Broadband Investments Analysis Using Real Options Methodology : A Case Study for Egnatia Odos S.A

Traditional investment analysis approaches such as discounted cash flow and net present value do not capture the flexibility in the investment evaluation. In this paper, Real Options (ROs) are used to capture the value of flexibility in the evaluation of optical fibre investments along a motorway. The ROs methodology is applied for a real life investments' scenario associated with “Egnatia Odos S.A.” strategic decision to deploy optical fibre backbone network along the national motorway “Egnatia Odos”. The focus is on low competition areas for broadband services provision which are characterized - especially in the access network - by low customers densities, longer loop lengths, lower duct availability and therefore higher infrastructure cost compared to high competition areas. In such areas high investment costs will be incurred promoting broadband.The results obtained using the ROs methodology enable the company's senior management to identify conditions for which entry into the broadband market would be profitable. These results also indicate that using traditional approaches for evaluating telecommunications investments may provide wrong recommendations