NEW ANALYSIS: GSMA Intelligence reviews how multi-SIM offers and bundles dilute the relevance of ARPU.
Over the past decade, mobile operators have introduced an ever growing choice of services and offerings to consumers as technology continues to rapidly revolutionise consumption habits. However, some of the indicators traditionally used to evaluate market opportunity, operators’ performance and to inform policy making — such as average revenue per user (ARPU) — have yet to adapt to this rapidly changing environment.
ARPU = average revenue per SIM
Despite the acronym, ARPU is not representative of a user’s (ie an individual) average spending on mobile services since it is calculated based on connections (ie SIM cards), by dividing mobile revenue by the average number of SIM connections during the period.
This calculation is only valid in an environment where one SIM connection equals to one unique subscriber, as it was the case more than a decade ago when mobile networks were in their infancy. However, consumers actively use on average almost two SIM cards each globally which significantly distorts the calculation.
This phenomenon of multiple SIM per subscriber is taking place across both developed and developing regions, albeit being more prevalent in the latter as cost-conscious consumers tend to accumulate prepaid SIM cards to take advantage of the latest deals and promotions.
The negative impact of multi-SIM offers on ARPU
In most mature markets across both regions, consuming data services is becoming the norm along with the wider availability of multi-SIM offers that allow customers to consume their monthly voice and data allowances across multiple devices. These shared voice and data plans have been exacerbating the impact that the multi-SIM ownership phenomenon has on the relevance of existing indicators such as ARPU.
These tariffs originated from ‘digital pioneer’ markets in Asia (eg South Korea, Singapore, Hong Kong) and the US, and are slowly spreading to Europe and mature markets across most regions. For instance, in the US, Verizon Wireless’ ‘More Everything’ plan and AT&T Mobility’s ‘Mobile Share Value’ plan allow customers to use unlimited voice and text and shared data across up to 10 devices. These offers started becoming more widely available across the European Union last year (eg Telia in Sweden and EE in the UK) and will be more prevalent in the coming year as more contract customers upgrade their plans to include these options.
In September this year, Etisalat launched in Sri Lanka its multi-SIM offer that allows its contract customers to consume their mobile allowances across up to five devices by having up to five SIM cards on the same mobile phone number. The operator explains that the primary SIM can be used for voice, SMS and Data, and the data bundle of this primary SIM can be shared among the additional SIM cards. Similar offers are available in Nigeria with Etisalat’s ‘Easyblaze’ plan.
While multi-SIM offers are adding-value to mobile offerings and providing great benefits to consumers, they also negatively impact the relevance of traditional ARPU calculations. For instance, in Q2 2014, Sunrise (CVC) — the second largest operator in Switzerland in terms of connections — reported an annual decline in ARPU that it partly attributed to the impact of multi-SIM offers.
Sunrise explained that mobile ARPU decreased by 14.8% between Q2 2013 and Q2 2014 due to the impact of “secondary SIMs”, adding that “these additional (secondary) SIM cards have a different ARPU and usage profile” and that “the increasing shares of secondary SIM cards will impact ARPU per SIM cards negatively but increase the revenue from a customer.”
To illustrate this phenomenon, take a fictitious mobile operator that has one subscriber with a primary connection costing $60 per month, the operator’s ARPU is $60. However, when the subscriber goes on to add a secondary connection costing $20 per month, the operator’s ARPU actually reduces by 33% ($80 across 2 connections = $40).
ARPS = average revenue per unique subscriber
In essence, the constant ARPU declines that have been taking place around the globe over the past decade are reflecting trends at a SIM connection level rather than reflecting ‘real’ average consumer spending. Therefore, a new indicator such as average revenue per unique subscriber (ARPS) would help to more accurately evaluate mobile markets’ revenue potential, price competition or mobile operators’ performance.
For instance, in the US, traditional monthly ARPU based on SIM connections depicts a relatively slow growth since 2010 (increasing by $2.6 between Q4 2010 and Q4 2013 to $52), whereas monthly average revenue per unique subscriber has been increasing by $6.5 during the same period to $70.1.
Globally, monthly ARPS currently stands at $23, whereas ARPU based on connections stands at $12. We believe that the former is a more realistic and accurate measure of average consumer spending on mobile services that removes the negative effect of multiple SIM ownership.
Figure 1 (click to enlarge): ARPU vs ARPS, USA
Source: GSMA Intelligence
Interestingly, in the US, Verizon Wireless introduced a new metric that counters the effect of multiple SIM ownership. For its contract segment, the operator calculates the average revenue per account (ARPA) by dividing contract revenue by the number of accounts per month during the period. An account represents one or more connections/devices that share a single subscription.
ARPA stands at $159.73 for Verizon Wireless in Q2 2014, against $137.20 for smaller rival nTelos Wireless that also introduced the same calculation. In contrast, the average monthly ARPU (based on connections) reported by other operators in the country for their contract segments stands at $60.
Verizon Wireless mentioned last July that over half (55%) of its contract accounts were on its ‘More Everything’ plan in Q2 2014 (from 36% a year ago) with 2.8 connections per account. Similarly, AT&T Mobility revealed last July that the number of Mobile Share accounts more than tripled to reach 14.6 million in Q2 2014, with an average of about three connections per account.
The downside of this new metric is that an account includes multiple SIMs and users and therefore deviates from the original intent of traditional ARPU calculation to measure the average spending of a unique customer.
Thinking ahead: from multi-SIM to convergence
The proliferation of bundled services is also negatively impacting the relevance of traditional ARPU calculations, making it more challenging for mobile operators to identify revenue generated by each product line (internet, fixed-line, TV and mobile) and reporting ARPU results representative of all mobile consumption.
For instance, in Spain, Movistar (Telefónica) measures the average monthly revenue generated by its Fusión customers which reached 3.4 million in Q2 2014, from 2.2 million a year ago. Fusión is a convergence tariff that combines multi-play services (mobile, fixed, internet, TV) under a single bill, with the possibility to include additional mobile phone lines to the package for a flat fee.
Movistar reported that monthly ARPU for its multi-play Fusión customers stood at €68.8 in Q2 2014, whereas contract ARPU (for mobile single-play packages only) stood at €20.8. Movistar explained that “The breakdown of revenue by business, as well as the ARPU, is becoming less relevant given the high penetration level of the convergent offer […] Mobile ARPU is becoming less representative as ‘Movistar Fusión’ penetration increases owing to the allocation of revenue between the fixed and mobile businesses.”
Therefore the wider availability of both multi-SIM offers and bundled services are likely to trigger a rethink of mobile ARPU calculation.
All of the aforementioned changes to ARPU definitions and calculations are key considerations that require great attention from mobile operators to ensure that their business performances are accurately evaluated in the context of their current business and forward-looking market trends.