Profit Maximization in Femtocell Service with Contract Design

Most service providers offer an unlimited data service plan under a flat, fixed-rate contract to meet the huge demand. However, because service quality and user experience can vary dramatically in wireless communications, such a contract design is unable to provide equal service quality for all users, which greatly limits the profit potential of service providers. As a result, mobile industries look to femtocell technology to improve service quality and increase profit by attracting customers. Meanwhile, differentiated contracts for different types of users also show great potential for profit increase. In this paper, we investigate unlimited data service plans in terms of enhancements from both femtocell systems and differentiated contracts. The incentive compatibility (IC) issue in differentiated contract design is considered under the overlay macrocell-femtocell system in both split-spectrum and shared-spectrum models. The profits under optimal differentiated contracts, with and without the IC condition are compared to traditional flat fee contracts, and numerical results show that optimal differentiated contracts indeed generate more profits and serve more users.