Abstract

Due to the increasing demand in data rates telecom operators are faced with the question of when to upgrade their access network infrastructure toward fiber-to-the-home (FTTH). In this paper a techno-economic study of fiber-to-the-cabinet/very high bit rate digital subscriber line (FTTC/VDSL) and FTTH deployments is performed. The economics and risks associated with the incumbent’s decision to invest in dense urban and urban areas are analyzed using both discount cash flow (DCF) analysis and real options analysis (ROA). The results revealed that in the case of investment subsidization, the option value to expand in a later phase can significantly improve the financial metrics of the business cases. The analysis made is based on the ECOSYS techno-economic methodology and tool.

© 2010 Optical Society of America

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2009 (4)

2008 (3)

G. B. Amendola, L. M. Pupillo, “The economics of next generation access networks and regulatory governance: towards geographic patterns of regulation,” Commun. Strategies, vol. 69, p. 85, Mar. 2008.

C. Michalakelis, D. Varoutas, T. Sphicopoulos, “Diffusion models of mobile telephony in Greece,” Telecommun. Policy, vol. 32, no. 3–4, pp. 234–245, Apr.–May. 2008.
[CrossRef]

P. W. Shumate, “Fiber-to-the-home: 1977–2007,” J. Lightwave Technol., vol. 26, no. 9–12, pp. 1093–1103, May–June 2008.
[CrossRef]

2007 (1)

2006 (2)

B. T. Olsen, D. Katsianis, D. Varoutas, K. Stordahl, J. Harno, N. K. Elnegaard, I. Welling, F. Loizillon, T. Monath, P. Cadro, “Technoeconomic evaluation of the major telecommunication investment options for European players,” IEEE Network, vol. 20, no. 4, pp. 6–15, July 2006.
[CrossRef]

R. Van Caenegem, J. A. Martinez, D. Colle, M. Pickavet, P. Demeester, F. Ramos, J. Marti, “From IP over WDM to all-optical packet switching: economical view,” J. Lightwave Technol., vol. 24, no. 4, pp. 1638–1645, Apr. 2006.
[CrossRef]

2005 (1)

2004 (2)

P. E. Green, “Fiber to the home: the next big broadband thing,” IEEE Commun. Mag., vol. 42, no. 9, pp. 100–106, Sept. 2004.
[CrossRef]

N. J. Frigo, P. P. Iannone, K. C. Reichmann, “A view of fiber to the home economics,” IEEE Commun. Mag., vol. 42, no. 8, pp. S16–S23, Aug. 2004.
[CrossRef]

2003 (3)

T. Monath, N. K. Elnegaard, P. Cadro, D. Katsianis, D. Varoutas, “Economics of fixed broadband access network strategies,” IEEE Commun. Mag., vol. 41, no. 9, pp. 132–139, Sept. 2003.
[CrossRef]

K. W. Marcus, Z. Francis, “The economics of fiber to the home revisited,” Bell Labs Tech. J., vol. 8, no. 1, pp. 181–206, 2003.
[CrossRef]

D. Varoutas, D. Katsianis, T. Sphicopoulos, F. Loizillon, K. O. Kalhagen, K. Stordahl, H. Welling, J. Harno, “Business opportunities through UMTS-WLAN networks,” Ann. Telecommun., vol. 58, no. 3–4, pp. 553–575, Mar.–Apr. 2003.

2002 (3)

R. Fildes, V. Kumar, “Telecommunications demand forecasting—a review,” Int. J. Forecast., vol. 18, no. 4, pp. 489–522, Oct.–Dec. 2002.
[CrossRef]

V. Kumar, T. V. Krishnan, “Multinational diffusion models: an alternative framework,” Mark. Sci., vol. 21, no. 3, pp. 318–330, July 2002.
[CrossRef]

K. O. Kalhagen, N. K. Elnegaard, “Assessing broadband investment risk through option theory,” Telektronikk, vol. 2–3, pp. 51–62, 2002.

