case of a 1-year postponement. The NPV is obtained by applying the perpetuity formula to
the annual net cash flow generated by the introduction of the new asset.
The net cash flows associated with an NGN project for an established operator do not
arise only from incremental revenues but also by cost savings. This clearly affects the
volatility of the NPV, since cost savings are reasonably steady and predictable. We have
assumed that in the case of an established operator half of the net cash flows derive from
incremental revenues: the VOL variable for an established operator is thus set equal to half
of that of Citéfibre25. Table 2 shows established telecommunication operator input data.
Table 2 - Established telecommunication operator inputs data
|
NPV (Asset price) |
€ 1,485 |
|
UI (Up-front Costs-Strike price) |
€ 440 |
|
PO (Pay Out) |
4% |
|
Rf (Riskfree rate) |
5.5% |
|
VOL (Volatility) |
0.45 |
|
YtE (Years to Expiry) |
6 |
25 This might lead to some underestimation of the actual volatility since also the cost saving part is subject to
a certain degree of volatility, depending on the mix of single-play and multiple-play offers. Cost savings
induced by an NGN deployment are significantly more relevant when customers subscribe to multiple-play
offers (e.g. voice and internet access, or voice and IPTV etc). A sensitivity analisys has thus been conducted
by assigning to the cost saving half of the average volatility of main historical European operators.
28