A

measure of the revenue generated per user or unit. Average revenue per user allows for the analysis of a company's revenue generation and growth at the per-unit level, which can help investors to identify which products are high or low revenue-generators.

Average revenue per user (ARPU) is a term used especially in the telecommunications industry to indicate how well a company is accessing its customers revenue potential.
ARPU is commonly calculated by dividing the aggregate amount of revenue by the total number of users who provide that revenue. Other measurements are tracked as well, including the revenue generated by new customers as compared with the revenue generated by existing customers and the revenue generated by new services as compared with the revenue generated by existing services. A company that tracks its average revenue per user will most likely want to know its profit potential in broad terms.

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. 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.

The average revenue per unit (ARPU) of both GSM and CDMA subscribers has been on a downtrend in the last few years. The ARPU of CDMA service providers have also declined from Rs 256 in the quarter-ended March 2006 to Rs 99 during the quarter-ended March 2009. The decline in the ARPU over the years could be largely attributed to the reduction in tariffs of local, NLD and ILD calls. The customer-oriented policy taking by the regulatory body and intense competition among the players have to a greater extent resulted in declining ARPU in the telecom industry. The ARPUs have also been affected by the increasing proportion of prepaid subscribers and increasing subscription from lower income population. Postpaid ARPU has been five times that of prepaid ARPU, which could be attributed to the declining importance of processing fee on recharge coupon/ voucher purchased by prepaid subscribers; the gap is lowest in Circle C (3.68 times) and highest in Circle A (5.59 times). During FY09 a total of 70.21 mn wireless subscribers were added in the Circle B and Circle C (which mostly comprise of the rural areas) as compared with 17.28 mn added in the metros. Moreover, given that the usage among the prepaid subscribers is relatively lower as compared with the postpaid subscriber, the ARPU for prepaid subscribers is less as

There are 15 telecom operators in the country today. In each circle there are around 9-10 operators competing for the same revenue pie which is not growing. Lower tariff and high introductory offers which the industry saw during 2009 resulted in multiple SIM ownership and reduced realization per minute of use. The new operators who entered the market during 2009 offered subscriptions at throw away prices loaded with free talk time. The incumbent operators are also forced to get into this tariff war and this converted the existing paying minutes to non paying minutes and slowed down the revenue growth of the sector. The revenue growth during the calendar year 2009 was just 12% as compared to 22% during the previous year 2008.

India will continue to be the fastest growing telecom market in the world in terms of total number of new subscriber additions. However the industrys focus has now shifted from customer market share (CMS) to revenue market share (RMS). This is because the multiplicity of SIM ownership has made the subscriber numbers meaningless to gauge the strength of the business. The dual sim is contributing to 30%-35% of the new additions. There is a huge disparity between the CMS and RMS as the higher CMS has not led to higher RMS for some of the operators. This is because of the huge inactive subscriber base and the low ARPU from the newly added subscribers. While the industry will continue to achieve the subscriber growth mile stones, reaching these subscribers profitably will be a major challenge. The operators need to work on new business models and radically change the products to improve the profitability.

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launch of 3G operations require huge funds for spectrum fee and also for network roll out. other challenges are rolling out new 3G value added services and ensuring availability of 3G handsets at affordable prices. The 3G roll out will pose major challenge to the non 3G operators. is a possibility some of these operators may lose their high end customers to the 3G operators.

The

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The urban market in India is highly saturated. Rural coverage will be the key to operators growth strategy. Rural tele-density is still under 25% with significant growth potential whereas the urban tele density has already crossed 100%. The government has set a target of 40% for rural teledensity by 2014. But the factors which are restricting rapid roll out in rural areas are the low ARPU customers and high cost of maintaining the network at these places. The challenge for the operators is to search for new cost effective ways to roll out network in rural areas by choosing appropriate technology and leverage on the use of available infrastructure to reduce cost and time of network roll out.

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Government has announced that Mobile number portability will be implemented on 1stNovember 2010. The industry is expecting a huge churn of subscribers from the weak operators to major operators who offer better services. There is an opportunity for the new operators who are looking forward to grab the high end subscribers from the established operators. This move is bound to be beneficial to the operators who offer congestion free network and excellent customer service.

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Government has not given the clearance for procuring equipments particularly from the Chinese manufacturers due to security reasons. This has impacted the network roll out in the country. As per DoT directive prior approval is required before procurement of any telecom equipment / software. This created a situation where the telecom operators have not been able to import network equipment since 3rd Dec 2009.

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recent success of 3G and BWA spectrum auction has encouraged the DoT to review the existing 2G spectrum allocation policy.
has suggested that the existing operators who have excess spectrum, need to pay for additional spectrum charges at the 3G rates. As this will result in huge payout for most of the established operators they have not agreed to this proposal.

It

The Home ministry has issued instructions to all the operators that they should ensure proper address and identity proof for all their subscribers particularly in the case of prepaid. In a recent survey conducted in Mumbai by the police it was reported that approximately 60% of the addresses of prepaid customers are incorrect. The Government feels that there is a major security threat as in many cases it is observed that the prepaid cards were procured by terrorists and criminals with fake name and address. To comply with the recent directive, the operators have been asked to carry out a re-verification of all their mobile subscribers incurring huge cost in this process.

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policy on MVNO is not yet announced by the government. Even though MVNO will provide additional revenue stream to the existing MNO, by buying the excess capacity, they pose a threat to the MNO if MVNOs end up grabbing high end customers from them.

Network operations are usually designed to address frequent disruptions caused by equipment failures. Sometimes the telecom companies do not address the catastrophe level incident like fire, earth quake etc. This is because in telecom, the network equipments are located across the country and at multi-occupancy premises which are shared with third parties. All of these factors have an impact on fire, security and health and safety issues which are required to be managed to ensure that there is no interruption to the service. The network roll out is a big challenge and time consuming and involve huge capital expenditure. The telecom industry is capital intensive as the industry needs to continuously adapt itself to the latest technology. The recent media reports on radiation from the mobile phone towers and the municipal permission issues is creating serious disturbance to the operations and services to the customers when the sites are sealed by the authorities or by court. The COAI and AUPSI are jointly addressing this issue.

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India the voice contributes to 80% of the total revenue and the balance 20% is contributed by data. In matured markets like Japan the data contributes to 50% of the revenue. As the voice calling rates are falling every day due to intensive competition, focusing on data revenue is the only option left with the telecom companies to maintain and grow revenue.

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prepaid services were terminated by DoT during September 2009 which was subsequently allowed in January 2010 on condition that all prepaid subscribers will be reverified by the operators. For new customers the guidelines have been further strengthened. Prepaid services in J&K and North East and Assam are renewed on yearly basis.

 TRAI

issued a directive on 27th April 2009 that all value added services like caller ring back tune etc can be offered to a customer only after receiving a confirmatory SMS from him. This order was modified later which allowed the subscription of VAS by pressing * and 9 on the handset thereby making double electronic confirmation.