MOCOM2020

In the telecom world, and increasingly in the Internet world, the average revenue per user (ARPU) is a key metric. A few weeks ago, a journalist contacted us: she wanted to compare the development of US and Chinese mobile markets. Notably, she was surprised by the fact that Chinese operators seemed to have a higher share of data ARPU than US carriers. She wondered if China could be said to be more advanced than US for mobile.

At first, it sounded alright: if mobile subscribers use more data, they are probably more sophisticated. Let’s see why it is not that simple, and that innovations might lie even in apparently less developed markets.

Let’s use an example with 4 existing mobile operators and consider a various sets of metrics. Three of those carriers are from Asia. Will you find who they are?

Let’s look at the columns one by one.

• • If we consider the first column, ranking would be 4-3-2-1, Telco 4 being the most advanced, as it has a larger data share of ARPU. Generally the idea of high data ARPU is associated with the usage of smartphones by business users, or entertainment like games and music.
• • From the second column, we see that in most cases, the data ARPU actually comes from SMS, surely not a advanced usage! And what could be the remaining 95% of Telco 3? It is likely its users are using services beyond SMS. Here, the ranking would be, from the most advanced: 3-2-1-4.
• • Looking at the last column, Telco 1 and 3 seem like very rich ones, while Telco 2 and especially Telco 4’s lives seem much harder. The corresponding ranking should be: 3-1-2-4.

Hence, the ARPU value and the share of SMS in data ARPU are what differentiate advanced and less advanced markets. Have you found who those companies were? Here is a tip: one if from China, one from Japan, one from United States and one from… the Philippines!

Aside from the metrics mentioned above, there are other factors to take into account when comparing companies, such as:

• (1) Price ratio between SMS and voice. For instance, if a minute of voice is the same price as an SMS, which would you use?
• (2) Profitability per user. A new metric we are happy to baptize “PPU”. Telcos in developing markets can turn a profit even from users bringing them just a few dollars a month! In our example, Telcos 2 and 4 might look like poor companies but in fact, their profit margins are even higher than for Telco 1.
• (3) Average handset cost – not the sales price, as it can be heavily subsidized – which is also an indicator of a market’s sophistication
• (4) GDP/capita is of course a strong influencer deciding how much money per user can be invested in the ecosystem
• (5) Total revenue of the operator is also an interesting indicator, as a tiny and very profitable company could be very advanced but eventually have little impact on a market compared to a much larger and less profitable one.

Companies operating in developing markets are very well positioned to come up with innovations for the “bottom of the pyramid”, while companies in richer markets tend to focus on the top and miss out on a lot of potential revenues. Chinese operators seem to try to offer both with 3G and their rural strategy.

Now, have you identified the four companies? Drop us a line to tell us who they are and you will receive an exclusive document about Japan, Korea and China’s mobile and Internet markets! Send your propositions to info [at] plus8star.com with the title “MOCOM2020”.