SuperMovil - Telco startup market expansion

This is a typical McKinsey case – perfectly extrapolable to other MBBs, particularly 1st round – consisting on:

1. Structuring part – Where the candidate will draft an issue tree / hypothesis tree to structure his/her toughts.
   • How to conduct it? >
     1. Encourage the candidate to make clarifying questions about the client and its business model and share the data in the orange box.
     2. Allow 2-3 minutes for the candidte to draft the issue tree.
2. Exhibit ­ part – Where the candidate will be given a table of contents and will need to draw conclusions.
   1. How to conduct it? > Share Table 1 with the candidate
3. Math calculations part – Where the candidate will perform ad-hoc calculations and draw conclusions.
   1. How to conduct it? > Share Table 2 with the candidate

Example of an excellent structure (presented as an issue tree):

ECONOMIC FACTORS

• Overall market analysis: conduction of deep analysis on:
  • Market size
  • Market fragmentation:
    • Are there any other Telco start-ups with similar business model to ours? – Given that the key to our success is the ability to move and escalate fast, we need to keep in the radar other players operating the same way.
    • Who are the main "traditional" Telcos? (CAPEX owners) per market? – Key for this particular case, since they are needed business partners for our expansion
  • ​Estimated market trends: both short and medium term

• Analysis of potential new markets: conduction of deep analysis on the shortlisted countries around key KPIs in order to identify the ideal target:
  • Potential number of users
    • Population
    • Penetration rate
  • Industry & segment growth rate
  • Stability of the market

• Operational approach: SuperMovil rents capacity from traditional Telcos, which grants them operational speed. In order to penetrate a new market, options are:
  • M&A (Merger & Acquisition): buying a Telco in the new market that operates with the same business model (i.e., renting capacity)
  • JV (Join Venture): partnering with a traditional telco:
    • Local Telco in the targeted country, targeting the most insteresting one in terms of:
      • Market penetration
      • CAPEX (antennas, fiber optic, etc.) availability
      • Company's health and stability
    • Local Telco in the targeted country that is a branch from one of their current European partners, in order to leverage the established business relationship

SOCIAL FACTORS

• Brand perception risk when moving to a new location (particularly outside Europe, their current market)
• Operational risks in a new and unknown market (particularly if outside Europe), highly influenced by:
  • Culture
  • Population density
• Post-merger integration risks (after M&A):
  • Integration of vision, mission and values
  • Different working cultures
  • Different compensations

POLITICAL FACTORS

• Anti-trust regulation compliance, when expanding inorganically
• Need to adapt to new regulations in the new markets - Telco is a highly regulated industry

IMPORTANT NOTE: Social & political factors, that encompass the risks of the operation, are key in the case. Structures without them lack a key part of the analysis

Example of an excellent exhibit analysis:

There are 2 countries in the list that stand out, since they are "best-in-class" in 2 out of 3 KPIs tested:

• Spain: Although having low industry growth rate, it is a stable market with >50% of data-bundle users.
• India: Although being an uncertain market from an the stability perspective, it combines a high growth rate with >50% of data-bundle users.

To arrive to this conclusion, the candidate should compare in each column and flag the best-in-class (e.g., in the Industry growth rate column, High is the best-in-class). Both Spain and India are best-in-class in 2 out of 3 KPIs tested.

Additionally, the candidate can suggest two different approaches:

1. Deep-diving into each of the two countries with real data to calculate the real entitlement and then choosing one
2. Diversifying the risk and expanding into the two countries: given the nature of Spain and India, they complement each other very well and would result in a very balanced strategy:
   • Spain is a "secure" option given its market stability, with little risk but also less opportunities for big revenues.
   • India is a "risky" option given its market uncertainty, but higher revenue opportunities – given its high industry growth rate and % of data bundle users.

Example of an excellent calculation and conclusion:

• Spain:
  • 50,000,000 inhabitants * 95% penetration rate * 50% of data-budle users * $30 monthly = 712,500,500 total market value (can be rounded up to 700 million)
  • 700 million total users * 1% that can be adquired = ~$7 million
• India:
  • 1,100,000,000 inhabitants * 70% penetration rate * 60% of data-budle users * $10 monthly = 4,620,000,000 total market value (can be rounded up to 4.5 billion)
  • 4.5 billion total users * 1% that can be adquired = ~$40 million

Hence, as a conclusion:

• If we can only expand to one country, India would bring higher revenues, ~$40 million vs. ~$7 million.
• However, the candidate can also suggest to diversify the risk and expand into the two countries: given the nature of Spain and India, they complement each other and would result in a very balanced strategy.

• Spain and India are the best countries to expand to, with estimated revenues of ~$40 million and ~$7 million monthly.
• In order to do so, SuperMovil should consider (1) buying a local player with the same operating model or (2) partnering with a local traditional Telco who owns the infrastructure (e.g., fiber optic).
• As next steps, we will focus on deep-diving on the risks cited in the structure & an analysis of the Spanish and Indian market to shortlist potential partners.

• How liberalized are both markets, and how easy it is for foreign companies to penetrate?
• How fragmented are both markets in terms of players? Which is the market share of the top 3 & top 5 players?
• Are there any players in any of the two countries who are partners of our current European partners?