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The Impact of Re-provisioning on the Choice of Shared versus Dedicated Networks

Soumya Sen, K. Yamauchi, Roch Guerin and Kartik Hosanagar ESE, Wharton University of Pennsylvania ssoumya@seas.upenn.edu www.seas.upenn.edu/~ssoumya. The Impact of Re-provisioning on the Choice of Shared versus Dedicated Networks.

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The Impact of Re-provisioning on the Choice of Shared versus Dedicated Networks

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

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

  3. 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 Motivation S. SenThe Impact of Re-provisioning on the Choice of Network Infrastructures 3

  4. 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 Related Literature S. SenThe Impact of Re-provisioning on the Choice of Network Infrastructures 4

  5. 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 beforedemand 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 Problem Formulation S. SenThe Impact of Re-provisioning on the Choice of Network Infrastructures 5

  6. Model Formulation • 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 Infrastructure Choice Stage Capacity Allocation Stage Solve backwards Reprovisioning Stage S. SenThe Impact of Re-provisioning on the Choice of Network Infrastructures 6

  7. Model Variables • 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) Gross Profit Margin = pi - ai , i={s2, d2} Return on capacity = pi /ai S. SenThe Impact of Re-provisioning on the Choice of Network Infrastructures 7

  8. Solution (1): Reprovisioning Stage • Service 2 revenue: (i={s2, d2} for Shared and Dedicated respectively) • when D2 ≤ Ki: Ri (D2 ≤ Ki) = pi D2 – ai Ki • when D2>Ki: • Reprovisioning Ability: • A fraction “α” of the excess demand can be accommodated User contribution Capacity cost • Ri (D2 > Ki) = (pi – ai )(Ki + α(D2 - Ki)) • 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 =1mean? S. SenThe Impact of Re-provisioning on the Choice of Network Infrastructures 8

  9. Solution (2): Capacity Allocation Stage • Expected Revenue, E(Ri|Ki), for a given provisioned level Ki: • Optimal Provisioning Capacity: • For demand distribution ~U[0, D2max]: S. SenThe Impact of Re-provisioning on the Choice of Network Infrastructures 9

  10. Solution (3): Infrastructure Choice Stage • 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. SenThe Impact of Re-provisioning on the Choice of Network Infrastructures 10

  11. Choice of Infrastructure • 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 Depends on provisioningdecision Independent of provisioning decision h(α)= Diff. in optimal capacity cost Function of pi, ai, α, i={s2,d2} S. SenThe Impact of Re-provisioning on the Choice of Network Infrastructures 11

  12. Analyzing the effect of αon h(α) • 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) Return on Capacity Gross Profit Margin S. SenThe Impact of Re-provisioning on the Choice of Network Infrastructures 12

  13. Results: Impact of Reprovisioning GPMded(pd2-ad2) is sufficiently lower than GPMshr(ps2-as2) GPMded> GPMshr i.e. (pd2-ad2) >(ps2-as2) and ROCded<ROCshr i.e. (pd2/ad2) <(ps2/as2) GPMded> GPMshr i.e. (pd2-ad2) >(ps2-as2) and ROCded>ROCshr i.e. (pd2/ad2) >(ps2/as2) S. SenThe Impact of Re-provisioning on the Choice of Network Infrastructures 13

  14. 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 (α1, α2 ≠α) Conclusions Thank You! S. SenThe Impact of Re-provisioning on the Choice of Network Infrastructures 14

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