Telecommunication carrier selection under volume discounts: a case study.

Abstract

During 2001 many of the European mobile phone markets have reached saturation, and hence mobile phone operators have shifted their attention from growth and market share to cutting costs. One way of doing so is to reduce spending on international calls which are routed via network operating companies (carriers). These carriers charge per call-minute for each destination and may use a joint business volume discount to price their services. We developed a software system that supports the decision of allocating destinations to carriers. The core of this system is a min-cost flow routine that is embedded in a branch-and-bound framework. Our system not only solves the operational problem to optimality, it is also capable of performing what-if analyses and sensitivity analysis. It has been implemented at a major telecommunication services provider. The main benefits realized are twofold: the business process of allocating carriers to destinations has been structured and the costs arising from routing international calls have significantly decreased.Selection; Case studies; Studies; Markets; Market; Costs; International; Companies; Software; Decision; Framework; Sensitivity; Processes;