ARPU Is A Flawed Metric

A recent report from the Shosteck group argues that ARPU – Average Revenue Per User – is a poor metric for the wireless industry to use. ARPU is the most used metric in the wireless industry, and CXOs strive to keep it high to please themselves and the street. In fact, many carriers are reluctant to offer pre-paid services, or services to “lower-value” customers because of fear it will lower their ARPU. Nextel CEO Tim Donahue has said that if their prepay youth venture, Boost Mobile, does not offer the same ARPU Nextel enjoys with its mainstream business, he will shelf Boost. Shosteck correctly argues that the industry is hurting itself by working on the wrong metric. High revenues are only one side of the profitability equation. It turns out costs are also an important factor. A low revenue customer that costs little to support can be more profitable than a high revenue customer who demands subsidies, discounts, monthly statements, and support. Shosteck proposes AMPU, Average Margin Per User, as a better metric. I agree, but that will be far more difficult to calculate, and is subject to accounting manipulation. ARPU will always remain a very important metric.

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