Valuing flexibility in the migration to flexible-grid networks

Increasing network demand is expected to put pressure on the available capacity in core networks. Flexible optical networking can now be installed to increase network capacity in light of future traffic demands. However, this technology is still in its infancy and might lack the full functionality that may appear within a few years. When replacing core network equipment, it is therefore important to make the right investment decision between upgrading toward flexible-grid or fixed-grid equipment. This paper researches various installation options using a techno-economic analysis, extended with real option insights, showing the impact of uncertainty and flexibility on the investment decision. By valuing the different options, a correct investment decision can be made

Waiting Cost based Long-Run Network Investment Decision-making under Uncertainty

Traditional system investment decision is costly and hard to reverse. This is aggravated by uncertainties from flexible load and renewables (FLR), which impact the accuracy of network investment decisions and trigger a high asset risk. System operators have the incentive to postpone reinforcement, and &amp;#x2018;wait and see&amp;#x2019; whether the request of investment can be reduced or delayed with new information. This paper proposes a novel method to evaluate network investment horizon deferral based on the trade-off between waiting profit and waiting cost under FLR uncertainties. Although deferring investment leads to waiting cost, it is worthy to wait if the cost is smaller than the waiting profits. To capture the impact of FLR uncertainties on system investment, nodal uncertainties are converted into branch flow uncertainties. The waiting cost is quantified by the options&amp;#x0027; cost based on real options method and waiting profit is from asset present value reduction due to the deferral. Thus, by paying waiting cost, current investment cost can be reserved until uncertainties are reduced to an acceptable level. The waiting time is evaluated by Sharp ratio and expected return, determined by the waiting cost and uncertainty level. The results show that paying waiting cost is an economical way to reduce the impact of uncertainty.</p

Waiting Cost based Long-Run Network Investment Decision-making under Uncertainty

Traditional system investment decision is costly and hard to reverse. This is aggravated by uncertainties from flexible load and renewables (FLR), which impact the accuracy of network investment decisions and trigger a high asset risk. System operators have the incentive to postpone reinforcement, and &amp;#x2018;wait and see&amp;#x2019; whether the request of investment can be reduced or delayed with new information. This paper proposes a novel method to evaluate network investment horizon deferral based on the trade-off between waiting profit and waiting cost under FLR uncertainties. Although deferring investment leads to waiting cost, it is worthy to wait if the cost is smaller than the waiting profits. To capture the impact of FLR uncertainties on system investment, nodal uncertainties are converted into branch flow uncertainties. The waiting cost is quantified by the options&amp;#x0027; cost based on real options method and waiting profit is from asset present value reduction due to the deferral. Thus, by paying waiting cost, current investment cost can be reserved until uncertainties are reduced to an acceptable level. The waiting time is evaluated by Sharp ratio and expected return, determined by the waiting cost and uncertainty level. The results show that paying waiting cost is an economical way to reduce the impact of uncertainty.</p

Network Pricing with Investment Waiting Cost based on Real Options under Uncertainties

Existing capacity-based network pricing uses discounted cash flows to calculate costs, unable to reflect the uncertainties and flexibilities in distribution networks. Such shortcoming could distort the cost-reflectivity of pricing signals, particularly those for renewables and flexible technologies, causing more constraints and curtailment issues in networks. This paper proposes a new pricing method, Incremental Cost Network Pricing based on Real Options (ICOC), which can reflect network user uncertainties on network investment by using real options. Under this concept, network operators can delay investment for a certain period by paying waiting cost based on options value until more information is available, thus avoiding non-reversible investment due to uncertainties. The options cost will be levied on network users as i) rewards if they can provide flexibilities to the system; or ii) waiting costs if they present uncertainties to the system. The reward or cost is determined by a binomial tree pricing under a risk-neutral condition, which is added onto asset present value as the total cost to be recovered. Such cost is allocated to network users based on their nodal incremental costs. The proposed method is demonstrated on a practical network with different users, i) uncertain, ii) flexible; iii) certain and nonflexible.</p

Valuation of 5G mmWave Fixed Wireless Access in Residence Area Analysis of Real Option for Wireless Broadband Service in Kota Wisata Cibubur Using Decision Tree and Black Scholes Model

