VALIDADORES DE ACCESIBILIDAD

As Peter Drucker, the founder of management by objectives said: “Management

by objective works – if you know the objective. Ninety percent of the time you don’t.” Having a clear view on the objectives of the different actors is thus key

when performing a techno-economic analysis. For private players, financial objectives are the most important, as they focus on shareholder value creation. A broad toolset exists to quantify these objectives, of which the NPV is the most widely used. For public players, which have additional non-financial oriented goals, the identification of their objectives is less straightforward.

In the broadband market, a lot of non-profit oriented players are active. Governments and NRAs are two important actors who try to influence the outcome of the market. They aim at coverage, affordable prices and sufficient competition. The NGAN oriented BPI developed in this chapter allows to quantify their objectives. With this composite index, techno-economic analysis can also be conducted for these players. In addition, when private players try to optimise their strategy in light of possible future policies, the NGAN oriented BPI can be applied to indicate the impact of their strategy on policy makers, and vice versa.

3.6 Conclusions

In this chapter, we introduced two important aspects of techno-economic analysis, namely value network analysis and identification of actors’ objectives. Value network analysis offers valuable insight for the quantification steps of the techno-economic analysis. As it identifies roles, value flows and actors, it provides the building blocks for the techno-economic modelling of costs and revenues, an indication of the value exchanges between different roles, and an overview of the possible competitive interactions or cooperation opportunities.

Once the actors are identified, it is important to know the objectives of these actors. Private players typically have financial objectives, but when public players, like governments or regulators make decisions, they do not aim at creating monetary value, but typically at increasing social welfare.

As the quantification of such policy goals is not straightforward, we have developed a composite broadband performance index. This index allows to assess the impact of policy decisions concerning broadband, like open access policy, price regulation, subsidisation, etc. on the objectives of public players.

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4

Real Option Methodology to

Quantify Flexibility

“Flexibility has become a modern day value that everyone wants. But flexibility comes with a cost”, Maynard Webb

In standard techno-economic analysis, when the actor’s objectives are quantified using net present value (NPV) to analyse the financial viability, the investment project is seen as a now or never decision without uncertainty. This assumption does not reflect reality. Initial estimates of customer uptake or operational costs turn out to be over- or underestimated, decreasing the return on investment. When this occurs, it is untrue that the decision maker will do nothing. If possible, necessary steps will be undertaken to increase the return. This concept is defined as managerial flexibility. Decision makers continuously have the flexibility to adapt the course of a project to act on positive and negative events to optimise the outcome of the project. Capturing this impact of both uncertainty and flexibility cannot be done by performing the NPV analysis introduced in the previous chapter. As a solution, options methodology has been introduced for investment projects. Real options (RO) offer a solution to better fit the economic analysis tools for investment problems to the underlying reality. In multi-period planning, the bill of material is calculated over more than one time period. This way, long term effects of the decision can be taken into account. In this

approach, building a decision tree for different options is a standard approach. Using real options, the flexibility to switch between different options can be calculated.

Here, we offer an introduction to real option analysis and indicate how uncertainty and flexibility impact the valuation of an investment project, resulting in changing initial decisions made.

Although research on real option theory has been ongoing for over four decades, it is only slowly getting accepted as valuation tool for investment problems in telecom. During this doctoral research, we have classified the existing research on real options in telecom and we have applied this technique ourselves to a plethora of different cases, showing how the real option concept is a natural extension of existing methodologies. These cases include sensor network deployment [4.1], core and access network migration [4.2], [4.3], but also pricing problems in network unbundling [4.4]. This work resulted in a real options tutorial, covering definitions, identification of options and methodologies to value real options in telecom [4.5]. In this chapter, we present the real option methodology, together with two applications of real options theory, namely the migration of existing core and access networks. We show how uncertainty impacts the business case valuation, and how real options can capture the value of managerial flexibility.