Extracting 'More' Value in the Telecommunications Industry with Real Options Analysis

This paper investigates whether there is any ‘hidden value' other than the calculated one using traditional valuation techniques (TVTs). In order to extract the hidden value, the real option technique (ROT) is used for valuation purposes. Using ROT, this empirical study confirms that MTN Group Ltd's value was underestimated by R39bn (South African rands) during 2009. This underestimate was due to the emergence of the expansion option, which was due to a steep increase in MTN Group Ltd's capital expenditure. Furthermore, this paper highlights the fact that the option value could have been different, should different assumptions on variables affecting the option value be assumed for analytical reasons. However, the optionality phenomenon still exists irrespective of assumptions on variables affecting the option calculation for analytical purposes