| Telecommunications Tariffs |
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WHY ARE TARIFFS CHARGED? At a minimum, tariffs imposed must cover the cost of providing the service to the consumer. The consumer may be the final user or an intermediary such as a Service Provider . Obviously, if a telecommunications operator cannot recover its costs, it will make a loss and the company will go Bankrupt . Tariffs must also be used to cover Maintenance , additional Research and other Indirect Cost s associated with providing the service. However, telecommunications service providers must be careful not to over-price each service, as prices have a direct influence on demand for that service (see Supply And Demand ). Such an operator must constantly balance the need to provide cheaper rates, especially if there is strong Competition , with the cost of maintaining the service at an optimum quality that is acceptable to the customer. If an operator charge too much, it risks alienating its customers, resulting in a loss of traffic and therefore revenue; if they charge too little, they will have insufficient capital to maintain the network's QoS . Over time this will result in customer attrition. COMPONENTS OF TARIFFS Tariffing systems vary from country to country and company to company, but in general they are based on several simple principles. Tariffs are generally made up of two components:
These components form a basic tariff system but there are much more complex versions in existence too. For example, there is generally a connection fee to connect a new user to the Network . Also, in some countries, the call charges are fixed at a monthly rate and included in the standing charges. Emergency, information and other types of calls can be automatically charged to the recipient instead of the caller, and there is always the option of calling collect, where responsibility for charges are accepted by the recipient where normally paid by the caller. Tariffs also depend on the bandwidth provided. For example, dial-up Modem connections are charged at normal Telephone costs, but connections such as DSL are usually charged using a completely different accounting system due to their "always on" nature. IMPACT OF TARIFFS ON TRAFFIC The more an operator charges, the less customers will use the service, particularly in the cost-sensitive or elastic residential market. The less the operator charges, the more customers will use their services. Internet traffic research show that the traffic intensity is directly affected by the tariffs charged in connecting customers to their Internet Service Provider (ISP). For example, a Circuit-switched Network provider charges different tariffs at different times of the day. It was noted that at the time that the rates decreased, the traffic intensity logged by the ISP increased dramatically and then decayed over time at an exponential rate. The conclusion of the research was that by varying prices over time, a telecommunications service provider can reduce the level of the traffic intensity at peak periods, resulting in lower equipment costs because of the reduced need to provision to meet peak demand, which in turn leads to increases in long-term revenue and profitability. REFERENCES
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