Soumya Sen, K. Yamauchi, Roch Guerin and Kartik Hosanagar ESE, Wharton University of Pennsylvania 11 th December, Ninth Workshop on E-business, WEB 2010, St. Louis, MO The Impact of Re-provisioning on the Choice of Shared versus Dedicated Networks

Network Infrastructure Choice: Shared Versus Dedicated Networks 1. Problem Formulation 2. Model & Solution Methodology 3. Key Findings & Examples 4. Conclusions S. Sen The Impact of Re-provisioning on the Choice of Network Infrastructures Talk Outline 2

Emergence of new services require: –Network provider has to decide between: Common (shared) Network Infrastructure Separate (dedicated) Network Infrastructure Examples: –Facilities Management services & IT e.g. IT & HVAC systems –Video and Data services e.g. Internet & IPTV services –Cloud Computing e.g. Private (dedicated) cloud Vs Shared cloud –Broadband over Power lines Lack of Framework to evaluate choices: –Ad-hoc decisions (AT&T U-Verse versus Verizon FiOS) –Manufacturing Systems Literature: Plant-product allocation, optimal resource allocation S. Sen The Impact of Re-provisioning on the Choice of Network Infrastructures Motivation 3

News-Vendor Problem –Resource allocation when demand is uncertain –Need to add “Reprovisioning” phase to these models Plant-product allocation –How to allocate product demands to manufacturing plants –Effect of process flexibility in handling variable demand Jordan & Graves (1995), Graves & Tomlin (2003), E.K.Bish, Muriel, Biller (2005) Optimal Resource Allocation Fine & Fruend (1990) – firm’s optimal investment in flexible and dedicated resources J.A.Van Mieghem (1998) – role of price margins and cost-mix differential on flexibility benefits Our model focuses on the impact of reprovisioning, economies of scope, and identifies operational metrics for network design decision S. Sen The Impact of Re-provisioning on the Choice of Network Infrastructures Related Literature 4

Two network services (technologies) –One existing (mature) service –One new service with demand uncertainty Sharing can create economies or diseconomies of scope in costs New service has demand uncertainty –Needs capacity provisioning before demand gets realized –Dynamic resource “reprovisioning” But some penalty will be incurred (portion of excess demand is lost) –Technology advances allow Reprovisioning (e.g., using virtualization) How critical is reprovisioning ability in choosing network design? –Compare networks based on profits S. Sen The Impact of Re-provisioning on the Choice of Network Infrastructures Problem Formulation 5

S. Sen The Impact of Re-provisioning on the Choice of Network Infrastructures Model Formulation 6 Basic Model: A Two-Service Model Service 1 (existing service) Service 2 (new service with uncertain demand) Three-stage sequential decision process Compare Infrastructure choices based on expected profits Reprovisioning Stage Capacity Allocation Stage Infrastructure Choice Stage Solve backwards

S. Sen The Impact of Re-provisioning on the Choice of Network Infrastructures Model Variables 7 Provider’s profit depends on: Costs: Fixed costs Variable costs - grows with the number of subscribers (e.g. access equipment, billing) Capacity costs - incurred irrespective of how many users join (e.g. provisioning, operational) Cost ComponentService 1 Dedicated Service 2 Dedicated Shared Fixed Costsc d1 c d2 cscs Contribution Margin (grows with each unit of realized demand) p d1 p d2 p s1, p s2 Variable Costs (incurred irrespective of realized demand) a d1 a d2 a s1, a s2 Gross Profit Margin = p i - a i, i={s2, d2} Return on capacity = p i /a i

S. Sen The Impact of Re-provisioning on the Choice of Network Infrastructures Solution (1): Reprovisioning Stage 8 Service 2 revenue: (i={s2, d2} for Shared and Dedicated respectively) i.when D 2 ≤ K i : R i (D 2 ≤ K i ) = p i D 2 – a i K i ii.when D 2 >K i : Reprovisioning Ability: A fraction “α” of the excess demand can be accommodated User contribution Capacity cost R i (D 2 > K i ) = (p i – a i )(K i + α(D 2 - K i )) A word about reprovisioning ability, α –Independent of the magnitude of excess demand –Captures feasibility of and latency in securing additional resources –So what do α =0 and α =1 mean?

S. Sen The Impact of Re-provisioning on the Choice of Network Infrastructures Solution (2): Capacity Allocation Stage 9 Expected Revenue, E(R i |K i ), for a given provisioned level K i : Optimal Provisioning Capacity : For demand distribution ~U[0, D 2 max ]:

S. Sen The Impact of Re-provisioning on the Choice of Network Infrastructures Solution (3): Infrastructure Choice Stage 10 Dedicated Networks: –Service 1 revenue: –Service 2 revenue under optimal provisioning: –Total profit: Shared Network: Infrastructure Choice: –Common if, else separate Profit from Service 2 Profit from Service 1

S. Sen The Impact of Re-provisioning on the Choice of Network Infrastructures Choice of Infrastructure 11 Impact of system parameters: –Varying cost parameters affect the choice of infrastructure Shared to Dedicated (or Dedicated to Shared) Single threshold for switching n/w choice –Surprisingly, ad-hoc “reprovisioning” ability also impacts in even more interesting ways! Common is preferred over separate when Independent of provisioning decision Depends on provisioning decision Diff. in optimal capacity cost h(α)= Function of p i, a i, α, i={s2,d2}

S. Sen The Impact of Re-provisioning on the Choice of Network Infrastructures Analyzing the effect of α on h(α) 12 Proposition 1: Increase in α benefits both shared and dedicated networks. (i) if increases in α benefits shared (dedicated) n/w more than dedicated (shared) (ii) if increases in α benefits shared (dedicated) more at low α and dedicated (shared) more at high α The value of h'(0) and h'(1) fully characterize the shape of h(α) Gross Profit Margin Return on Capacity

S. Sen The Impact of Re-provisioning on the Choice of Network Infrastructures Results: Impact of Reprovisioning 13 GPM ded (p d2 -a d2 ) is sufficiently lower than GPM shr (p s2 -a s2 ) GPM ded > GPM shr i.e. (p d2 -a d2 ) >(p s2 -a s2 ) and ROC ded <ROC shr i.e. (p d2 /a d2 ) <(p s2 /a s2 ) GPM ded > GPM shr i.e. (p d2 -a d2 ) >(p s2 -a s2 ) and ROC ded >ROC shr i.e. (p d2 /a d2 ) >(p s2 /a s2 )

Developed a generic model that captures economies and diseconomies of scope between shared and dedicated networks Reprovisioning can affect the outcome in non-intuitive ways –Validates the need for models to incorporate this feature –Yields guidelines on how reprovisioning affects choice of network infrastructure Identified key operational metrics to consider –Provides decision guideline Robustness: –Non-uniform demand distribution (positively & negatively skewed β-distribution) –Economies and diseconomies of scale –Different reprovisioning abilities for shared and dedicated networks ( α 1, α 2 ≠ α) S. Sen The Impact of Re-provisioning on the Choice of Network Infrastructures Conclusions 14 Thank You!