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Data ARPU: what is it good for?

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Beginner

In my Excel-filled days, data ARPUs are my daily companions. On one hand, you have costs, on the other revenues – that is ARPUs. And since the area of both major growth and concern, is data, data ARPU is a core metric.

Until you stop and ask yourself, what do data ARPUs mean? How do they help us understand and predict how data services generate revenues and can be profitable? I have had some doubts about the usefulness of data ARPUs for a while and prefer to use total ARPUs. But I always thought that at the very least data ARPUs give us a sense of the relevance of data for subscribers. It is big news when data ARPUs go over the 50% line – as they started a few years ago in Japan and, more recently, in other countries.

When you look a bit more closely at how data ARPUs are calculated – i.e., the marginal revenues from adding data services to an existing plan – you realize that data ARPUs are not only scarcely useful, they are actually misleading as they lead to an underestimation of data revenues.

If you relate data ARPUs to the cost of providing mobile data services, you come to the realization that operators are squandering their voice revenues to support loss-generating data services (I have to admit that I used to think that that was indeed the case; but that was many years ago when laptop plans could not be even close to profitable).

This is not what is happening – on the contrary, this way to allocate revenues does not assign data the relevance it has for subscribers. As an unintended consequence, it may even make operators less aggressive in pursuing the mobile data services. I have presented my argument in a piece in FierceWireless, so let me move a step beyond.

If you buy my argument that data ARPUs are no longer relevant in a world where all traffic in a mobile networks is becoming data, then how do we allocate revenues? Total ARPU is still a useful tool to understand differences among markets, operators, or subscriber segments. But another direction that I have found more and more useful in understanding the intricacies of profitability and monetization, is to cast revenues – and revenues for specific services or technologies – in per-bit values, such as per-GB revenues. Wouldn’t you find it useful if operators started to publish such metrics? And, wouldn’t that fit nicely with the VNI, as you could then relate traffic to revenues?

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Not applicable

It is an interesting idea to publish a per-bit revenue for a specific service, but I do not believe it will be really significant.

For example, what will be the per-bit revenue of SMS service? and of MMS service? and what about the youtube (video streaming) service?

What inference could we do knowing these figures?

Instead, the Average Revenue per User, is still an interesting figures, while it is important to make the difference between users and sim cards, because of the multi-sim phenomenon.

Beginner

I am not at all suggesting that ARPUs are not useful - it is data ARPUs that I find problematic. And in fact it is the combination of ARPU and per-bit metrics that together can give a more throurough assessement of performance. For instance, in many developing countries ARPUs are very low, but so is data traffic. The per-bit metrics help to reconcile the difference (in many emerging countries the per-bit revenues are still lower, but when you look at the per-bit revenues the divergence is less sharp) - or understand where the difference comes from.

From the service perspective, I think that comparing per-bit revenues can be extremely useful (although it should not be the main factor) for pricing of services or even creating them. Operators use this information all the time. For services like SMS where the amount of bandwidth is very limited, per-bit costs are not too revealing. For video or audio streaming, or large downloads, it is quite important. For example, before you offer an unlimited Pandora service you may want to find out what is the expected cost and revenues compared to an unlimited Facebook service. To do so, you need to look at per-bit metrics that tell you what is the profitability of the services for the prices that the market will bear.

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