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Cost-based tariff system SURFnet

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

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Cost-based tariff system SURFnet

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  1. Cost-based tariff system SURFnet Walter van Dijk

  2. 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

  3. Guiding Principles • Governmentfundingsolelyusedforinnovation • Running of services fullyincurredtocustomers • Notforprofitstructure • Positioning: exclusively on the demand side of the market • Global collaboration on innovation (GN3+, GLIF, Internet2, CERN) • Various partnerships forinnovationwithindustry

  4. Tariff model • Costs of most services are fixedandlargely independent of actualusage • Connection fee covers about 70% of incomefromtariffs • Distribution of connection fee based on cost-sharing model • Other 30% comesfromadditional services, charged on a per service/customer basis: • SURFlightpaths, SURFmailfilter, SURFcertificates (TCS), SURFdomainnames et cetera • Avoidcomplexity • If service = infrastructure: included in connection fee (e.g. network, federation, eduroam) • If vast majority of customersuses a service: included in connection fee • Ifonlyselection of customers want a service: charge as additional service • Tariffsforadditional services are cost-based • Yearlyevaluation of costschemesandtariffs

  5. 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

  6. 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

  7. Cost allocations Activity Based Costing • 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

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

  9. Tariff history • Focus on costsandtariffdifferentiation (separate charges foradditonal 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 graduallyincreased: • 2008: SURFlightpaths • 2009: SURFmailfilter, SURFcertificates (TCS), SURFcontact • 2010: SURFinternetpayments, SURFcertificates(code-signing) • 2011: SURFfederation (onlyforSP’s) • 2012: On-Demandlightpaths • Tariffsforsome services weredecreased: • 2009: SURFmedia, SURFdislocations • 2010: SURFdomainnames

  10. 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

  11. Tariff differentiation revisited • Renewal of contracts for 2013-2016 timeframe • accentuates importance of tariff differentiation: • as a means, not a goal • Newly developed services require a businessplan, 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

  12. Customer interaction on tariffs • Two separate roles: • Strategic policy control via SURF (College Board members) • Customer function via SURFnet (ICT-management, CIO’s) • Annual meeting withrepresentatives of customer sectors

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