According to a recent report from the Shosteck Group, the wireless industry should begin looking at the average margin per user instead of the average revenue per user as a way to measure the success and profitability of wireless operators.
The report, “AMPU-Not ARPU: A Better Metric for the Wireless Industry,” questions the current fascination with ARPU, noting that the importance of the metric rests on two assumptions-“that margins for the lowest ARPU customers are inherently unprofitable and that new data services will lift ARPU, and with that, profitability.”
The Shosteck report claims those assumptions are flawed as low revenue per user does not “preclude a positive ARPU” as low-revenue users can still be profitable as long as ARPU exceeds average cost per user. In addition, the reliance on data services to raise ARPU could fall short as the cost to deliver data may exceed potential revenue.
Instead, the report noted a number of cost factors, including handset subsidies, infrastructure investment, network operating costs, and marketing and advertising costs, can affect the AMPU of a given service offering.
“An operator may increase traffic by subsidizing an expensive handset,” the report explains. “However, the incrementally greater traffic may not generate the revenue needed to recover the cost of that subsidy.”
