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No. of Recommendations: 9
TMFChris:
"Paul Johnson's report of October 3 represented somewhat of a rebuttal, and has some interesting stuff. Probably the main point of his report is that carriers are faced with a version of the "prisoner's dilemma," "

How interesting, I was just reading up on Game Theory and the Prisoner's dilemma recently. It really does explain why all telco's will be building, and spending on CapEx.
The "Prisoner's Dilemma" as applied to the Telco Carrier situation can be illustrated by the following diagram:

Other Telco
Y Don't build build
O Don't build (10,10) (0,20)
U build (20,0) (5,5)

The table is read like this: Each Telco carrier chooses one of the two strategies. In effect, the "Other Telco" (your competition) chooses a column and you choose a row. The two numbers in each cell tell the outcomes for the two Telco carriers when the corresponding pair of strategies is chosen. The number to the left of the comma tells the "payoff" to the person who chooses the rows (you) while the number to the right of the comma tells the payoff to the person who chooses the columns (the "other Telco"). Thus (reading across the first row) if the "other Telco" chooses NOT to spend on new NGN equipment and you choose also choose NOT to spend, then you both get $10 payoff (not actual revenue, but you get a "payoff" in the form of cost savings). However, if the "other Telco" chooses to spend on new NGN equipment, and you choose NOT to, then you get $0 payoff, while the other Telco company gets $20 payoff (from increased mkt. share + incr. revenue that the better NGN equipment brings in).
The case where you and the other Telco both spend on new NGN equipment results a low payoff of $5 for both players (because you take on more risk/reward, and you split the market share, and therefore get less revenues).

The dilemma is as follows:

Let's say that the other telco company doesn't spend on NGN equipment (reading down the 1st column). Then it is in your best interest to spend on new NGN equipment (you get a higher payoff, as shown in the table). On the other hand, if the other Telco chooses to spend on NGN equipment, then it's still in your best interest to spend on NGN equipment (you still get a higher payoff). Therefore, you decide to spend on NGN equipment.

Guess what?

The other Telco will be rationalizing in the exact same way, so then the both of you wind up spending on new NGN equipment, resulting in the lower payoff than if both of you chose NOT to spend. The ideal scenario where no one spends on NGN equipment never becomes reality, if all the telco carrier reason the same way.




Thx.
cheers,
Albert
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