Revenues and ARPU – never SIMple!
During the last couple of years we have frequently been told that the upward trend in mobile data consumption cannot compensate for the drop in mobile voice revenues. Unfortunately, analysts and journalists continue to disappoint by mixing terms and emphasising dramatic conclusions. Just as an example, last week, Wireless Intelligence reports that ”European operators have seen ARPU fall by 20% in the past three years” and that ”data services have failed to compensate for the loss of voice charges.”
First, while it is indeed correct that Europe shows falling mobile service revenues overall, there are countries that show growth, such as Sweden. In addition, for Europe as a whole the negative growth rate has been reduced, indicating that mobile data revenues are increasingly compensating for the loss of voice revenues.
Second, and more important, the continued habit of reporting on declining ARPUs hides the fact that ARPU since long has become an obsolete KPI. The very acronym ARPU (Average Revenue per User) has never even meant what it claims. The U as in User has meant S as in SIM card. As long as no user had more than one SIM card, S was equal to U, but since that was never the case, the acronym was wrong from day one (albeit the consequential inaccuracy were negligible/acceptable for a while). During the years several attempts have been made to suggest an alternative KPI to ARPU but most of them have concentrated on the R rather than the U. Operators and analysts have still continued an ambition to create a comparable KPI on revenue generation based on the number of ”active” SIM cards. The word ”active” became necessary as operators flooded their markets with pre-paid SIM cards that were increasingly bought, used and thrown away without operators flushing their databases, until ”market share” claims became a laughing stock.
At the end of the last decade M2M units, mobile broadband subscriptions, bundled voice & data smartphone subscriptions and tablet data subscriptions ultimately rendered ARPU totally obsolete. We now have an industry KPI that bundles (!) together the most diverse revenue drivers, subscriptions, starting fees, voice minutes, SMS and MMS, data bits, domestic and roaming, and both inhuman and human behaviour into a ”revenue per user”. With device proliferation the problem becomes even worse. As the volumes of connected devices grow to include small sensors reporting measurements on trees and plants, no wonder that ”ARPU” falls!
It’s apparent that either you break down revenue comparisons into revenue types, -bearers, and –drivers, or you aggregate to a higher level, e.g. total revenues generated by a licensed population. This all depends on what types of comparisons you are interested in doing – what is relevant for you. But, to continue looking at today’s ARPU and equate its drop with industry decline is neither correct nor constructive, and at best misleading. Stay tuned for a continued discussion on how to compare revenues…