Pricing Model and Real Options in 4G LTE Mobile Network

Abstract

This paper focuses on real option theory and on its applications in 4G LTE mobile network. The objective of this paper are (1) to introduce real option theory and to discuss its applicability as a decision support tools, (2) to exemplify some real options present in 4G LTE communication of MNO markets, and (3) to apply real option approach based on the proposed pricing model to the selected case to demonstrate the power of option pricing models as a decision support tool in 4G LTE mobile network. The application of real option approach is valuation of investment opportunities when the future capacity prices are uncertain but the investment costs are unknown. The optimal pricing of capacity tariffs is identified under stochastic capacity prices. The case demonstrates how real option models can be used to derive decision rules to problems faced by several telecom parties.