Additional Math Pages & Resources

Wednesday, October 28, 2009

ARPU is not good for you

What is ARPU? A new drug? A chemical used in coffee cups?  A virus?

No, ARPU means Average Revenue Per User (per month). It's how mobile / cell phone service providers count what they collect from you. Cable TV and other subscription service companies use the same type of calculation.

Can math help us understand our phone bills? Let's give it a shot.

ARPU = Total revenues from base plans, extra minutes, data charges, messenging charges, ring tones, etc. divided by AAU (Average Active Users = Users this month + Users last month divided by 2).

Companies also report Voice ARPU, Non-Voice ARPU, Data ARPU, etc.

Before we go on, there are a few considerations.
  • On a family plan, a user is each SIM card or phone ID, not the person who pays the bill
  • Average numbers are skewed to the low end, as you can't use less than 0 minutes a month, nor more than about 5000 minutes (many unlimited plans are limited to far fewer than the 44,000 minutes in a month)
  • ARPU excludes one-time activation or cancellation charges
  • What they keep differs from what you pay, as seen in the fine print: Our surcharges (Fed. Univ. Svc. of 10.2% of interstate & int'l telecom charges, 7¢ Regulatory & 70¢ Administrative charge per line per month) are not taxes; government taxes and our surcharges could add 4%–35% to your bill. Offers & coverage, varying by service, not available everywhere. 
OK, now to the real numbers. Here are some Voice ARPU numbers I have found (all statistics are per month in US dollars):
  • The average US user pays $63 while US ARPU is about $35-40 (these can't both be true)
  • Half of all users talk less than 200 minutes a month
  • AT&T 2008 non-iPhone ARPU was $52; the iPhone ARPU was $90+
  • Current European ARPU ranges from $22-50
  • The highest ARPU in the world is in Turmenistan, at $83, and lowest is Bangladesh at $3.30
  • Across the world, Voice ARPU is declining at about 2-5% per year
  • Virgin Mobile's prepaid phone card 2009 ARPU is $19
  • About 65% of the users in the world have pre-paid, no-contract phones
What about data?
  • A minute of 2-way voice generates the same revenue as a single, millisecond SMS message
  • An iPhone user pays twice as much as a voice-only user, but consumes 50 times the bandwidth
  • 2007 Data ARPU was about $9 in the US, $7 in Europe, and $4.25 in the rest of the world
Average levels of churn (switching carriers) range from 20-40% depending on the carrier. That's why at the beginning we saw the AAU calculation! The subscriber numbers fluctuate wildly every month.

If carriers reduce prices, improve features, and offer better incentives, they can reduce that expensive churn, but that also reduces ARPU. They're always looking for the right mix between making the most profit and making you so mad you switch!

PS - No, math can't help figure out your phone bill. It's intentionally impervious to investigation!

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