Chapter 1Will Smart Pricing Finally Take Off?

ANDREW ODLYZKO

1.1 Introduction

Will smart pricing dominate telecommunications? We certainly do see growth in sophisticated pricing in many areas of the economy. Congestion charges for cars entering central business districts and “smart” electric meter deployments are spreading. Airlines are even beginning to auction seat upgrades [1]. And there is no shortage of desire for smart pricing in telecommunications. For a survey of recent developments, see Reference 2. Many new technological developments, such as software-defined networking (SDN), are touted as facilitating differentiated services and differentiated pricing. The overwhelming consensus of the industry, as well as of the research community, and of regulators, is that flat rates are irrational. Thus, for example, in 2011, Jon Leibowitz, the then-Chairman of the US Federal Trade Commission could not “quite understand why something like metering hasn't taken off yet.” (See Reference 3 for references to this and similar recent quotes, as well as for a summary of the arguments in favor of flat rates.)

Yet there are reasons for caution in the rush to smart pricing. After all, the modern consensus about its desirability is not new. It goes back centuries, to the days of snail mail. Furthermore, industry has often either stumbled onto flat or almost flat rates, or been forced into them, all against its will, and ended up benefiting. Thus, for example, US wireless service providers ...

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