C&W Mulls Apps-Based Pricing
Talking to Light Reading at Ethernet Expo: Europe 2009 in London last week, Stockwell explained that customers are starting to ask for service-level agreeements (SLAs) based on the guaranteed delivery of specific applications and related criteria, such as the time it takes to process a particular order, rather than the traditional bandwidth, packet loss, jitter, and delay parameters. (See Photos: Ethernet Expo Europe Part I.)
However, there are significant practical and commercial barriers to the implementation of such models, noted the C&W man: "As you can imagine, we kick the subject around internally a lot. It works as a concept, but, practically, I struggle to see how to deliver it."
Essentially, introducing apps-based pricing means changing the basic service provider business model. That requires: understanding what the changed model would look like; establishing the commercial risk associated with changing it; and retraining sales teams to sell more, and more complex, products.
"With so many things involved, it starts to get very tricky," Stockwell noted.
And that business model shift couldn't be bigger, as it involves breaking the sacred link between the cost of delivering bandwidth to the carrier and the price of that bandwidth to the customer.
The reason carriers are even considering such a radical change is that cracks are appearing in the dominant bandwidth-based model, as various factors, such as intense competition and customer expectations, erode the profit margins on bandwidth-based tariffs.
Enterprise customers are also becoming increasingly aware that many of their mission-critical applications, such as ERP (enterprise resource planning), for which they are prepared to pay SLA fees, are far less bandwidth-hungry than other applications, such as public Internet access (especially as the use of online video services like YouTube increases in the workplace).
Yet, even if a new commercial model could be established, Stockwell said, it's still very difficult to separate the responsibilities of the carrier and the enterprise, and that's something that would be essential to making an apps-based SLA work.
For example, a service delay could just as easily be caused by a problem in the enterprise's IT systems (in the database or LAN) as in the carrier network. Only services that involve end-to-end managed service responsibility will be able to overcome such issues.
— Catherine Haslam, Asia Editor, Light Reading