Eurotel 3g License Valuation
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MEMORANDUM
To: Ana Bellario, Director of Market Strategy for Eurotel
From: xxx
Date: October 14, 2012
Subject: Regression Model for 3G License Valuation Estimation
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Background
As part of the European expansion plan, Eurotel is planning to bid on 3G licenses in Hungary, Russia and Turkey. Usually, the operator determines the maximum price to bid following three steps: 1. NPV analysis 2. Market Indicator Considerations 3. Game theory
As a complement to this methodology, a multiple linear regression model will be proposed and evaluated. This memo includes the approach to the problem, the model reached, the results for Hungry, Russia and Turkey and the evaluation of the model.
Approach
Number of variables
To reach a robust model, a variety of variables have been considered to include information about industry status (competition, maturity, etc.), market size (number of mobile subscribers) and spending power (GDP, ARPU, etc.). All in all, eleven variables have been identified. However, following rule of thumb, n>5(k+2) and since the number of previous observations is thirty, only three variables can be supported in the model.
Dependent variable
Since what Eurotel cares about the price of one license in a particular market, not the price of all the 3G licenses in a market, a new variable should be introduced: “Price per License” obtained dividing the “Price for All Licenses” by the “Licenses Available”.
Dummy variable
One way to include the qualitative variable “Type of contest” in the model is to create a dummy variable, that will be equal to “1” when it is bidding and “0” when it is beauty contest.
Model
The first step to build a multiple linear regression model is to study the linear relations among all the variables, i.e. to calculate the correlation among them to: 1. Select the independent variables that present the
MEMORANDUM
To: Ana Bellario, Director of Market Strategy for Eurotel
From: xxx
Date: October 14, 2012
Subject: Regression Model for 3G License Valuation Estimation
-------------------------------------------------
Background
As part of the European expansion plan, Eurotel is planning to bid on 3G licenses in Hungary, Russia and Turkey. Usually, the operator determines the maximum price to bid following three steps: 1. NPV analysis 2. Market Indicator Considerations 3. Game theory
As a complement to this methodology, a multiple linear regression model will be proposed and evaluated. This memo includes the approach to the problem, the model reached, the results for Hungry, Russia and Turkey and the evaluation of the model.
Approach
Number of variables
To reach a robust model, a variety of variables have been considered to include information about industry status (competition, maturity, etc.), market size (number of mobile subscribers) and spending power (GDP, ARPU, etc.). All in all, eleven variables have been identified. However, following rule of thumb, n>5(k+2) and since the number of previous observations is thirty, only three variables can be supported in the model.
Dependent variable
Since what Eurotel cares about the price of one license in a particular market, not the price of all the 3G licenses in a market, a new variable should be introduced: “Price per License” obtained dividing the “Price for All Licenses” by the “Licenses Available”.
Dummy variable
One way to include the qualitative variable “Type of contest” in the model is to create a dummy variable, that will be equal to “1” when it is bidding and “0” when it is beauty contest.
Model
The first step to build a multiple linear regression model is to study the linear relations among all the variables, i.e. to calculate the correlation among them to: 1. Select the independent variables that present the