Real Option Valuation of Ericsson's High Precision In-Building Positioning (HIP)

Abstract: Ericsson is developing a new technology for accurate indoor positioning, named the HIP-solution. The HIP-solution is a joint product with areas of use in both the public safety market for emergency positioning and as a commercial platform for location based services. The driving force behind the development of Ericsson's HIP solution is E911, a legal requirement imposed in theU.S.where operators are required to position an emergency call within a radius of 50-300 meter, depending on available positioning technology. Location Based Services (LBS) are the other important market for the HIP-solution where the technology can be used to offer customized services for mobile users based on their location, such as guidance to the nearest banking cash machine, or whereabouts of friends or family.   This master thesis is conducted at Ericsson, with the purpose of evaluate the HIP-solutions U.S market potential. The theoretical framework used in this paper is the Real Option Pricing Theory, with emphasis on the Expand Option. The theory provides a context for evaluating the HIP-solutions market potential based not only on its physical characteristics, but also of on future expand options and how well Ericsson manages to capture the cloud of externalities the HIP-solution as a joint product.   Keywords Ericsson, HIP-High Precision In-building Positioning, U.S Emergency positioning legislation, Location Based Serviced, App, Real Option, Expand Option.