The strategy of differential pricing and network utilization: evidence from India’s telecommunications sector

Abstract

Purpose

The network capacity deployed to manage the busy hour (or peak-hour) traffic remains underused during the nonbusy (off-peak) hours. Transferring some traffic from peak-hour to off-peak hours is likely to improve the utilization of network resources during the off-peak hours. This paper aims to examine whether diverting traffic from peak-hour to off-peak hours is possible by adopting the differential pricing policy.

Design/methodology/approach

The peak-load pricing theory suggests that the policy of differential pricing is socially optimal when there is peak demand for a particular duration and then there is off-peak demand. In this study, hourly traffic data from both peak and off-peak periods were collected from the Indian telecom service provider, “Aircel.” The paper analyzed the disparity in traffic between peak and off-peak hours using the nonparametric Tukey’s test. An experiment was also conducted to analyze whether a significant shift in telecom traffic occurs from the peak to the off-peak period when a price discount is applied during the off-peak period.

Findings

Statistically significant differences were observed in network traffic between peak-hour and off-peak hours. The network utilization of the telecom service provider Aircel was notably lower, particularly during the off-peak hours. The experiment demonstrated a high degree of price sensitivity among telecom service subscribers. Telecom Regulatory Authority of India (TRAI) has not considered network utilization of telecom service providers as a key performance indicator. Based on the outcomes of the study, this paper recommends that TRAI should adopt a more proactive approach by encouraging telecom service providers to follow the policy of differential pricing to enhance utilization of their network capacity.

Originality/value

To the best of the authors’ knowledge, this is the first paper to explore the issue of pricing as a tool for bringing about more uniform movement of telecom traffic, thereby enhancing network utilization within India’s telecommunications sector.

Citation

Sengupta, T. and Datta Chaudhuri, D. (2024), "The strategy of differential pricing and network utilization: evidence from India’s telecommunications sector", Digital Policy, Regulation and Governance, Vol. 26 No. 6, pp. 659-677. https://doi.org/10.1108/DPRG-09-2023-0131