2001 (1)

D. Katsianis, I. Welling, M. Ylonen, D. Varoutas, T. Sphicopoulos, N. K. Elnegaard, B. T. Olsen, L. Budry, “The financial perspective of the mobile networks in Europe,” IEEE Pers. Commun., vol. 8, no. 6, pp. 58–64, Dec. 2001.
[CrossRef]

1999 (1)

L. P. Rai, “Appropriate models for technology substitution,” J. Sci. Ind. Res. India, vol. 58, no. 1, pp. 14–18, Jan. 1999.

1998 (1)

T. Luehrman, “Investment opportunities as real options: getting started on the numbers,” Harvard Bus. Rev., vol. 76, pp. 51–66, 1998.

1996 (1)

B. T. Olsen, A. Zaganiaris, K. Stordahl, L. A. Ims, D. Myhre, T. Overli, M. Tahkokorpi, I. Welling, M. Drieskens, J. Kraushaar, J. Mononen, M. Lahteenoja, S. Markatos, M. De Bortoli, U. Ferrero, M. Ravera, S. Balzaretti, F. Fleuren, N. Gieschen, M. De Oliveira Duarte, E. de Castro, “Techno-economic evaluation of narrowband and broadband access network alternatives and evolution scenario assessment,” IEEE J. Sel. Areas Commun., vol. 14, no. 6, pp. 1184–1203, Aug. 1996.
[CrossRef]

1973 (1)

F. Black, M. Scholes, “The pricing of options and corporate liabilities,” J. Polit. Econ., vol. 81, no. 3, pp. 637–659, 1973.
[CrossRef]

Amendola, G. B.

G. B. Amendola, L. M. Pupillo, “The economics of next generation access networks and regulatory governance: towards geographic patterns of regulation,” Commun. Strategies, vol. 69, p. 85, Mar. 2008.

Balzaretti, S.

B. T. Olsen, A. Zaganiaris, K. Stordahl, L. A. Ims, D. Myhre, T. Overli, M. Tahkokorpi, I. Welling, M. Drieskens, J. Kraushaar, J. Mononen, M. Lahteenoja, S. Markatos, M. De Bortoli, U. Ferrero, M. Ravera, S. Balzaretti, F. Fleuren, N. Gieschen, M. De Oliveira Duarte, E. de Castro, “Techno-economic evaluation of narrowband and broadband access network alternatives and evolution scenario assessment,” IEEE J. Sel. Areas Commun., vol. 14, no. 6, pp. 1184–1203, Aug. 1996.
[CrossRef]

Black, F.

F. Black, M. Scholes, “The pricing of options and corporate liabilities,” J. Polit. Econ., vol. 81, no. 3, pp. 637–659, 1973.
[CrossRef]

Bouras, C.

C. Bouras, A. Gkamas, J. Papagiannopoulos, G. Theophilopoulos, T. Tsiatsos, “Broadband municipal optical networks in Greece: a suitable business model,” Telematics and Informatics, vol. 26, no. 4, pp. 391–409, Nov. 2009.
[CrossRef]

Budry, L.

D. Katsianis, I. Welling, M. Ylonen, D. Varoutas, T. Sphicopoulos, N. K. Elnegaard, B. T. Olsen, L. Budry, “The financial perspective of the mobile networks in Europe,” IEEE Pers. Commun., vol. 8, no. 6, pp. 58–64, Dec. 2001.
[CrossRef]

Cadro, P.

B. T. Olsen, D. Katsianis, D. Varoutas, K. Stordahl, J. Harno, N. K. Elnegaard, I. Welling, F. Loizillon, T. Monath, P. Cadro, “Technoeconomic evaluation of the major telecommunication investment options for European players,” IEEE Network, vol. 20, no. 4, pp. 6–15, July 2006.
[CrossRef]

T. Monath, N. K. Elnegaard, P. Cadro, D. Katsianis, D. Varoutas, “Economics of fixed broadband access network strategies,” IEEE Commun. Mag., vol. 41, no. 9, pp. 132–139, Sept. 2003.
[CrossRef]

Casier, K.

