17 May 2009

It is time for telcos to get real and dump ARPU

15 05 2009 - For years now telcos in general and mobile operators in particular have spent much of their time and marketing budgets on trying to persuade customers to up their usage of services and applications, writes Martyn Warwick.

What they are trying to do is to increase ARPU (average revenue per user) a measure hitherto generally accepted by the operators themselves to be the best indicator of how well they are doing in terms of wresting more and more cash out of their subscribers. It is also the metric most usually referred to by analysts and investors in gauging the financial performance of a carrier.

ARPU then is the average amount of revenue a telco collects from each user per month and carriers try to boost this sum by bundling and selling extra services to their customers.
However, one of the problems with ARPU is that it is usually calculated in very basic arithmetical fashion, by dividing the aggregate amount of revenue by the total number of users who provide that revenue. Such numbers are, of course, static but nonetheless are usually taken as the equivalent of Holy Writ in carrier accounting departments around the world.

Another big problem with the measure is that despite all the efforts by carriers to increase it, ARPU is actually in decline. In part this is due to the continuing and irreversible fall in traditional voice traffic as users switch to the likes of Skype; services that whilst variable in quality are, to all intents and purposes, free to use. And of course the knock-on effect to falling ARPU is reduced profitability.

On the positive, indeed some might say overly optimistic, side of the equation the research house Analysys says that some telcos might be able to stop the decline in ARPU by 2011 - but only if service providers can grow their data revenues at a rate that will overtake the decline in voice revenues, and that's a big ask.

The truth is that the current business model is played out and another is needed to take its place.

Source: TelecomTV

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