Telco Dilemma Series: 1. the cost of unlimited & ARPU

As I mentioned in the preface post, SMS Text news has a post “US Carriers become dumb pipes”.

The debate on dumb pipes is obviously wider than that single post and is really around what the carriers should provide, i.e. just the bandwidth and nothing more. The question for the carriers though is how do they grow and how do they please their shareholders by only selling dumb pipes.

Bandwidth is almost an infinite resource and is constantly falling in price. So the problem is if the carrier creates an unlimited price structure, the only way to win and retain customers is to fight the competition by reducing the price. There’s no other service involved with which to differentiate, it’s unlimited bandwidth at $99 from X or unlimited at $95 from Y.

Reports already suggest that the ARPU is falling and that the uptake in data is expected to fill the gap. So we know that Carriers are pinning their future on the update of data packages both capped and unlimited.

So how much will an unlimited plan cost in Europe?

Unlimited bundles of both voice and data will cost what a carrier expects to make from a customer with all it’s added value services in place. The ARPU needs to be the same with the locked in poor services as without them. So without unlimited voice and data, a carrier will push it’s own music service, ring tones etc and expect a revenue of $99 per month from it’s customers as an example. So, In the dumb pipe world, the carrier has to get the same or more revenue per user, so will price the unlimited service at $99 ARPU target figure. The reason for $99 is that it’s not going to be able to up sell you any value add service so needs to get the revenue by offering you the unlimited service at the same ARPU target price, as all the market appears to want is a dumb pipe.

So what does that equate to in Europe, your guess is as good as mine. $99 is about £50 in the UK, I’m guess it’ll be more than that, for between £60 & £75 I’d expect to see an unlimited voice and data package hit the shelves here in the UK. That’s $120 to $150, so considerably more expensive than the US.

Is the ARPU model bad?

Maybe the ARPU model is the root of the problem for carriers then, Stephen Wellman also thinks so;

ARPU as a model has been a big reason wireless carriers have not embraced change. It’s the primary reason carriers love to trap their customers with long contracts and ARPU is the reason carriers have tried to control all aspects of the mobile market, from devices to content to the mobile Web. While carriers in Europe and Asia have been more flexible than their American counterparts, the end result of this model has been a market that has failed to really innovate.

I’ll discuss innovation in another post because I think is there area where future revenues have to come from. Stephen goes on to highlight how successful the iPhone has been and calls for the carriers to leave the devices and services to the people that actually understand them.

Conclusion

So the problem is still there; how do Carriers please the share holders, by only focusing on delivering a ‘dumb’ network? Moving to an unlimited pricing scheme doesn’t fix the problem. So maybe the ARPU model is the root of the problem after all.

One thought on “Telco Dilemma Series: 1. the cost of unlimited & ARPU

  1. Pingback: Iphone » Blog Archive » Telco Dilemma Series: 1. the cost of unlimited & ARPU

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s