Carriers struggle to find ways to increase ARPU despite jump in minutes of use

Canada's wireless carriers are struggling to find ways to translate a significant jump in the average monthly minutes of use (MOU) into improved average revenue per user (ARPU). That is one of the key findings of a May 20 Yankee Group audio conference that compared Canadian operators to their counterparts south of border in terms of the key wireless measurement metrics, and that also highlighted the similarities between the Canadian and U.S. wireless industries. Despite an increase of about 50 minutes per month over the past three years, ARPU figures have remained relatively constant ranging between $47 and $52 in Canada, Mark Quigley, research director for Canadian Market Strategies at the Yankee Group, explained during the audio conference. He noted that Canadian carriers aren't alone in this battle. The big six wireless operators in the United States are suffering the same sort of dilemma, with MOU growing from 250 to 500 and ARPU remaining around $55 over the same period. One of the primary reasons carriers are finding it difficult to improve the ARPU picture is that per-minute prices are continuing to decline, particularly south of the border. The Yankee Group presentation highlighted the significant decline that has seen prices in some cases effectively cut in half. Cingular Wireless and Verizon Wireless, for example, had per-minute rates above 25 cents at the beginning of 2000. Three years later, at the end of 2002, per-minute rates for both wireless operators were just over 12 cents. "People are enticed to churn from carriers, people are enticed to come into the marketplace oftentimes entirely based on the price proposition. And the effective price per minute certainly gives indication that this is the case," Quigley said of the U.S. market. The Canadian market is remarkably similar to its U.S. neighbour, Quigley noted. "What we see in Canada is the same sort of trend bearing out. The slope of the curve is not so intense, but nonetheless we still find that the effective price per minute continues to decline, going from an average of about 25 cents at the beginning of 2000 to under 20 cents at the end of 2002 - a fairly significant decline in not a tremendously long period of time. "Price is going to continue to be used as a carrot to get consumers to jump and to get consumers to come on line," Quigley proclaimed. "While we've seen tremendous increase in use, we have not seen the same increase on the average revenue per user side of the equation. Why? I think that speaks to the power of the bundle in the marketplace and the power that price still holds over consumers in the United States. And this is a trend that continues," Quigley explained. On the Canadian landscape, Quigley continued, "We haven't seen as tremendous an increase on the minutes of use side of the equation, (but) it's still been fairly significant and it is still not reflected in an increase in the average revenue per user. From a carrier perspective, this remains something that quite simply has to change going forward … that there is investigation in the marketplace as to how we achieve some lift going for ARPU…that more innovative ways to increase ARPU are going to have to occur." Canadian market maturing Quigley noted that the Canadian marketplace might be heading into a state of greater maturity. To illustrate his point, he compared the MOU at the end of 2002 for Canada with MOU at the beginning of 2000 for the U.S. Both levels were nearly identical, which could mean the Canadian market is becoming more mature. "I think we can start to look at things as a market that is beginning to enter into some sort of maturity and that we've gone beyond an early adopter phase and we're seeing a product that is seeing increasingly more utility in terms of usage, which translates into an increase in terms of minutes of use per subscriber," Quigley explained. Despite a future that will likely see higher monthly average minutes of use, the Canadian wireless industry will continue to struggle to raise ARPU and improve the bottom line. Quigley said wireless data services represent a potential opportunity and can help in two ways. First, wireless data helps provide a level of differentiation from the competition by telling consumers they should buy from one carrier as opposed to another, Quigley noted. "There will certainly be an element of price competition as carriers also start to begin to use price on the data side as well, but (wireless) data does provide another way to help differentiate by being able to offer services that the competition simply can't provide." Second, and more importantly, wireless data has the potential to substantially improve ARPU by adding additional layers of service to the marketplace. "It provides the carriers with the ability to add to the $47 in voice ARPU that we have today by adding in different layers of service whether it's SMS or MMS or new services that will appear," Quigley stated. Quigley also noted that the Canadian marketplace is going to benefit on the ARPU side from the near-simultaneous introduction of various types of wireless data services as well as the introduction of more feature-rich handsets and faster networks. "I think that's going to have an interesting effect in terms of pulling people towards data-centric types of solutions or data-centric types of products because the services that can be offered in the Canadian marketplace today are much richer than they were in Europe when SMS started off." For the time being, however, despite Canadian wireless operators' efforts to find ways to increase the percentage of wireless data revenue, they will have to continue to rely on voice services revenue. "From a voice perspective, price, price, price continues to win out. We've seen increases in the number of minutes of use per subscriber over the course of a month, but we haven't seen the average revenue per user pick up as a result. That is a direct result of severe price competition in the marketplace. It's the same in the Canadian marketplace as it is in the United States marketplace," Quigley stated in his presentation.

Carriers struggle to find ways to increase ARPU despite jump in minutes of use

News | 05/27/2003 4:00 am EDT

Unlock all the Canadian telecom, broadcasting and digital media news you need.

FREE TRIAL

SUBSCRIBE

Reuse & Permissions

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us