ARPUs to be out of vogue in coming quarters

A few years ago, Bharti Airtel became the first global firm to debunk its dependence on ARPUs, stating that the metric did not correctly reflect the revenues of a telecom operator. Now, years later, the industry feels that the operator did the right thing and expects ARPUs to be out of vogue in the next few quarters.

ARPUs, or Average Revenues Per User, are used to gauge the average revenue received from a customer over a one-month period. Telecom and networking companies bank on ARPUs (got by dividing the total revenues by the total number of subscribers) as a measure of their financial strength.

Measures like Average Revenue Per Minute (ARPM) — a direct calculation based on the Minutes of Usage, or simply MoUs — is slated to replace ARPUs. Companies like Reliance Communications (RCom) and Idea Cellular are expected to follow in Airtel’s footsteps in the coming quarters.

According to Accenture Executive Partner (India Lead Communication, Media and High Tech) Kumar S Ranjan: “The ARPU numbers are misleading and it is not the right metric to measure the performance of a telecom operator. As the Indian industry moves from the present mode of acquisition of subscribers to retention, other measures will evolve. Globally, the dependence on ARPUs tends to be much less.”

Ernst & Young Partner (Risk Advisory Services) Manesh Patel said that ARPU consists of a lot of components, making it an “unrealistic measure”. In addition, while ARPUs are calculated by dividing the total revenues by the total number of subscribers, they are also arrived at by multiplying ARPMs with MoUs, and then adding Value-Added Services (VAS) revenue, even though VAS products and services defer from firm to firm. VAS would be the single-largest individual component and maximising of VAS would result in maximising of ARPUs.

“A better method to gauge a company’s revenues would be ARPMs, which is basically MoUs multiplied by cost,” Patel said.

There could be other reasons as well for ARPUs to fall out of favour.

Even though the country has a subscriber base of over 415 million mobile users (as of June 30, 2009) and an average net addition of 11 million per month, ARPUs are on a decline. ARPUs, which stood at around Rs 400 two years ago, have declined to Rs 209 for GSM and Rs 99 for CDMA operators. Moreover, post-paid ARPUs defer from that of pre-paid. Also, ARPUs grow with a user maturing, but these necessarily wouldn’t be revenues.

Idea Cellular Managing Director Sanjeev Aga said: “The telecom industry has a long gestation period and during the growth phase ARPUs were looked upon as a measure of growth and revenues. Now, with the industry reaching maturity, it’s time to discard ARPUs and look at more realistic measures, may be MoUs, EBITDA and net profit”. In the next couple of quarters, ARPUs would be just history.