Real options applications in the telecommunications industry

Abstract

Two examples of the application of real options to the telecommunications industry are suggested in this paper. These applications move beyond the traditional capital budgeting procedures, which cannot properly capture management’s flexibility to adapt and later revise decisions in response to unexpected regulatory/technological/market developments. Real options techniques can conceptualize and value managerial flexibility to alter initial operating strategy in order to capitalize on favorable future opportunities or to react to mitigate losses. Recognizing a particular capital budgeting project as a real option has value, particularly as the business environment becomes more uncertain.