K. Casier, B. Lannoo, J. Van Ooteghem, S. Verbrugge, D. Colle, M. Pickavet, P. Demeester, “Game-theoretic optimization of a fiber-to-the-home municipality network rollout,” J. Opt. Commun. Netw., vol. 1, no. 1, pp. 30–42, June 2009.
[CrossRef]

S. Verbrugge, R. Meersman, K. Casier, D. Colle, J. Vanhaverbeke, J. Van Ooteghem, P. Demeester, “Issues in techno-economic evaluation of VDSL/FTTH access networks roll-out (invited paper),” in 12th European Conf. on Networks and Optical Communications, Stockholm, Sweden, 2007, pp. 208–215.

K. Casier, S. Verbrugge, R. Meersman, D. Colle, M. Pickavet, P. Demeester, “Techno-economic evaluations of FTTH roll-out scenarios (invited paper),” in 13th European Conf. on Networks and Optical Communications, Krems, Austria, 2008, pp. 113–120.

Colle, D.

K. Casier, B. Lannoo, J. Van Ooteghem, S. Verbrugge, D. Colle, M. Pickavet, P. Demeester, “Game-theoretic optimization of a fiber-to-the-home municipality network rollout,” J. Opt. Commun. Netw., vol. 1, no. 1, pp. 30–42, June 2009.
[CrossRef]

R. Van Caenegem, J. A. Martinez, D. Colle, M. Pickavet, P. Demeester, F. Ramos, J. Marti, “From IP over WDM to all-optical packet switching: economical view,” J. Lightwave Technol., vol. 24, no. 4, pp. 1638–1645, Apr. 2006.
[CrossRef]

S. Verbrugge, R. Meersman, K. Casier, D. Colle, J. Vanhaverbeke, J. Van Ooteghem, P. Demeester, “Issues in techno-economic evaluation of VDSL/FTTH access networks roll-out (invited paper),” in 12th European Conf. on Networks and Optical Communications, Stockholm, Sweden, 2007, pp. 208–215.

K. Casier, S. Verbrugge, R. Meersman, D. Colle, M. Pickavet, P. Demeester, “Techno-economic evaluations of FTTH roll-out scenarios (invited paper),” in 13th European Conf. on Networks and Optical Communications, Krems, Austria, 2008, pp. 113–120.

De Bortoli, M.

B. T. Olsen, A. Zaganiaris, K. Stordahl, L. A. Ims, D. Myhre, T. Overli, M. Tahkokorpi, I. Welling, M. Drieskens, J. Kraushaar, J. Mononen, M. Lahteenoja, S. Markatos, M. De Bortoli, U. Ferrero, M. Ravera, S. Balzaretti, F. Fleuren, N. Gieschen, M. De Oliveira Duarte, E. de Castro, “Techno-economic evaluation of narrowband and broadband access network alternatives and evolution scenario assessment,” IEEE J. Sel. Areas Commun., vol. 14, no. 6, pp. 1184–1203, Aug. 1996.
[CrossRef]

de Castro, E.

B. T. Olsen, A. Zaganiaris, K. Stordahl, L. A. Ims, D. Myhre, T. Overli, M. Tahkokorpi, I. Welling, M. Drieskens, J. Kraushaar, J. Mononen, M. Lahteenoja, S. Markatos, M. De Bortoli, U. Ferrero, M. Ravera, S. Balzaretti, F. Fleuren, N. Gieschen, M. De Oliveira Duarte, E. de Castro, “Techno-economic evaluation of narrowband and broadband access network alternatives and evolution scenario assessment,” IEEE J. Sel. Areas Commun., vol. 14, no. 6, pp. 1184–1203, Aug. 1996.
[CrossRef]

De Oliveira Duarte, M.

