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Cellular Providers

Market Analysis Summary

Cellular Providers continues to conduct industry analysis to stay current on the nature and dynamics of the industry. This process helps management develop insight and devise sustainable business and marketing strategies to assure future success and avoid making decisions based on blind assumptions. Cellular Providers’ business model was developed under two areas of knowledge: understanding the industry, and by having worked for and observed successful companies (and their business models) in the wireless communications services industry.

According to reports published by CNN Financial News from the Commerce Department, the U.S. economy capped off 1999 at a furious pace, posting its fastest quarter of growth in more than three years, as demand at home and abroad for U.S.-made goods remained robust and companies spent more stocking their shelves.

Gross domestic product grew at a 6.9 percent annual rate in the fourth quarter, the Commerce Department said, above the revised 6.5 percent increase expected by economists and well ahead of the 5.8 percent pace originally reported a month ago. It was the biggest gain since the second quarter of 1996, and dwarfed the third-quarter expansion of 5.7 percent.

The GDP price deflator, a key inflation gauge, rose at a 2 percent annual rate, the same rate initially recorded a month ago and in-line with economists’ forecasts of a 2 percent gain. The price deflator rang in at 1.1 percent in the third quarter. For the entire year, the U.S. economy grew at a 4.1 percent pace, while the GDP price deflator advanced 1.6 percent. Higher productivity has allowed businesses to produce more without increasing expenses, keeping the cost of the final product low.

The U.S. economy’s rate of expansion during the past three years has been faster than what Fed officials have said can be sustained without a renewed inflation threat. Fed officials have stated at different intervals that a “comfortable” rate of growth is typically around 3 percent. Small businesses are taking advantage of the opportunities the Internet affords.

International Data Corporation (IDC) estimates that the number of small businesses engaged in e-commerce will increase 47.1% annually, from 400,000 at the end of 1998 to almost 2.8 million at the end of the year 2003, signaling the broad adoption of the Internet by these small enterprises. The widespread adoption of the Internet as a purchasing vehicle has created a wealth of opportunities for businesses that offer products and services to small businesses and consumers. Simultaneously, it has given both small businesses and consumers a wider variety of products from which to choose at competitive prices.

4.1 Target Market Segment Strategy

Cellular Providers sources of revenue are derived from the sale of wireless communications services to businesses and consumers, the sale of accessories, and co-brands (revenue sharing). In comparison to other start-up companies of recent years, Cellular Providers has done very well.

The most significant trends are greater marketing and advertising efforts, rapidly expanding networks, and technological advances. New services and applications such as advanced messaging, data and video transmission, location technology, and remote monitoring are in the early stages of what most analysts predict will be a period of explosive growth.

4.1.2 Market Growth

Current economic conditions driving Cellular Providers’ industry sector include a rising GNP, interest rates edging up gradually, communications economy that is growing, and an increasing number of consumers with greater amounts of disposable income. The savings rate has begun to rise as well. Warning signs of change include rising interest rates and inflation. If these begin to rise sharply, it signals a faltering economy and can have negative effects on all business including Cellular Providers.

The ten-year outlook in the wireless communications service is excellent. The U.S., Department of Commerce estimates that billions are invested each year for research and development. The number of new cellular subscribers in the United States increased dramatically from 1992 to 1998, and 1999 saw continuation of that growth. The number of new subscribers exceeded 10 million, with a record 11.5 million net new subscribers in 1997, for a total of 55.3 million at the end of that year. By the end of 1999 analysts had that figure reaching 80 million. One analytical firm believes that 82 percent of U.S. adults from households with an income higher than $35,000 per year (approximately 90 million people) will be subscribers by 2002. While projections differ, the number of cellular and PCS subscribers in the U.S. is expected to have a compound average growth rate (CAGR) of 12%. With the evolution of new technology, this industry is expected to generate increased revenues.

The explosive growth of the Internet, as a tool for global communications, has enabled millions of people to interact electronically. IDC estimates that there were 142 million Web users worldwide at the end of 1998, and expect this number will grow to approximately 502 million by the end of the year 2003. Rapid acceptance of the Internet as a communications platform by both businesses and consumers has created the foundation for significant growth in business-to-business and business-to-consumer e-commerce. The cellular and PCS industries continued to attract more non-business users largely as a result of a decline in the cost of handsets and bundled service packages. Additionally, it is seen as fashionable to have a handset while driving or interacting with others.

4.2 Market Segmentation

According to the Cellular Telecommunications Industry Association, industry investment grew to $46 billion in 1997, up over 41% from 1996. Dataquest estimates that the average annual revenue per subscriber for PCS was $576 in 1997, with total revenue for 1997 at $1.03 billion, over 3% of the combined total for cellular and PCS.

By 2001 there are expected to be about 40 million U.S. PCS subscribers, and total revenue for the year of $15.9 billion, according to Dataquest. Other predictions vary: Decision Resources forecasts that PCS will account for only 21.8% (19.5 million) of U.S. mobile voice subscribers, while cellular will account for the remaining 78.2% (70 million) by the end of 2001, but estimates total revenues will reach $31.4 billion. On average, however, it is projected that PCS subscribers will account for 40-45% of subscribers and about half of total service revenues by 2002.

Telecom wireless business plan, market analysis summary chart image

Market Analysis
2000 2001 2002 2003 2004
Potential Customers Growth CAGR
Specialty Business Users 0% 226,000 226,000 226,000 226,000 226,000 0.00%
General Business Users 0% 650,000 650,000 650,000 650,000 650,000 0.00%
Personnel Users- Washington State 0% 5,987,000 5,987,000 5,987,000 5,987,000 5,987,000 0.00%
Total 0.00% 6,863,000 6,863,000 6,863,000 6,863,000 6,863,000 0.00%

4.3 Competition and Buying Patterns

Effective competitive strategies are built upon understanding what defines and determines if another company is a competitor. Cellular Providers does not believe that all cellular and two-way radio service firms compete with it because many of these do not provide the array of services that it provides. The number of companies selling cellular services continue to grow and each competes for a share of the market. This translates into escalating advertising costs especially with larger and established companies. This trend is expected to continue and intensify over the coming years.

Cellular Providers’ outline for competitive strategy includes monitoring competitors for innovative changes, devising responsive and timely strategies, contingency and implementation plans, devising marketing strategies, compare pricing by rivals, and remain always watchful of technology developments and innovation by service providers, and respond accordingly.

4.4 Business Participants

Within the U.S., there are numerous companies that provide one or more types of communications services. According to U.S. Trade and Outlook ’99, there were more than 1,500 cellular systems operating in 750 U.S. markets. Far fewer provide the depth, breadth, and level of expertise as that of Cellular Providers. Globally, as in the U.S, there are companies that offer wireless communications services. Few carry the range of services as that of Cellular Providers.