14 August 2009

Broadband carriers and government funding

This article is interesting. According to the atricle
As the Aug. 20 deadline nears to apply for $4.7 billion in broadband grants, AT&T, Verizon and Comcast are unlikely to go for the stimulus money, sources close to the companies said.

Their reasons are varied. All three say they are flush with cash, enough to upgrade and expand their broadband networks on their own. Some say taking money could draw unwanted scrutiny of business practices and compensation, as seen with automakers and banks that have taken government bailouts. And privately, some companies are griping about conditions attached to the money, including a net-neutrality rule that they say would prevent them from managing traffic on their networks in the way they want.

While it is quite possible that some of the rules, such as "network neutrality" may affect them anyway, it is clear that the carriers felt that the cost of participating in this program outweighed the benefits. A significant part of their concern is related to uncertainty about the consequences of an irreversible commitment. Thus, it seems an apt subject for a real options analysis.

Doing such an analysis rigorously would be challenging since the uncertainty is not easily quantifiable. But clearly carriers have concluded that the high probability of a modest upside does not outweigh the uncertain probability of a potentially large downside.

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