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Determine the market size for the wireless network in the U.S?

Daniela rottenberg

Our client asks us to evaluate whether or not they should enter the U.S. wireless market. As an international wireless carrier, our client successfully operates in Asia and is now looking for international growth opportunities. They come to us to understand two questions: (1) whether or not they should enter U.S. wireless market, and (2) what key challenges they might face upon entry.

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Ankur replied on 04/18/2017

There is a MECE answer provided to this by Nuno if market sizing is part of a market entry case. I believe this question is straight at market sizing, so i will provide my thoughts to this.

  1. I assume wireless network here means customers using cell phone network services.
  2. Market size = # of customers subscribed X Revenue per unit.
  3. Calculating # of Customer base:
  • Divide US population under 4 groups with a life expectancy of 80 years. - 1 to 20;21 to 40;41 to 60 and 61 to 80. Using/assuming 25% of population for each group, with 350 mm in US population, each group gets around 87.5 mm population each, adding 21 to 80 group, rounding to 250 mm population.
  • Also in the age group of 1 to 20, i can assume teens from 11 to 20 have access to cell phones, so add another 50 mm to round it to 300 mm population that falls under the 11 to 80 age group that can legally work and support wireless services cost.
  • Cell phone is mostly used by people that are more Mobile in day to day life; so I am going to discount 20% off of 11 to 20 (able to support expenses) and 61 to 80 age, 10 % each of 21 to 60 age group. left over population is (50 + 90) mm * 80% and (175 mm * 90%) = 110 mm + 150 mm = 260 mm
  • Further add 4% unemployment rates, that cut the population down to 250 mm.
  • If I have market information for penetration, I can list 5 major companies that have major market share. Verizon/ATT/T-mobile/Sprint/Cricket. I will use 20% as max share of wallet for the biggest and reduce 4% further for each player. The left over volume I am assuming as cvustomers that are not loyal to the service provider and are available for Grab across any service provider.
  1. So 20%/16/12/8/4 - leaves 20% up for grab; 20% of 250 mm population = 50 mm customer base.
  • Assuming there is 60% penetration oppotunity for our client from market statistics; leaves me 30 mm customers for our client.

4. Revenue By Unit = Wireless services + Data plan

  • Both services can be provided by Contracts (monthly/annual) or pre-paid amounts
  • Contracts: Wireless + Data Plan = $40+$20 average/subscriber = $ 60
  • Pre-Paid = Wireless + Data Plan = $20 + $10 = $30
  • Assuming a 80 to 20 ratio for 30 mm customer divide (I assume contract customers are more keen to get a new cell phone with contract service)

5. Market Size = contract revenue + pre-paid revenue

= (30 mm * 80%* $60) + (30 mm* 20%* $30)

= 24 mm * 60 + 6 mm* 30 = $1440 mm + $180 mm

Market Size = $1.6 B annually.

I invite pros to please poke holes in my approach, I wil really appreciate it.

Thanks,

Ankur

Nuno replied on 04/17/2017

I'm not sure you're asking how to determine the size of the wireless network in the US or how to approach this particular case. So just in case I'm going to address both:

Always good to ask some questions to have a feel for it:

1) Is the service we provide in Asia the same service we will provide in the US or do we need any upgrade? (this could help in determine if further investments are required)

2) Why did you choose the US market? (this could give us some intel on growth rate or size)

3) What is our client looking for with this deal? (real objective: breakeven; market share; volume, etc)

Then I would look at 3 main areas: External Conditions; Internal Capabilities; Financial Opportunities.

External Conditions: Market (size, growth, trends, segments, barriers to enter; etc) & Competition (market share, prices, etc)

Internal: Client (cost structure; network; swot) & product (how does our product differ from comp.)

Financial Opportunity: Breakeven analysis (if this applies after the inicial questions)

--

Market Size analysis: If the interviewer asks you to determine probably the easiest way to do it would be:

# households with wireless network = (US Pop/#of ppl in a family) * %households with internet * %households w/ wireless network

Here I'm assuming just for households but if we are talking about wireless network in smartphones I would had that to the above equation.

--

Challenges upon entering were covered in the "Market" branch on the "barriers to enter" - basically: Inicial investment; brand recognition, regulations, strong competition, etc.

(edited)

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