The New Investment Theory of Real Options and its Implication for Telecommunications Economics

1. Front Matter

   Pages i-xv

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2. Real Options: An Overview

   1. Front Matter

      Pages 1-1

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   2. Real options: A primer

      • Lenos Trigeorgis

      Pages 3-33

   3. Real options applications in the telecommunications industry

      • Sanjai Bhagat

      Pages 35-47

   4. Does practice follow principle? Applying real options principles to proxy costs in U.S. telecommunications

      • Mark A. Jamison

      Pages 49-75

   5. Real options: What telecommunications can learn from electric power

      • Todd Strauss

      Pages 77-84

3. Principles

   1. Front Matter

      Pages 85-85

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   2. Cost models: Comporting with principles

      • Richard Emmerson

      Pages 87-94

   3. The design of forward looking cost models for local exchange telecommunications networks

      • William W. Sharkey

      Pages 95-117

   4. Forward looking telecommunications cost models

      • Timothy J. Tardiff

      Pages 119-122

4. Implications of Neglecting Real Options

   1. Front Matter

      Pages 123-123

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   2. An institutional perspective on assessing real options values in telecommunications cost models

      • Barbara A. Cherry

      Pages 125-137

   3. Real options applications for telecommunications deregulation

      • Greg Hallman, Chris McClain

      Pages 139-157

   4. The poverty of cost models, the wealth of real options

      • James Alleman

      Pages 159-179

   5. The forecasting implications of telecommunications cost models

      • Timothy J. Tardiff

      Pages 181-190

   6. The effect of sunk costs in telecommunications regulation

      • Jerry Hausman

      Pages 191-204

5. Real Options: Evaluations

   1. Front Matter

      Pages 205-205

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   2. Real options and the costs of the local telecommunications network

      • Nicholas Economides

      Pages 207-213

   3. Option Value Analysis and Telephone Access Charges

      • William J. Baumol

      Pages 215-218

   4. Rethinking the implications of “real options” theory for the U.S. local telephone industry

      • Richard N. Clarke

      Pages 219-225

Randall B, Lowe Piper & Marbury, L.L.R The issue of costing and pricing in the telecommunications industry has been hotly debated for the last twenty years. Indeed, we are still wrestling today over the cost of the local exchange for access by interexchange and competitive local ex­ change carriers, as well as for universal service funding. The U.S. telecommunications world was a simple one before the emergence of competition, comprising only AT&T and independent local exchange carriers. Costs were allocated between intrastate and interstate jurisdictions and then again, between intrastate local and toll. The Bell System then divided those costs among itself (using a process referred to as the division of revenues) and independents (using a process called settlements). Tolls subsidized local calls to keep the politi­ cians happy, and the firm, as a whole, covered its costs and made a fair return. State regulators, however, lacked the wherewithal to audit this process. Their con­ cerns centered generally on whether local rates, irrespective of costs, were at a po­ litically acceptable level. Although federal regulators were better able to determine the reasonableness of the process and the resulting costs, they adopted an approach of "continuous surveillance" where, like the state regulator, the appearance of rea­ sonableness was what mattered. With the advent of competition, this historical costing predicate had to change. The Bell System, as well as the independents, were suddenly held accountable.

• Deregulation
• Investment
• Monopol
• competition
• economics
• evaluation
• management
• networks
• pricing
• regulation

• University of Colorado at Boulder and PHB Hagler Bailly, USA

  James Alleman

• Columbia University, USA

  Eli Noam

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