ARPU, The Revenues
In my previous article “ARPU, The Challenge,” I had introduced the Average Revenue Per User and its usage within my field of expertise, the mobile telecom industry. Although the definition and the calculation may sound rather straight forwards, I have been employed by companies who did not really understand the ARPU. It was rather used as a “fancy” indicator that everyone else in the industry uses. These may be considered isolated cases, their lack of understanding of the ARPU was mainly caused by their inability to define its components. They did not see the importance of this task due to limited competition in their markets.
ARPU can provide us with many details when calculated thoroughly. To understand its value, we need to define the components, Revenues and Users. The revenue sources vary from one company to another based on their policies, agreements, and the services they offer. Below are the general revenue drivers:
- Non-recurring revenues: Those are one time fees such as the connection fee. In the case of prepaid this is usually the revenue we collect when selling the SIM package. In some countries for postpaid (billed) subscribers, the deposit is considered non-refundable which makes it part of the non-recurring revenues. Based on each company policy, there may be other instances where single time fees are considered, these fees are included in non-recurring revenues.
- Recurring revenues: Those are revenues recovered when a customer uses a service. The charges may occur when the service is made available or upon its usage. Based on each company’s policy, the recurring revenues may include:
- Rental fees: These are usually monthly fees applied on some VAS (Value Added Services) such as CLIP (Calling Line Identification Presentation or what is known as Caller ID) CLIR (Calling Line Identification Restriction), VMS (Voice Messaging Service), VPN (Virtual Private Network) also known as CUG (Closed User Group) in some markets, etc.. The rental fees determination depends on the company policy as many may offer some services for free as part of a package.
- Usage Revenue:
- Voice calls: Outgoing within and outside the network, and Incoming revenue from interconnection are both part of the voice calls revenue. Although “bill and keep ” is still applicable in some markets, the overwhelming majority of operators apply an interconnection fee on the traffic exchanged between their networks whether nationally or internationally.
- Video Calls: Same rules as voice charges apply although usage of video calls over mobile phones using local networks is not as wide spread as voice calls usage.
- Data: SMS (Short Message Service also known as text messaging) and SMS related services, MMS (Multi Media Service), WAP (Wireless Application Protocol), GPRS (General Packet Radio Service), among other services
- Roaming revenue: Voice and data revenue that usually comes from roaming calls and roaming access charges.
In summary, these are the revenues included when calculating the ARPU. Although the calculation of an ARPU is by dividing the total revenues over the total number of subscribers for a defined period of time, some companies opt to include or seclude some of the figures for various reasons. This can result in over or under estimated ARPU and to terminologies such as gross ARPU, net ARPU, blended ARPU and others.