Indian Telecom- ARPU – Misunderstood Benchmarks and Growth Potential?

Telecom tariffs are going down and people are directly linking it to the future of ARPU. The ARPU (Average Revenue Per User) is falling every quarter and people are expecting it to fall further. The general theory prevailing is that as a result the revenues of the telecom operators will fall.

Although the first point is valid that the ARPU will fall but not the revenue.

Lets take a look at,  What is ARPU? How is it calculated?

ARPU is calculated on total number of active SIMs and not on total number of active users. The total number of active SIMs will never fall as prepaid users opt for lifetime validity plans which do not expire( though, some operators suspend the SIMs after 6 months of non-usage). These are a value for money plan for prepaid customers as they would never need to pay for validity. Also the telecom operators are pushing life time validity SIMs as they would be able to show lager user base to attract more users and investors as well. Even when the user has shifted to a new location his previous numbers(SIMs) are still accounted as an active user. Even if you have broken and thrown your old SIMs they still continue to be in the records.

Mobiles in India are the Unique Identifiers
Mobiles in India are the Unique Identifiers

College students and low income users for whom a permanent number does not make much of a difference are in continuous search of value deals and end up taking attractive entry level plans hence adding to the cumulative userbase. The user does not spend more but owns more numbers hence adding to the denominator for ARPU calculation but not in numerator.  This point is mainly related to misunderstanding of stats or using the wrong stats as a benchmark. The current ARPU is actually Average Revenue Per SIM.

The second point is mostly associated with the bottom of the pyramid theory. The falling tariffs will only push usage further. The rural India and urban poor does have an active SIM card but that is mostly to receive calls from their employers or just to send a missed call. When the tariff lowers further, for which there is still scope, these people will spend more as they would get bigger bang for their buck. Overall the total MoU(Minutes of Use) will rise.

The telecom revolution that we saw in 2003 after free incoming was introduced was for us, the middle income urban crowd. We had a mobile phone but we used it very cautiously, for incoming and outgoing, until then. This time it will be for a larger audience who form majority of the population of India. They have a mobile phone but use it cautiously, for outgoing, until now!

The Indian telecom growth potential is far from over.

What’s your opinion? Do you agree/disagree with the logic?

[Naman is a startup enthusiast and has worked with couple of Indian startups as Product Manager. He is the founder of FindYogi]

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