B. T. Olsen, A. Zaganiaris, K. Stordahl, L. A. Ims, D. Myhre, T. Overli, M. Tahkokorpi, I. Welling, M. Drieskens, J. Kraushaar, J. Mononen, M. Lahteenoja, S. Markatos, M. De Bortoli, U. Ferrero, M. Ravera, S. Balzaretti, F. Fleuren, N. Gieschen, M. De Oliveira Duarte, E. de Castro, “Techno-economic evaluation of narrowband and broadband access network alternatives and evolution scenario assessment,” IEEE J. Sel. Areas Commun., vol. 14, no. 6, pp. 1184–1203, Aug. 1996.
[CrossRef]

Demeester, P.

K. Casier, B. Lannoo, J. Van Ooteghem, S. Verbrugge, D. Colle, M. Pickavet, P. Demeester, “Game-theoretic optimization of a fiber-to-the-home municipality network rollout,” J. Opt. Commun. Netw., vol. 1, no. 1, pp. 30–42, June 2009.
[CrossRef]

R. Van Caenegem, J. A. Martinez, D. Colle, M. Pickavet, P. Demeester, F. Ramos, J. Marti, “From IP over WDM to all-optical packet switching: economical view,” J. Lightwave Technol., vol. 24, no. 4, pp. 1638–1645, Apr. 2006.
[CrossRef]

S. Verbrugge, R. Meersman, K. Casier, D. Colle, J. Vanhaverbeke, J. Van Ooteghem, P. Demeester, “Issues in techno-economic evaluation of VDSL/FTTH access networks roll-out (invited paper),” in 12th European Conf. on Networks and Optical Communications, Stockholm, Sweden, 2007, pp. 208–215.

K. Casier, S. Verbrugge, R. Meersman, D. Colle, M. Pickavet, P. Demeester, “Techno-economic evaluations of FTTH roll-out scenarios (invited paper),” in 13th European Conf. on Networks and Optical Communications, Krems, Austria, 2008, pp. 113–120.

Dixit, A. K.

A. K. Dixit, R. S. Pindyck, Investment Under Uncertainty. Princeton, N.J.: Princeton U. Press, 1994.

Drieskens, M.

B. T. Olsen, A. Zaganiaris, K. Stordahl, L. A. Ims, D. Myhre, T. Overli, M. Tahkokorpi, I. Welling, M. Drieskens, J. Kraushaar, J. Mononen, M. Lahteenoja, S. Markatos, M. De Bortoli, U. Ferrero, M. Ravera, S. Balzaretti, F. Fleuren, N. Gieschen, M. De Oliveira Duarte, E. de Castro, “Techno-economic evaluation of narrowband and broadband access network alternatives and evolution scenario assessment,” IEEE J. Sel. Areas Commun., vol. 14, no. 6, pp. 1184–1203, Aug. 1996.
[CrossRef]

Elnegaard, N. K.

B. T. Olsen, D. Katsianis, D. Varoutas, K. Stordahl, J. Harno, N. K. Elnegaard, I. Welling, F. Loizillon, T. Monath, P. Cadro, “Technoeconomic evaluation of the major telecommunication investment options for European players,” IEEE Network, vol. 20, no. 4, pp. 6–15, July 2006.
[CrossRef]

T. Monath, N. K. Elnegaard, P. Cadro, D. Katsianis, D. Varoutas, “Economics of fixed broadband access network strategies,” IEEE Commun. Mag., vol. 41, no. 9, pp. 132–139, Sept. 2003.
[CrossRef]

K. O. Kalhagen, N. K. Elnegaard, “Assessing broadband investment risk through option theory,” Telektronikk, vol. 2–3, pp. 51–62, 2002.

D. Katsianis, I. Welling, M. Ylonen, D. Varoutas, T. Sphicopoulos, N. K. Elnegaard, B. T. Olsen, L. Budry, “The financial perspective of the mobile networks in Europe,” IEEE Pers. Commun., vol. 8, no. 6, pp. 58–64, Dec. 2001.
[CrossRef]

Ferrero, U.

