By Chris Ramirez, Area Vice President of Business Development, Orange County, CA
While the overall outlook for the Tier 1 wireless carriers continues to look positive, there is one stubborn statistic which hasn’t really budged for the past three years, the Average Revenue Per User (ARPU).
In fact, it’s been trending downward.
This trend impacts each carrier’s bottom line and weighs down future fiscal growth.
The root cause of this downward trending ARPU can be attributed (mainly) to the long-running price war between the Tier 1 wireless carrier players:
AT&T | Verizon Wireless | T-Mobile | Sprint
Large subscriber gaps that once defined the Tier 1 pecking order are being reduced by unconventional monthly phone plans that promise increased data allowances on the “most reliable” network in the U.S.
ARPU Wireless Stats
Let’s take a closer look at this:
T-Mobile’s John Legere said that while average revenue per account (ARPU) fell 3.7% in the third quarter, year over year, average billing per account (ABPA) is at an all-time high, up 11% year over year.
That’s a start, in my opinion, but the carrier still needs more customers handing over more money if it wants to continue rolling out new promotions.
What’s still unclear, and what could put a damper on T-Mobile’s subscriber growth in 2016, is if the carrier can continue the onslaught of Un-Carrier promotions for which it is known.
Analysts from Jefferies noted after the Q3 results that “it’s not time yet to worry about ARPU, but continued promotional activity should be watched closely.”
Closing in on the first quarter of 2016, it’ll be interesting to see if T-Mobile can cut back on expensive Un-Carrier promotions and still grow subscribers.
The ARPU Wireless Challenge
An incremental increase in net ‘adds’ does not equate to an incremental increase in CAPEX. In fact, more people using the network can result in performance issues which may ultimately cause an increase in dissatisfied customers and churn.
Carriers need to accommodate this net new add growth–without compromising or jeopardizing the commitment they’ve made to their existing customers and investors.
Message: In a world of declining ARPU, Net Income and profit margins don’t have to suffer.
In an environment where subscriber numbers stay flat (or are reduced), the carriers net income can actually increase if they optimize the way they support their aging networks. By doing so, the resulting increase in working capital will position them to take better advantage of emerging technologies that could ultimately solve the declining ARPU problem.
Worldwide Supply’s Solution
The key is to prioritize network spending in such a way as to maximize spending on emerging technologies with feature sets that provide greater customer benefit.
The eventuality of 5G, and its promise of up to 10 Gbps throughput to the device, opens up a whole new world for the carriers that most likely will involve tiered data pricing at rates much higher than the consumer is paying today. Additionally, its low latency properties, making 4K viewable content possible on the mobile device, may all contribute to higher ARPU for carriers in the not-so-distant future.
How Can Wireless Carriers Focus on the Future Without Forsaking the Past?
By avoiding pitfalls associated with maintaining their legacy network at emerging technology prices. By doing this, the carrier can properly allocate funds towards higher revenue generating technology.
Today, Tier 1 carriers spend big money maintaining their networks by purchasing maintenance contracts from their OEM partners. These contracts net the OEM 100’s of millions of dollars each year and are designed to “protect” the carrier’s capital investment.
The real value of this type of contract is peace-of-mind. As an OEM moves a product through its life cycle process, their support begins to wane and the cost of having them support the product becomes more expensive.
This is NOT by accident. The OEM uses this type of passive aggressive behavior as a means to get the carrier to move their network evolution at the speed of the OEM’s development pace.
The problem is, the carrier is unable to abandon their legacy network (either for legal or consumer agreement reasons). As a result, the carrier’s legacy network is held hostage.
A Superior Alternative to Living Under the Thumb of the Hardware OEM
High quality, niche telecommunications companies such as Worldwide Supply, who specializes in extending the life cycle of end user networks, have programs like NetGuard Maintenance which provides customers with:
- Maintenance level agreements without sacrificing the service level they expect
- A significant cost reduction when compared to the OEM
- In most cases, NetGuard saves the end user 50-75% OEM fees for less comprehensive services
To put it in perspective, if a carrier had a Cisco maintenance agreement that cost $10M/year, and they switch to NetGuard, they would be able to invest an additional $5M-$7.5M/year into advanced technologies that will ultimately boost their ARPU.
Using our tested and guaranteed pre-owned products and support services, Worldwide Supply can rapidly and effectively help wireless carriers to bridge this gap, stay well within budget and deliver what they promised to investors and end users.
To learn more about Worldwide Supply products and services, visit worldwidesupply.net or call us at 888.328.2266.