Dark Fiber Valuation

Publication Type

Journal Article

Publication Date

2003

Abstract

Valuation of dark fibre has recently generated controversy, sparked particularly by the large sums booked for swaps of dark fibre between companies (13, 23, 24). One of the issues raised is valuation: i.e., what is the value of an asset that generates no revenue now and may do so at some unknown point in the future, but only after investment, in an uncertain business climate, and where prices are dropping? The picture is further complicated because the result of investing to bring the asset to market (i.e., lighting the fiber) changes the supply and demand conditions of the market itself and hence invalidates price predictions based simply on how conditions are currently changing. Another important issue is the proper accounting treatment of these swaps, but this is outside the scope of this article. A realistic and consistent valuation methodology is necessary for increasingly cautious companies, auditors, and investors. The value of revenue generating opportunities conditional on future investment is the classical scenario for decision theory and, where market information can be obtained, real options analyses. Real options theory makes the analogy with financial options where payoffs are conditional on future actions relative to markets given some initial position. In this paper, we describe applications of real options to bandwidth, specifically relating to the valuation of dark fiber. Publicly available bandwidth price services (29, 30) start to make possible such an analysis by providing market price information for a related determinant of their value: the value of transmission either through lit fibre on the same route and/or related routes.

Discipline

Computer Sciences | Management Information Systems

Research Areas

Information Systems and Management

Publication

Engineering Economist

Volume

47

Issue

3

First Page

264

Last Page

307

ISSN

0013-791X

Identifier

10.1080/00137910208965036

Publisher

Taylor and Francis

Additional URL

http://dx.doi.org/10.1080/00137910208965036

Link to Full Text

Share

COinS