Is ARPU outdated? The wider impact of Billing in an open mobile environment

I have been thinking of this for some time .. The concept of ARPU may be out dated .. because ..

a) ARPU does not translate to the open mobile Web i.e. the new world of mobile data(see below)

b) It does not translate when one person has more than one SIMs

c) ARPU ignores the other models like advertising where revenue is tied to a service or a product and not a user

d) ARPU makes the telecoms industry think local whereas the Web is global.

e) ARPU mistakenly makes the telecoms industry think that it owns the customer

Recently, Vodafone CEO Arun Sarin said in the FT : The simple fact that we have the customer and billing relationship is a hugely powerful thing that nobody can take away from us

Many don’t take this position seriously – and the Register rightly says

Vodafone CEO sticks head in sand, goes ‘La la la’

At the heart of ARPU, lies the billing relationship – and that’s why the billing relationship is so sacrosanct

However, the billing relationship is changing – and with it – ARPU itself may become outdated.

This may have a knock on effect to both Telecoms and Media.

Nowhere is it apparent than with the iPhone.

Many focus on iPhone for its looks, user interface etc ..

But iPhone is just a phone .. iTunes is the real game changer ..

Verizon rightly spotted this threat when they claimed .. as they bypassed the iPhone deal ..

They(Apple) would have been stepping in between us and our customers to the point where we would have almost had to take a back seat … on hardware and service support,

How so?

Because consumers buying the iPhone need to have an iTunes Store account before they can activate the device

Once iTunes and not the Operator has the billing relationship, then all kinds of content can be sold from iTunes(and not the Operator) such as Widgets .. a trend I had indicated some time back. iTunes as a delivery mechanism for mobile widgets

Nor is the change confined to iTunes alone.

Independent of iTunes, Once the friction in buying from a phone is removed, then all kinds of content, goods and services can be purchased directly from ANY web site

Hence, the billing relationship is indeed significant but the ‘opening up’ of that relationship is a hugely disruptive step.

ultimately, ARPU denotes the value of a customer to the operator

The point however being, value will have more than one component for instance

a) subscription(conventional ARPU)

b) advertising and

c) services

So, ARPU may have to be complemented by AARPU(average advertising revenue per user). In addition, advertising alone is not enough. Once a use clicks on an advertisement, it leads to a service. At the moment, advertising and services are not tightly coupled – for instance – we click on an ad which is served up on a website and we end up at a service on a different web site. In other words, services(fulfilment) lead logically on from advertising and they may also be a component of the value the customer brings

What ties advertising and services together?


knowing Identity, advertisement and fulfilment can be tied together adding to the services component of the revenue.

Nor does this only affect the carriers. Media billing and rights relationships are also complex and arcane. While these relationships are global, they are actually composed of many local relationships and each are tied to geography.

This leads to issues like Place shifting

What happens when any content can be bought by anyone from any device merely by accessing an offportal web site and paying for it from the web site?

The technical pieces to make this happen already exist – but there is friction in the process – which hopefully will be smoothened out as we go along

Consequently, the billing relationship is under threat from both sides – from the Operator side (because in an open ecosystem there are multiple billing options and Operators think locally/nationally and not globally) and the content/media side(by factors like place shifting)

Thus, opening up the billing relationship could have profound implications for ARPU but also beyond

The game will then shift to a more complex dimension beyond what we see today. The closest parallel is Amazon who ‘own’ the customer because the customer wants to be owned by Amazon i.e. Amazon makes life easy for the customer and serve the customer. So does blyk – who also know their customer very well and are focussed on serving them

It will also shift to different relationships and licensing models – since existing licensing models are under threat and will evolve into something which we do not see currently

And the winner in all this is the customer!

With acknowledgements to Peter Cranstone of 5o9inc

The term AARPU was suggested by Werner egipsy souza


  1. Hi Naveed,
    great article, provided a lot of insight.
    What really clicked was the phrase “once the friction in buying from a phone is removed”
    After all, it has taken ages for B2C e-commerce to take off – largely because people would not entrust their credit card numbers to websites. People were hesitant to provide this information to a party they didn’t know, so they stuck with established service providers (telecoms, utilities), slowly extending to trusted brands (Amazon, iTunes).
    With mobile internet access, again, it will take time before customers are confident to do transactions. Having ONE trusted billing service will be most useful.
    So indeed, the billing relationship must be the MNO’s most valuable asset. I definitely would prefer all my (micro-)transactions consolidated in one monthly bill, for easy review. And I would like a central clearinghouse to make sure a provider I order from is indeed trustworthy.
    From this perspective, I understand Sarin’s statement, even if it fails to reflect the rapidly changing market. With Apple and Nokia establishing billing relationships AND moving into devices, I fully agree with you – this is a very serious threat to the MNO’s remaining assets.

  2. David Cross says:

    Nice post. With the current trend for network operaotrs to enter into more strategic relationships with network vendors (e.g. 3 and T-Mobile network sharing deal in the UK), and those network operators also now starting to offer flat-fee use of VoIP applications to their ‘premium pay-monthly’ customers, it would seem your comments about the ‘demise of ARPU as useful measure of operator value creation’ seem to be increasingly relevant.