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
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: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
'Build or Buy' Strategies in the Local Loop
By Pinar Dogan and Marc Bourreau
-
Unbundling and Incumbent Investment in Quality Upgrades and Cost Reduction
By João Vareda
-
Access Regulation and Investment in Next Generation Networks: A Ranking of Regulatory Regimes
By Rainer Nitsche and Lars Wiethaus
-
By João Vareda and Steffen Hoernig
-
By João Vareda and Steffen Hoernig
-
Incentives to Invest and to Give Access to Non-Regulated Next Generation Networks
By Duarte Brito, Pedro Pereira, ...
-
NGA, IP-Interconnection and Their Impact on Business Models and Competition
By Wolfgang Reichl and Ernst-olav Ruhle
-
Role of Access Charges in the Migration from Copper to FTTH
By François Jeanjean and Julienne Liang
-
Ex-Ante Regulation and Co-Investment in the Transition to Next Generation Access
By Marc Bourreau, Carlo Cambini, ...