Investment in Next Generation Networks and the Role of Regulation: A Real Option Approach

Contents

1 - Introduction...................................................................................................................................3

2 - Regulation and Investment............................................................................................................4

2.1 - The next generation networks................................................................................................. 4

2.2 - Literature review..................................................................................................................... 8

3 - A real option theory approach to the telecommunication industry ............................................. 10

3.1 - A discrete binomial model: an illustrative example ............................................................. 10

3.2 - Impact of regulation on investment: the issue of truncation................................................. 19

4. - A model to evaluate investment in NGNs.............................................................................. 22

4.1 - Model input parameters ........................................................................................................ 23

4.1.1 - General inputs.................................................................................................................... 25

4.1.1.1 - Citéfibre specific inputs.................................................................................................. 25

4.1.1.2 - Established telecommunication operator inputs ............................................................. 27

4.2 - Model outcome and the role of regulation............................................................................ 29

5 - Concluding remarks .................................................................................................................... 39

References......................................................................................................................................... 41

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