‘ARPU Is An Effective Way Of Benchmarking Players’

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New Delhi: : In the telecom industry, there are numerous instances when one comes across the term average revenue per user (ARPU). In common parlance, it is simply total revenue divided by the total subscribers for a particular time period.

IDC India’s convergence and communications head V Shekhar Avasthy discusses with eFE the anomalies associated with ARPU, specifically with the three figures taken into consideration — revenue, subscribers and time period. Excerpts:

How important a role does ARPU play in the telecom industry?
ARPU plays a key role in an industry like telecom in particular and any service industry that has a mass base. ‘Average’ is the measure of central tendency of data and can only be taken when standard deviation is low. Thus, in most cases, wherein the service has too many users, the standard deviation usually reduces and ARPU becomes an effective tool. It helps not only in understanding how the industry as a whole is faring but also assists in benchmarking a particular player against others or industry average.

However, despite being a simple ratio, it is the most misused term the definition of which changes with changing context. In common parlance, it is calculated by dividing the total revenue by the total subscriber over a particular time period. It is while calculating these three terms, revenue, subscribers and time period, that one comes across many anomalies.

What are the anomalies associated with time period?
Whenever ARPU is mentioned, one should also mention whether it is the ARPU figure per month, quarter, half year or an year. Time frame should be clearly mentioned. In most cases, we make intuitive guess to figure out if the given ARPU is per month, quarter, or year.

Based on revenue calculations, what are the types of ARPUs that can be defined?
Across the globe, telecom companies use different ‘revenues’ to calculate ARPU. The revenue could be net or gross. There might have rental income that is included in gross revenue but has nothing to do with services revenue. According to common practice in the US, only that revenue, the service equivalent of which has been consumed by the customer should be accounted for. In many cases, organisations do not provide this clarity. They tend to quote a high or low numerator depending on what proves beneficial for them in any context. One could have ARPUs like gross ARPU, net ARPU, gross services ARPU, net services ARPU, among others.