Old Metrics in a New World – How ARPU Is Dead and Wireless Will Never Be the Same
How does the world of telecommunications come to a grinding halt?
Wall Street has figured out that ARPU (Average Revenue Per Unit) has started it's tragic decline worldwide because the world, with companies like ZTE, TCL, Hisense and others, has been able to flood the markets with $ 14.00 cell phones taking it from a small insular market space to every corner of the world.
Carriers who at one time relied on $ 60 per month plans are starting to see the slide to VOIP use such as Skype, and the invariable battle to gain customer share in offering plans that make sense at an all inclusive ten dollars per month for unlimited data use , voice and batteries. Companies like Cricket have found niche 'markets, taking risks on "under banked" consumers who companies have shunned. AT & T, Verizon, Vodacom, similar have all but forgotten how to be competitive.
More than obvious is the blatant attempt to extract revenue from firms in an effort to buoy the ever-decreasing power of ARPU, in tracking companies in the "Location Based Services" field. At one time firms were hung out to dry charging customers $ 100 per month to track a fleet vehicle because carriers were reliant to see the brighter side of the "Machine to Machine" revolution, which is inevitably on a crash trajectory course with carriers globally. For instance, if you consider that the average home uses more than one piece of electronic equipment in the developed world to cook food, or keep things clean, the number of electronic devices will always out number the population. Current estimates put the world at approximately six billion resulting in massive changes to our ecosystem, where as machines number in the 100's of billions. Why have carriers not yet realized the value of accepting the inevitable? Will not they run out customers what they can charge $ 60 a month to?
Recent events such as the introduction of the iPad from Apple have really driven adoption and keep carriers happy momentarily, as they see it as:
a) another way to add users,
b) a way to appease the boss who is driving for less "Churn" or,
c) customers quitting a carrier because they found a better deal.
The reality is, it's just another measure of how things will change. Who charges for Wi-Fi nowdays? Certain hotel chains (which names will be protected here) provide it free of charge to save face but realistically, who else does?
Guess what? M2M machines can work just fine without a cellular network and drive ARPU even lower.
So where does it end?
ARPU becomes ARPM (Average Revenue Per Machine), which is a new category where nothing is held to the same level as the once vivid wild ARPU. As the number of average users joining a cellular carrier drops, the addition of cash rich ARPM segments will continue to prosper. Actually, the category has been insidiously lingering and is the bane of all carriers today. Known as the "M2M" revolution, it exists in things like garbage cans installed in cities that tell you when they are full, electrical meters that immediately shut off when peak brown out seasons are about to happen, or even the parking meter we all used to walk away from that can now take your license plate number in order to prove the identity of the offender.
It's all here – right under our stiff upper lip that still is sore from sucking down the overpriced monthly rates that cellular carriers have been getting away with for years. Now however, there is a new kid in town and like an ARPM miss it will cripple the unsuspecting ARPU in its tracks. ARPM could even be seen as the next generation of pricing models, with companies pushing for zero dollars per month as a standard.
Where did your faithful ARPU go? Say it is not so? Think volume and not over-burdened consumers. The average "Joe" will always have a usage bill. But why does a paper machine, vending machine or gas meter need to be charged for voice calls when it simply reports monthly on how well it tackles problems? In college I used to call about once a month and only when in trouble.
Nothing has changed for machines, so why should they be penalized? With ARPM in town this will not happen, and plans that radically change worldwide ARPU's views on life are bound to happen.
The next level of pricing is coming Carrier, just make sure the "street" (Wall Street) is prepared to view how the cost structure and profit will differ. What if every machine generated just one penny a month? Would that be enough? Or how about if they only paid on an 'as needed' basis? Would someone pay $ 20 to locate the lost wallet that had a picture of mom in it? I bet they would.
More importantly, how good would it be if you only needed to turn on the cameras on a ski mountain if your child became lost and you had the location of his watch that happened to only need turning on when you really were worried?
The options are endless for creative thinking when devices cost next to nothing to make, and carriers adopt the new kid ARPM.
Some adoptions are harder than others.