Chapter 2: Foundation of the study
The convergence of the Internet, mobile communications, the media industries, content and e-commerce services could raise revenue and thereby safeguard the future profitability of mobile cellular operators, reducing their dependence on voice as a source of revenue.
This also has the potential for reducing access costs and bringing economic benefits to millions of poor people, mostly in remote areas, who are still economically excluded on the basis of their buying power.
The Need to Increase ARPU
An article titled “Chasing Arpus”, published in the Finance Week of 03 November 2004, states that behind the constant innovation and reshaping of cellular phone packages by network operators (apart from gaining market share) is the need to increase average revenue per user (ARPU), the standard measure for revenue from cellular network operation.
Until recently, the mobile communication industry has concentrated on voice communication. As mobile cellular penetration reaches saturation in many developed and developing markets, and since saturated market places and increasing competition from new entrants mean increasing pressure on operator ARPU, mobile operators must find new ways of driving revenue. However, many operators are finding it difficult to achieve significant ARPU growth in their core businesses of mobile voice, since it also seems to have reached saturation. They are now turning to mobile data services in particular high speed mobile broadband services in the search for new sources of revenue. In a context in which the market for mobile cellular phones is becoming saturated and price competition is intensifying, operators are turning to the emerging market of mobile data services, non-voice mobile services including instant messaging, Short message service (SMS), email and the mobile Internet & commerce as a way to differentiate their services from their competitors and to revive declining ARPU. However, despite its business potential, entrants into the
mobile broadband data services market have been confounded by a host of unexpected challenges, such as insufficient demand, competition from similar products and, most importantly, non-existent or weak business models (Kallio et al. 2006:1).
Mobile data applications and services are seen as the opportunity for operators to fight declining ARPU and increase overall revenues both from customers for new network service offerings, and from content providers for new marketing opportunities. As a result, operators are increasingly leveraging new 3G networks to offer broadband data services, such as MMS, Internet access, music downloads, music and video streaming, video calling and mobile commerce, in order to diversify revenues.
Unfortunately, many subscribers are unaware of these services because today’s technology and processes for enabling “premium content” sales are woefully outdated. Mobile operators still rely on broad-based marketing techniques, such as national advertising and bill inserts, to notify subscribers of new services. To achieve significant growth, operators must rethink their sales strategy (Biciau, 2006: 37).
Kramer and Paul go further by stating that mobile cellular phones are already being used in a variety of ways to deliver financial services. These services generally fall into three categories: mobile-purchasing (m-commerce), electronic money (e-money), and electronic banking (e-banking). The cellular phones are increasingly utilised as platforms for transacting business with financial institutions, and for accessing bank accounts, e.g. checking savings or loans. Balances in accounts can be accessed for a number of purposes. These include purely informational purposes, as well as making payments on bank loans, transferring money from one account to another, or for selective bill-paying.
What is ARPU
It has generally become globally accepted that the ARPU commonly used by regulators, observers and the communications industry to compare the performance of mobile communications markets has decreased significantly, but there does not seem to be consensus as to what factors influence ARPU, and how it should be calculated.
Operators and Industry analysts are traditionally highly focused on ARPU, due to the fact that typically the network operator has had huge infrastructure costs which need to be serviced by a considerable ARPU. A case in point is the huge fees that were initially paid in Europe for 3G licences, and the infrastructure cost associated with them. Many operators are hoping that the introduction of 3G broadband data services will arrest this decline in ARPU, but the limited number of 3G deployments has not yet had a positive impact on ARPU. This could change as new 3G networks come on line and uptake of services gains momentum (Wirelessasia, 2005, November: 12).
Some mobile operators have already made major investments in 3G network infrastructure and spectrum licences, in anticipation of substantial growth in non voice service revenues. However, they have had limited success in expanding non-voice revenue beyond that derived from basic text messaging (SMS), and hence data ARPU has remained relatively constant. In most cases, the small increases in data ARPU that have been achieved have not been sufficient to offset the substantial declines in voice ARPU.
ARPU is a key metric used by analysts to track mobile telecommunications firms and markets. Higher ARPU may be the result of higher prices, greater minutes of use, or a combination of the two. Some national regulatory authorities (NRAs) have argued that higher ARPU is the result of lack of effective competition (McCloughan and Lyons, 2006: 521).
Others have debated whether high ARPU is due to higher usage of mobile telephony services, or whether it is the result of market power an issue which has been a source of contention among regulators and mobile operators in other jurisdictions.
The economic model used by McCloughan and Lyons states that the level of ARPU in country i during quarter t (ARPUit) is a function of four vectors. ARPUit = g(Sit; Mit; Rit; Qit). Where:
• S contains service quality factors such as reputation, the extent of congestion and network coverage.
• M contains market environment factors such as population density, personal incomes, market maturity, industrial mix and geography. Determinants of competition, potentially including market concentration, would also fall under this heading.
• R contains regulatory factors such as the presence or absence of requirements for MNP, national roaming and wholesale network access services.
• Q describes the quantity of services provided by an operator. Depending upon the proxy used to describe prices this may include the number of users served, or characteristics of the bundles offered by operators, e.g. numbers of minutes of different types of calls, data services such as texts, etc. Wikipedia describes ARPU as the revenue generated by a customer phone,
pager etc., per month. In mobile telephony, ARPU includes not only the revenues billed to the customer each month for usage, but also the revenue generated from incoming calls, payable within the regulatory interconnection regime.
Most operators, including those in South Africa, calculate ARPU by dividing the total revenue by the number of subscribers i.e. they take the ongoing revenue, excluding connection revenue, plus the data revenue, plus incoming Interconnect revenue divided by the average subscribers.
Declining ARPU Globally
A 2005 TeleGeography study shows that even though global wireless subscriber numbers and revenues are increasing, operators are posting declining ARPU, with a 13% global decline in Q2 to $21.30. Eastern Europe was the biggest loser, with ARPU decreasing 27% or $3.60 year-on-year during the quarter. Only North American and western European operators managed to post fairly stable ARPU in Q2, but both registered drops of 2%.
Chapter: 1 Orientation
1.2 Purpose or Objective of this Research
1.3 Statement of the Problem of this Research
1.5 Delimitation of the Study
1.6 Importance of the Study
1.7 Outline of the Research Report
Chapter 2: Foundation of the study
2.2 The Need to Increase ARPU
2.3 What is ARPU
2.4 Declining ARPU Globally
Chapter 3: Literature Review
3.1 Technology Adoption
3.2 Involving Innovative Users in Service development
3.3 Data Warehousing and Mining
3.4 Communication channels
3.5 Meeting the Needs of Teenagers
3.6 The Lower Income Group
3.7 Operator Driven Business Models
3.8 Innovative Pricing
3.9 Communication strategies to support product launch
3.10 Integrated Billing Systems
3.11 Quality of Service
3.12 Summary of Strategies
3.13 Summary of Best Practice Recommendations
Chapter 4: Research Methodology
Chapter 5: Research results
5.1 Sample Description
Chapter 6: Discussion, Conclusions and Recommendations
6.1 The Profile of Respondents
6.2 The Demand and Awareness of Mobile Data Services
6.3 The Reliability, Affordability and Ease of Use of Services
6.4 The partnership between Network Operators and WASPs
7 List of References
GET THE COMPLETE PROJECT
To investigate how Mobile Cellular Network Operators can increase the average revenue per user by stimulating the usage of broadband services.