Commercial opportunity loss valuation of fiber optic cable to support a court case litigation

Note: This is an example of work done by Warut B., either contracted directly with the client, collaborated with or subcontracted through other firm. Information presented here has been carefully selected or edited for confidentiality.

Background

  • A contractor company was hired by a telco company to lay fiber optic cable in an industrial estate area to provide FTTX services to factories in the area
  • At that time, the industrial estate was brand new and the telco was the first service provider in the area
  • The contract was structured as hire-purchase where the ownership of the asset would be transferred to the telco after having paid rent for a certain period
  • The telco never paid the contractor as agreed, and used the asset to provide services. However, the service was poor that the industrial estate operator had to bring in other providers to provide services to its clients
  • There was an appraisal done to evaluate salvage and replacement value as per the physical conditions of the asset. However, the legal strategy is to base the claim value on the commercial opportunity loss of the asset had it been properly used to provide reasonably quality service starting back in the past when there was no competition, versus entering the market today where all customers are already using service from one provider or another
  • The client seeks assistance in evaluating commercial opportunity loss of the asset

Role and methodology

  • Develop two scenarios of market conditions:
    1. Entering the market as first mover in the past
    2. Entering the market today
  • Develop financial model to conduct discounted cash flow (DCF) valuation of two business scenarios, structured valuation values according to different time periods important to the legal arguments
  • Conduct working session with management of the contractor company for review of the methodology and market conditions

Project outcome

  • A financial model customized as per legal argument with visualization to help conduct the working session with management
  • A written report of commercial valuation of the opportunity loss due not being able to utilize the asset. The report is used as a supporting document for the court case litigation