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

ISEG-UTL Economics Working Paper No. 031/2007/DE

44 Pages Posted: 6 Jan 2008 Last revised: 20 Jan 2008

See all articles by Andrea Gavosto

Andrea Gavosto

Fondazione Giovanni Agnelli

Guido Giacomo Ponte

Telecom Italia

Carla Scaglioni

MISE-UVAL-Regional Public Accounts; Institute for Media Economics; International University of Applied Sciences Bad Honnef-Bonn

Date Written: December 11, 2007

Abstract

The current regulatory debate in the telecommunications industry in Europe and elsewhere is dominated by the issue of if and how to regulate next generation networks (NGN) which operators plan to roll out in the near future. The crucial issue is whether an extension of current regulatory obligations onto future networks would hamper the investment by large European operators. The paper applies a real option model to explain the investment decision in next generation networks. One important result of the model is that regulation affects the investment decision only in the initial period when uncertainty is still very high. The real option model has been calibrated with parameters drawn from real data for a new entrant and from educated estimates for an established operator. Four different regulatory regimes and their impact on the timing of the investments have been simulated: a temporary regulatory holiday is shown to be an effective regulatory tool in order to induce immediate investments.

Keywords: real options, telecommunication, regulated industries, next generation networks

JEL Classification: L51, D81, G11, G35

Suggested Citation

Gavosto, Andrea and Ponte, Guido Giacomo and Scaglioni, Carla and Scaglioni, Carla and Scaglioni, Carla, Investment in Next Generation Networks and the Role of Regulation: A Real Option Approach (December 11, 2007). ISEG-UTL Economics Working Paper No. 031/2007/DE, Available at SSRN: https://ssrn.com/abstract=1080564 or http://dx.doi.org/10.2139/ssrn.1080564

Andrea Gavosto

Fondazione Giovanni Agnelli ( email )

Via Giacosa 38
Turin, 10125
Italy
+39 011 6500500 (Phone)
+39 011 6502777 (Fax)

Guido Giacomo Ponte (Contact Author)

Telecom Italia ( email )

Corso d'Italia, 41
Rome, 00198
Italy
+39-06-36882148 (Phone)

Carla Scaglioni

International University of Applied Sciences Bad Honnef-Bonn

Campus Bad Reichenhall ∙ Zenostr. 6
Bad Reichenhall, 83435
Germany

MISE-UVAL-Regional Public Accounts ( email )

Via Gaeta 3
Rome, 00185 Roma
Italy
+39 06 47618775 (Phone)
+39 06 47618892 (Fax)

Institute for Media Economics ( email )

Palazzo Corsini, Via della Lungara 10
Rome, 00153
Italy
+39 06 6869502 (Phone)
+ 39 06 68131759 (Fax)

HOME PAGE: http://www.fondazionerosselli.it

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
557
Abstract Views
2,716
Rank
90,984
PlumX Metrics