On Telecom Operator 3rd Generation Investment Strategy Based On Option-Game Theory

As one of the most prosperous industries to promote the economic development, telecom industry has been charactered as high risk and high profit. Due to step up the competition and promote the living standard, the telecom industry has been recombined for many times. The development of 3G provides the opportunity for another competition of the telecom market. The merger worked on 2008 brings the new competition market for the 3G investment. The 3G is related to the benefit of the people and the long-term development of the 3G operators.The traditional theory just judge the investment depent on the ratio between the profit and cost without the uncentaintry. The basic theory of the Real Option has considered of the uncertainty of the projects but neglected the interaction between the competitors. With the development of the Option Games, the real option and the interaction could be combined in the value of the project. The value of the option game could be the most real of the project. The theory of the option games has the special meaning to the projects evaluation.The 3G has the features of the option games. The option games theory will give the real answer about the 3G's value. The equilibrium between the option and the interaction will arrive a point. The mobile communication operators'goal is to achieve the maximum of the profit. On the equilibrium of the option and interaction, the oprators will adjust the strategy of the investment and the marketing. The paper gives the option games model of the 3G project. The model concludes three parts: the real option; the option games; the equilibrium with interaction from the technology advanced and the operation cost. The equilibrium will concludes some advices for the 3G project. The key ideas and main research results as follows:(1) There is a new view on the 3G investment strategy that is the option games theory. The theory is different from the traditional NPV or the real option theory. It is combined the real option theory and the games. The equilibrium value is mixed from the soft management value and the interaction strategies value. The option game value is more close to the real and is more significant to the 3G investment. This is a totally fresh approach.(2) To summarize the basical theory which is about the 3G investment strategy:the government regulation economics, the traditional investment theory, the real option theory, the real option theory, the paper give the main idea and the key view about the above theories and the route about the investment decision theory development. It is the the key point to be focused on that is the cash flow, the uncertainty, the interaction strategies and the market constructure.(3) The paper analysis the construction and the features about the mobile telecommunication market. After the combing out the route about the mobile telecommunication market change, the pater takes the conclution that is the different effect under the different market constructions and the three oligarch monopolization is the most efficient for the 3G investment. The paper points the market background has decided the option game features which is the unreversible, the uncertainty, the complex option, and the interaction strategies.(4) The paper gives the three-dimensional option game model to analysises the 3G investment strategies. The model include the uncertainty and the interaction and the affect from the technology development. Under the first-dimensional model-the real option theory, the entry market threshold and the option value are different from the mobile telecommucation operators and the followers. The followers will be advanced the entry threshold, but the the option value of the mobile operators is bigger. In the second-dimensional model, the affect of the competition reduce the option value and make the mobile operators to be the market followers. In the third-dimensional model, the techenology advanced and the operation cost will make a change on the 3G investment equilibrium. As the techenology advanced, the market followers will make the entry threshold ahead and the market leaders will put off the entry threshold.(5) As the facors sensitivity theory, the three-dimensional model will be advanced developed. In the model, the parameters is affected to some 3G investment strategy. They are included the profit, the investment cost, the interest rate, the fluctuate about the capital and the investment period. The operators could control the different parameters to maximum their project value. On the other hand, they could control the technology advanced and the operation cost to change the competitors stragegies.(6)The pater take the three-dimensional options game model of 3G project for for the further sensitivity analysis and calculation. For the options value of the uncertainty. There are five parameters in the model will impact the final equilibrium. The conclution pointed out that the advanced technology and the operation cost will impact the investment threshold of the leader and the follower. The reasonable development of of technology and the optimization of reasonable operating costs are very significant to the investment strategies.(7) The paper give three different investment strategies of the 3G for the telecom operators:island-based strategy, net-based strategy and the radical-based strategy. As the "Been" in the mobile telecom market,China Mobile should take the "strong-follower radical-based strategy". Increase their investment to 3G project on the condition of the enough market demand. For another "Been" in the mobile telecom market, China Unicom should take the "weak-follower net-based strategy". It is more suited for it to control costs and increase the value of 3G options. As the "new player" in the mobile telecom market, China Telecom is acquisition of China Unicom's C net, but the coordination with the C net will take a certain period. There is time-delay. However, due to its fixed-line users decline in profits, the motive of the the entering the 3G market is more stronger. The feather of the 3G project is the data services. It's the demand of the Group. Therefore, the choice of 3G industry development and the "leader island-based strategy" are the China Telecom's best stragegy.