On Modeling the Effect of Peak-Load Pricing Mechanism to the Telecommunication Traffic

Wireless service providers often have to maximize their profit while satisfying the pre-specified Grade-of-service (GoS). However, the uneven traffic demand over a day has adverse effect to the design - the high blocked call probability during the peak-load hour limits the possible number of admitted users while low traffic during the off-peak hour results in the inefficient use of radio spectrum. The aim of this work is to study how a monopoly service provider can maximize the profit given that the daily traffic demands are time-varying. A possible way is to alter traffic demands through pricing differently at different periods of a day. Earlier study has shown that such peak-load pricing mechanism can reshape the traffic demand. As a result, the overall profit increases by moving some of the traffic to off-peak hour while at the same time improves the GoS of the group of users who are willing to pay more during the peak. There is generally a lack of theory to model the change even though some measurement has been made in the literature. We develop a simple model to predict the effect of peak-load pricing - one of the key features in the mechanism is the inter-temporal substitutability between the peak-load and off-peak period. We calibrate the model against the empirical evidences available.