Pricing and capacity decisions for non-profit internet service providers

Many universities and other non-profit organizations started Internet dial-up access as a value-added service to their respective communities. The implementation and maintenance of these services becomes a nontrivial task, requiring large annual budgets to keep these systems up and running. The mandate for these non-profit entities is to recover the costs of providing their value added services in the long run while maintaining a guaranteed quality of service (QoS) level. The pricing and capacity planning problem of the non-profit Internet Service Providers (ISPs) has three difficult aspects. First, pricing based on cost recovery has inherent challenges. Second, the non-profit ISPs have to tackle the growth of unpredictable demand that calls for continuous capacity expansion. Third, capacity expansion in terms of Internet dial-up lines comes only in bulk units which typically exhibit economy of scale characteristics. Another critical issue of capacity expansion is the timing of the expansion since the installation of production-mode capacity requires lead-time. This paper proposes a Busiest-Minute Planning Model (BMPM) for the non-profit ISPs to effectively solve the aforementioned issues. The BMPM model provides non-profit ISPs a mechanism to determine the optimum capacity for a given QoS level. The mechanism can predict when existing capacity becomes saturated by taking into account the desired QoS and future demand change. The BMPM model proposed in this paper was tested using data from a non-profit ISP - The Northeast Regional Data Center (NERDC) of the State of Florida. The results suggest that our BMPM model is very effective in solving the pricing and capacity expansion decisions of NERDC and can be applied to other non-profit ISPs. © Springer Science + Business Media, LLC 2006.