B. T. Olsen, A. Zaganiaris, K. Stordahl, L. A. Ims, D. Myhre, T. Overli, M. Tahkokorpi, I. Welling, M. Drieskens, J. Kraushaar, J. Mononen, M. Lahteenoja, S. Markatos, M. De Bortoli, U. Ferrero, M. Ravera, S. Balzaretti, F. Fleuren, N. Gieschen, M. De Oliveira Duarte, E. de Castro, “Techno-economic evaluation of narrowband and broadband access network alternatives and evolution scenario assessment,” IEEE J. Sel. Areas Commun., vol. 14, no. 6, pp. 1184–1203, Aug. 1996.
[CrossRef]

Fildes, R.

R. Fildes, V. Kumar, “Telecommunications demand forecasting—a review,” Int. J. Forecast., vol. 18, no. 4, pp. 489–522, Oct.–Dec. 2002.
[CrossRef]

Fleuren, F.

B. T. Olsen, A. Zaganiaris, K. Stordahl, L. A. Ims, D. Myhre, T. Overli, M. Tahkokorpi, I. Welling, M. Drieskens, J. Kraushaar, J. Mononen, M. Lahteenoja, S. Markatos, M. De Bortoli, U. Ferrero, M. Ravera, S. Balzaretti, F. Fleuren, N. Gieschen, M. De Oliveira Duarte, E. de Castro, “Techno-economic evaluation of narrowband and broadband access network alternatives and evolution scenario assessment,” IEEE J. Sel. Areas Commun., vol. 14, no. 6, pp. 1184–1203, Aug. 1996.
[CrossRef]

Francis, Z.

K. W. Marcus, Z. Francis, “The economics of fiber to the home revisited,” Bell Labs Tech. J., vol. 8, no. 1, pp. 181–206, 2003.
[CrossRef]

Frigo, N. J.

N. J. Frigo, P. P. Iannone, K. C. Reichmann, “A view of fiber to the home economics,” IEEE Commun. Mag., vol. 42, no. 8, pp. S16–S23, Aug. 2004.
[CrossRef]

Gieschen, N.

B. T. Olsen, A. Zaganiaris, K. Stordahl, L. A. Ims, D. Myhre, T. Overli, M. Tahkokorpi, I. Welling, M. Drieskens, J. Kraushaar, J. Mononen, M. Lahteenoja, S. Markatos, M. De Bortoli, U. Ferrero, M. Ravera, S. Balzaretti, F. Fleuren, N. Gieschen, M. De Oliveira Duarte, E. de Castro, “Techno-economic evaluation of narrowband and broadband access network alternatives and evolution scenario assessment,” IEEE J. Sel. Areas Commun., vol. 14, no. 6, pp. 1184–1203, Aug. 1996.
[CrossRef]

Gkamas, A.

C. Bouras, A. Gkamas, J. Papagiannopoulos, G. Theophilopoulos, T. Tsiatsos, “Broadband municipal optical networks in Greece: a suitable business model,” Telematics and Informatics, vol. 26, no. 4, pp. 391–409, Nov. 2009.
[CrossRef]

Gosselin, S.

Green, P. E.

P. E. Green, “Fiber to the home: the next big broadband thing,” IEEE Commun. Mag., vol. 42, no. 9, pp. 100–106, Sept. 2004.
[CrossRef]

Harno, J.

B. T. Olsen, D. Katsianis, D. Varoutas, K. Stordahl, J. Harno, N. K. Elnegaard, I. Welling, F. Loizillon, T. Monath, P. Cadro, “Technoeconomic evaluation of the major telecommunication investment options for European players,” IEEE Network, vol. 20, no. 4, pp. 6–15, July 2006.
[CrossRef]

D. Varoutas, D. Katsianis, T. Sphicopoulos, F. Loizillon, K. O. Kalhagen, K. Stordahl, H. Welling, J. Harno, “Business opportunities through UMTS-WLAN networks,” Ann. Telecommun., vol. 58, no. 3–4, pp. 553–575, Mar.–Apr. 2003.

Iannone, P. P.

