ARPU Is Becoming Irrelevant

Once upon a time the wireless world was a happy and simple place for bean counters to put together their statistics. The Average Revenue Per User, or ARPU, was invented as a measure of how profitable and successful a network was operated and marketed. Back then, things were simple, one SIM card per user and only two services: Voice and SMS. In this environment, looking at the ARPU made sense. Today, however, the world looks much different and ARPU is quickly becoming an irrelevant key figure.

Use of several SIM cards

There are several reasons for this. First, people in many countries have started using several SIM cards because each SIM card offers an advantage the other doesn't. The average revenue per user is now split between two SIM cards. Is the business less profitable because of this? Probably not, but the revenue of that user is now split over two SIM cards and that looks quite bad on the ARPU scale.

Same thing for business users: Many of them these days use a SIM card for their mobile phone and a second SIM card for the 3G data card that connects their notebooks to the Internet. The Average Revenue Per User should contain the sum of both. In practice that's difficult to do because there is usually no way of knowing that both SIM cards belong to the same user, especially if the SIM cards were bought by a company.

Subsidies and Prepaid:

Second, MVNO's (Mobile Virtual Network Operators) in some countries have started to offer cheap voice minutes but sell SIM cards without phones. So which ARPU is better, 30 euros a month generated with a contract which required a 300 euro subsidize for a cool phone which spread over  24 months reduces the real revenues achieved to €17.50, or 20 euros a month generated via a prepaid SIM without subsidies? Surely the €30.- ARPU looks nicer on the paper but the operator probably makes more money with the prepaid customer and a €20.- ARPU.

Wide Range of Services

Third, mobile networks offer a wide range of services today from voice calls to high speed Internet access. So which customer is more profitable for the operator?: A customer that spends 30 euros a month on voice calls or a customer that spends 30 euros a month for Internet access? In most cases the voice ARPU is probably more profitable than the data ARPU. However, prices for voice minutes keep falling and falling except in countries where there is no real competition among operators (n'est-ce pas? :-) So in the end the data customer could eventually become more profitable.

Alternatives

On the long run I guess ARPU has to be replaced by some other, more meaningful key figure adapted to the continuing changes. Maybe it would be a good idea have a range of key figures such as:

• Average revenue for a voice minute, based on all voice minutes sold in the network over the period of a month.
• Average revenue per megabyte for mobile services, i.e. web surfing and other Internet activities from mobile phones
• Average revenue per megabyte achieved with high speed Internet access from notebooks
• SMS and MMS should also be treated in the same manner.

I wonder if operators would be willing to go down that route!? In the end, these number would give a lot of insight... Also, compared to calculating the ARPU as done today, getting to these numbers would be a bit more difficult. However, if network operators have problems getting this information out of the call data records, they could ask Google or Yahoo to do it for them. They know how to process terabytes of information.

Alternatives, thoughts, anyone?

Comments

[Oon Yeoh]

Good insights, especially about users of multiple SIM cards. SIM switching happens a lot in third world countries like Bangladesh and Pakistan. But even in more developed countries like Malaysia, there are some people who have more than one SIM - usually one for voice and one for data.

[Dean Bubley]

Good stuff. Another big problem is the totally-spurious figure of 'data as a % of ARPU', which is rendered meaningless by bundling. If I have a £30/month contract with 400 minutes, 300 SMS, 5 video downloads, 5MB inclusive browsing & a free ringtone, who decides what % is allocated to each bit? Totally arbitrary, and susceptible to all sorts of accounting fiddles & enginering to look good to investors.

[Sheila Leta]

Great ideas especially about coming up with the different key figures for measurement instead of the legacy ARPU.Would any of you know if any operator is currently using these key figures? What are the values like?

[Alexander]

I do not agree with you. It could be that actually ARPU is becoming even MORE important! That's because networks are constantly being upgraded (GPRS-EDGE-UMTS-HSDPA-HSPA+ and so on) to deliver more and more data per used per month, while users' apetites for data constantly grow. In this situation, revenue per megabyte will be constantly changing, and what's worse, it won't reflect actual financial health of the operator. You can rename ARPU into something like ARPS (...per SIM), but this measure is certainly NOT becoming less important.

The essence of ARPU is that the operator generally doesn't care how much service does the user consume (as far as it doesn't have negative influence for overall performance of the network). What the operator really cares about is how much the user pays every month. In theory, operators could give all users unlimited usage if they were absolutely honest to pay what they really can and use no more that they really need. But in real life with real people this communistic principle never works, and so marketing departments have to work to more or less achieve such an effect "in manual mode".