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.