Migration to 3G wireless broadband internet and real options: The case of an operator in India

Venkata Praveen Tanguturi, Fotios C. Harmantzis
2006 Telecommunications Policy  
The paper focuses on third generation wireless technologies and on alternative technologies for wireless local area networks. The authors present the evolutionary migration path from second to third generation systems. Technological, economic and behavioral factors related to decision-making towards the migration are proposed. As an example, the paper studies the case of the national incumbent operator of India. It analyzes qualitatively the migration problem from the perspective of the
more » ... , the equipment manufacturer and the users. For the quantitative analysis, real options are used to value the investment decisions. The analysis suggests that the initial (sunk) investment cost, the average revenue per user, the growth of the subscriber base and the volatility of the markets are the key factors in the investment process. r (V.P. Tanguturi), Fotios.Harmantzis@stevens.edu (F.C. Harmantzis). market provides excellent opportunities to telecom operators and entrepreneurs to become wireless ISPs (WISPs). WISs can provide high-speed services in remote areas and offer cost-effective solutions, overcoming the limitations of wired and short-range wireless services. The commercial wireless industry was built in a span of three decades. It has evolved from circuit switched voice service to IP-based voice and data services. The importance of mobile services grew in people's day-today life, since the first service was launched. The fundamental idea behind launching mobile services was voice communication with an added feature of short messaging services (SMS). Thanks to continuous growth in the mobile subscriber's base and the use of internet, the need for information retrieval "anywhere anytime" is now a reality. During this period, many new competing technologies have emerged. For example, we are witnessing operators integrating their intermediate generation (2.5G) networks with Wireless Local Area Networks (WLANs) to provide data services. With voice service fully deployed, operators are not able to make additional revenue. The only additional revenue operators can make is when subscribers switch service providers. In order to enhance their average revenue per user (ARPU), operators started offering data services. The need for higher data rates and new applications has led the industry to think about future network configurations. Since wireless companies already have stable voice subscriber bases, provision of internet services opens a new segment for business and additional revenue. This presents a challenge to the operators to re-design their business strategy and enhance their capability. The present paper deals with third generation (3G) wireless technologies, i.e., Global System for Mobile Communications (GSM) family (General Packet Radio Services (GPRS), Enhanced Data Rate for GSM evolution (EDGE) and Universal Mobile Telecommunications Systems (UMTS)), Code Division Multiple Access (CDMA) and alternative technologies especially, wireless fidelity (Wi-Fi). It tries to answer very general, yet popular, questions among operators, not only in developed countries but emerging markets as well. It approaches the case as follows: (1) the above next generation wireless technologies are compared and differentiated focusing on their broadband internet services capabilities; (2) technological, economical and behavioral factors are identified and proposed that affect the selection of wireless technologies for migration paths; (3) the case of the national incumbent operator in India is studied and the options this operator has in migrating to 3G systems; (4) real options are used to value the most suitable to the operator migration path towards 3G. The paper finds that capital expenditure, future subscriber growth that directly affects the revenue stream and ARPU are the key explanatory variables in the analysis. The authors believe that the uncertainty involved around high technology investments plays a key role in the deployment and success of wireless networks. Therefore, the wireless industry is a suitable domain to apply real options for investment analysis (Alleman, The following section reviews the wireless technologies and traces the different evolutionary migration paths. Following this, technological, behavioral and economic factors associated with the migration process are identified and proposed. The case of an Indian operator qualitatively and quantitatively (using real options theory) is then studied. In conclusion, the study is summarized.
doi:10.1016/j.telpol.2006.02.004 fatcat:yogir57er5bfdihwxatoqxktti