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Investment decisions in the wireless industry applying real options

Author

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  • Harmantzis, Fotios C.
  • Tanguturi, Venkata Praveen

Abstract

The wireless industry is one of the most capital intensive high-technology industries. This paper applies real options techniques to estimate investments under uncertainty in two new ventures: (a) deferral of the expansion from 2.5G to 3G networks; and (b) expansion of a 2.5G network using Wi-Fi as an alternative technology. The cases are examined and analyzed both qualitatively and quantitatively, using realistic assumptions and parameters. Investment cost, number of subscribers, pricing of services, and risk are at the core of investment decision processing. In both cases, sensitivity analysis of the value of the (real) option considering the above key parameters was conducted, to extrapolate useful findings that should be taken into consideration by the decision makers in wireless companies.

Suggested Citation

  • Harmantzis, Fotios C. & Tanguturi, Venkata Praveen, 2007. "Investment decisions in the wireless industry applying real options," Telecommunications Policy, Elsevier, vol. 31(2), pages 107-123, March.
    • Handle: RePEc:eee:telpol:v:31:y:2007:i:2:p:107-123
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    Citations

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    Cited by:

    1. Charalampopoulos, George & Katsianis, Dimitris & Varoutas, Dimitris, 2020. "Investigating the intertwining impact of wholesale access pricing and the commitment to net neutrality principle on European next-generation access networks private investment plans: An options-game a," Telecommunications Policy, Elsevier, vol. 44(3).
    2. Hans Ulrich Buhl & Björn Steven Häckel & Florian Probst & Josef Schosser, 2016. "On the Ex Ante Valuation of IT Service Investments," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 58(6), pages 415-432, December.
    3. Christian Ullrich, 2013. "Valuation of IT Investments Using Real Options Theory," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 5(5), pages 331-341, October.
    4. Guthrie, Graeme, 2012. "Regulated prices and real options," Telecommunications Policy, Elsevier, vol. 36(8), pages 650-663.
    5. Sergio Franklin, 2015. "Investment decisions in mobile telecommunications networks applying real options," Annals of Operations Research, Springer, vol. 226(1), pages 201-220, March.
    6. Matthias Berger & Christian Matt & Jochen Gönsch & Thomas Hess, 2019. "Is the Time Ripe? How the Value of Waiting and Incentives Affect Users’ Switching Behaviors for Smart Home Devices," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 71(1), pages 91-123, February.
    7. Charalampopoulos, George & Katsianis, Dimitris & Varoutas, Dimitris, 2011. "The option to expand to a next generation access network infrastructure and the role of regulation in a discrete time setting: A real options approach," Telecommunications Policy, Elsevier, vol. 35(9), pages 895-906.
    8. Franklin, Sergio Luis & Diallo, Madiagne, 2013. "Real options and cost-based access pricing: Model and methodology," Telecommunications Policy, Elsevier, vol. 37(4), pages 321-333.

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