A Real Options Approach to ICT Investment Decisions

limited but growing literature exists on the application of real options methodology to the information and communications technology (ICT) industries. The methodology has been applied to examining the sunk costs of assets and the regulator's impact on the distribution of returns; economic depreciation; an analysis of capacity in long distance data service, and optimization of wireless capacity and other network optimizations. In addition, the approach has been used to examine strategic investments in technology standards. While the methodology has existed almost as long as the development and refinement of financial option theory and applications, it has had a much slower acceptance as an analytical tool. Perhaps, because of its complexities; maybe because of lack of a market for real options and associated data with which to apply the technique, as opposed to financial options which are traded daily. Perhaps because it has not been critically assessed and its benefits have not been demonstrated in the same manner as financial options 1. This dossier will clarify and address these issues associated with real options. Although it cannot promise to clarify all of them, we hope to shed more light on the topic.