N. J. Frigo, P. P. Iannone, K. C. Reichmann, “A view of fiber to the home economics,” IEEE Commun. Mag., vol. 42, no. 8, pp. S16–S23, Aug. 2004.
[CrossRef]

Ims, L.

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Ann. Telecommun. (1)

D. Varoutas, D. Katsianis, T. Sphicopoulos, F. Loizillon, K. O. Kalhagen, K. Stordahl, H. Welling, J. Harno, “Business opportunities through UMTS-WLAN networks,” Ann. Telecommun., vol. 58, no. 3–4, pp. 553–575, Mar.–Apr. 2003.

Bell Labs Tech. J. (1)

K. W. Marcus, Z. Francis, “The economics of fiber to the home revisited,” Bell Labs Tech. J., vol. 8, no. 1, pp. 181–206, 2003.
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Commun. Strategies (1)

G. B. Amendola, L. M. Pupillo, “The economics of next generation access networks and regulatory governance: towards geographic patterns of regulation,” Commun. Strategies, vol. 69, p. 85, Mar. 2008.

Harvard Bus. Rev. (1)

T. Luehrman, “Investment opportunities as real options: getting started on the numbers,” Harvard Bus. Rev., vol. 76, pp. 51–66, 1998.

IEEE Commun. Mag. (3)

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N. J. Frigo, P. P. Iannone, K. C. Reichmann, “A view of fiber to the home economics,” IEEE Commun. Mag., vol. 42, no. 8, pp. S16–S23, Aug. 2004.
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T. Monath, N. K. Elnegaard, P. Cadro, D. Katsianis, D. Varoutas, “Economics of fixed broadband access network strategies,” IEEE Commun. Mag., vol. 41, no. 9, pp. 132–139, Sept. 2003.
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Figures (10)

Fig. 1
Fig. 1

Techno-economic methodology and tool [17, 18].

Fig. 2
Fig. 2

Architecture of dense urban areas.

Fig. 3
Fig. 3

Geometric model description.

Fig. 4
Fig. 4

Penetration forecasts for residential and business services.

Fig. 5
Fig. 5

Economics of the project (both areas).

Fig. 6
Fig. 6

Breakdown economics of the project for FTTC/VDSL.

Fig. 7
Fig. 7

Sensitivity results.

Fig. 8
Fig. 8

Beta distribution for the total penetration.

Fig. 9
Fig. 9

Risk results for FTTC/VDSL scenario.

Fig. 10
Fig. 10

ROA and DCF analysis results.

Tables (9)

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Table 1 Area Characteristics

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Table 2 Services Offered

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Table 3 Economic Results

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Table 4 NPV Split Calculations for the FTTC/VDSL Case

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Table 5 NPV Split Calculations for the FTTH Case

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Table 6 Beta Parameters

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Table 8 ROA Results for the FTTC/VDSL Case

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Table 9 ROA Results for the FTTH Case

Equations (16)

Equations on this page are rendered with MathJax. Learn more.

L6 = A = N D ,
DUCT L6 = 1.5 L6 .
C L6 = 2 L6 .
Y t = M ( 1 + e a + b t ) c ,
P ( x ) = ( 1 x ) β 1 x a 1 B ( α , β ) ,
W = S N ( d 1 ) X e r f T N ( d 2 ) ,
d 1 = ln ( S X ) + ( r f + σ 2 2 ) T σ T ,
d 2 = ln ( S X ) + ( r f σ 2 2 ) T σ T = d 1 σ T ,
X = I t = T ,
V = t = T + 1 end PV 1 ,
S = t = T + 1 end PV 2 ,
NPV phase 1 = t = 0 T PV 1 .
NPV RO = e r f T ( S N ( d 1 ) e r f T X N ( d 2 ) ) + V ( 1 N ( d 2 ) ) ,
d 1 = ln ( S X ) + ( r f + σ 2 2 ) T σ T ,
d 2 = ln ( S X ) + ( r f σ 2 2 ) T σ T ,
X = X + ( 1 + r d ) T V .