Fixed Wireless Access (FWA) is one of the popular use cases in 5G, expected to replace conventional internet service. However, investing in a telecommunications project requires massive capital, so careful planning is usually required. In general, investments are valued by the standard Net Present Value (NPV) method. When the NPV is positive, the project is profitable. However, the NPV possibly will not be as expected due to uncertainty in the future. One of these is the number of subscribers. This research proposes using Real Option (RO) to analyze the FWA project with an uncertainty of the number of subscribers and compare it to the standard NPV method. From the result of the research, the standard NPV method produces a positive Expected NPV of $153,176. However, there is a 33$406,246. By using the decision tree in RO to evaluate the project, the managers have an option to delay the project from one to three years and eliminate negative NPV resulting in the Expected NPV of $250,038,$216,842, and $188,371. Using Black Scholes Model to delay the project from one to three years also results in a higher Expected NPV of$220,668, $209,593, and$219,428

Comparative Analysis of Techno-economic Parameters for Planning of Broadband Access Networks

Širokopojasnom pristupnom mrežom smatra se ona mreža koja spaja korisnika s pristupnom centralom. Osnovna podjela širokopojasnih pristupnih mreža je na žični i bežični pristup. Kod planiranja i projektiranja širokopojasnih pristupnih mreža bitno je istražiti niz tehnološko-ekonomskih parametara. Tehnološki parametri vezani su za funkcionalnosti i karakteristike širokopojasnih pristupnih mreža te na načine odabira odgovarajućih tehnologija. Ekonomske parametre moguće je prikazati kroz različite vrste troškova, kao što su troškovi izgradnje širokopojasnih pristupnih mreža, tržišni interes za izgradnju, kapitalna ulaganja, operativna ulaganja te troškovi nevezani za telekomunikacijsku tehnologiju. Postoji mnogo metoda i programskih alata kojima se može provesti tehnološko-ekonomska analiza. U diplomskom radu korištene su: metoda Mactor (alat Mactor), metoda zasnovana na dinamici sustava (alat Vensim), metoda pravog izbora (alat Crystal Ball) i teorija igara (alat Gambit). Korištenjem navedenih metoda i alata istraženi su tehnološko-ekonomski parametri i provedene su simulacije modela s ciljem planiranja širokopojasnih pristupnih mreža.A broadband access network is considered a network connecting a user to an access point. Broadband access networks are divided based on access into wired and wireless. When planning and designing broadband access networks, it is important to explore a wide range of technological and economic parameters. Technological parameters are related to the functionality and characteristics of broadband access networks and the ways of selecting the appropriate technologies. Economic parameters can be displayed through different types of costs, such as the cost of building broadband access networks, market interest for construction, capital investment, operational investments and costs unrelated to telecommunication technology. There are a lot of methods and programe tools which can be used for technological-economic analysis. In this graduate thesis various methods were used: Mactor method (Mactor tool), method based on dynamics of the system (Vensim tool), real choice method (Crystal Ball tool) and theory of games (Gambit tool). Using mentioned methods and tools technological-economic parameters were examined. Also, model simulation was carried out with an aim of broadband access network planning

Real options in telecom infrastructure projects: a tutorial

The rapid technological change and uncertain future evolutions have a large impact on investment projects in the telecommunication sector. When new infrastructure networks are rolled out, the initial assumptions can prove to be untrue in the future, severely impacting the payoff. It is therefore extremely important that projects offer flexibility to allow the management to react to unforeseen changes. Management must, for example, be able to decide to speed up the project, slow it down, or even completely abandon it. However, the standard method used to evaluate investment projects, the Net Present Value analysis, is unable to capture the value of these different flexibility options. The Real Option concept, derived from financial literature, was proposed as a solution and implements this flexibility in the standard calculations. However, the Real Option Theory is only slowly getting accepted within the telecommunication sector. In this paper, we introduce the basics of real options theory and provide a practical methodology to apply real options to realistic telecom business cases. In addition, we will indicate why the characteristics of this sector make it very well suited to apply real options to investment projects. The rollout of fixed next generation access networks offers a broad range of growth options to the operator, e. g. additional network upgrades or the introduction of new services. Using real options allows one to compare the flexibility value of all these options