running of services fully incurred to customers Not for profit structure Positioning: exclusively on the demand side of the market Global collaboration on innovation (GN3+, GLIF, Internet2, CERN) Various partnerships for innovation with industry

Tariff model Costs of most services are fixed and largely independent of actual usage Connection fee covers about 70% of income from tariffs Distribution of connection fee based on cost-sharing model Other 30% comes from additional services, charged on a per service/customer basis: SURFlightpaths, SURFmailfilter, SURFcertificates (TCS), SURFdomainnames et cetera Avoid complexity If service = infrastructure: included in connection fee (e.g. network, federation, eduroam) If vast majority of customers uses a service: included in connection fee If only selection of customers want a service: charge as additional service Tariffs for additional services are cost-based Yearly evaluation of cost schemes and tariffs

The why of tariff differentiation Some services are only used by specific subset of customers e.g. SURFmailfilter: some customers do it themselves or use cloudservices e.g. SURFcontact: HD videoconferencing, developed for academic hospitals e.g. SURFlightpaths: heavy users in astronomy, high-energy physics and lifesciences NREN proposition is relative to commercial offerings Opting for lump-sum model could discourage customers that require only IP-connectivity versus

Beware of tariff differentiation Tariff leads to higher barrier for experimenting/using a service negative incentive for services that we want our customers to use: e.g. security services Negative spiral can be induced: fixed cost shared by fewer and fewer customers

Cost allocations Fairness of tariff differentiation requires accurate cost calculations: Of course: other factors than costs will also determine tariff ABC starts with determining direct and indirect (overhead) costs KIS: 1) administration of all direct costs per service (HW, SW, manpower) 2) attribute indirect manpower where possible to services (AA & CS) 3) attribute overhead (HRM, Finance, office etc.) to services Activity Based Costing

Step-1: assessment of direct costs, per service (example) Step-2/3: inclusion of indirect costs, per service (example)

Tariff history Focus on costs and tariff differentiation (separate charges for additonal services) resulted in significant decreases of connection fee: 2008: 7,5%2009: 5%2010: 4% 2011: 4%2012: 4%2013: 4% Number of additional services has gradually increased: 2008: SURFlightpaths 2009: SURFmailfilter, SURFcertificates (TCS), SURFcontact 2010: SURFinternetpayments, SURFcertificates (code-signing) 2011: SURFfederation (only for SPs) 2012: On-Demand lightpaths Tariffs for some services were decreased: 2009: SURFmedia, SURFdislocations 2010: SURFdomainnames

Tariff differentiation in perspective Tariff differentiation started at ±20% in 2009 Percentage increased to 35% in 2012 Percentage currently decreases due to: Decommission of services like SURFmedia, SURFgroepen en SURFcontact Decision to stop charging service providers that use SURFfederation/SURFconext Decision to decrease the tariff for certain services like SURFdislocations & SURFdomainnames

Tariff differentiation revisited Renewal of contracts for timeframe accentuates importance of tariff differentiation: as a means, not a goal Newly developed services require a business plan, including proposed tariff model: constitutes business-case Trend of differentiation percentage expected to decrease further: Financing of NGE Multi Service Port by not claiming room for 4% decrease of tariffs in 2013 collective decision by universities Financing of Point-of-Presence redundancy by not claiming room for 4% decrease of tariffs in 2014 collective decision by universities

Customer interaction on tariffs Two separate roles: Strategic policy control via SURF (College Board members) Customer function via SURFnet (ICT-management, CIOs) Annual meeting with representatives of customer sectors