IS ARPU A VALID PERFORMANCE METRIC?, ASKS GARTNER

Mergers, Acquisitions and Financial Results

When mobile operators were rolling out their mobile networks, it was fairly easy to measure how well they were doing. You simply looked at the size of its subscriber base, compared it with other operators, and, roughly speaking, you were able to work out the level of its performance.

But as mobile markets hit saturation point and subscriber acquisition slowed down, another metric came to the fore as a way of measuring performance - ARPU (average revenue per user). It wasn't the number of subscribers that was considered paramount but how much revenue you could squeeze out of individual customers.

Such has been the desire by operators across the world to increase ARPU and impress the financial markets, they have willingly reduced the size of their subscriber base by churning off 'inactive' users (usually prepaid) - this, of course, has the happy side effect of ramping up those average revenue per user figures. But despite its growing use by financial analysts, how valid is ARPU as a barometer of a mobile operator's health?

Nigel Deighton, vice president and research director for Gartner, a telecoms consultancy, believes there's a danger of attaching too much importance to it.

"ARPU has passed its sell by date as there's no real link between it and the margins of a mobile operator's business," he argues. "We need to get back-to-basics and look at raw profitability and ROI because they are far better indicators as to whether an operator is doing well or not."

Deighton rightly points out that an operator with a comparatively high ARPU might not have a successful business because it may only have a small amount of subscribers."And having a low ARPU doesn't necessarily mean that an operator is generating negative margins as it could have a large number of users," he says.

'We shouldn't write ARPU off'

Robert Grindle, a telecoms analyst at Dresdner Kleinwork Wasserstein, still believes, however, that we shouldn't write ARPU off as a way of measuring performance. For one thing, it can indicate how well an operator is doing with mobile data services.

"Any sign of revenue generation that's revealed through ARPU will be looked upon very positively (by analysts) because it indicates what users are prepared to spend on their mobile phones," he says.

Safaricom chief executive, Michael Joseph, argues that looking at ARPU margins gives you the best of both world's, letting you know how much users are spending as well as how much mobile operators are deriving profits off them.

The East African Standard