By Tom Wheeler, Managing Director, Core Capital Partners

The decision to go to usage-based pricing for wireless data appears to have returned rational thought to mobile pricing. Now do we need to keep thinking anew and find a different way to keep score?

    In a mobile data world, why is ARPU relevant? The “U” in ARPU – users – has pretty much crested. With five billion “U’s” in the world and 285 million in the U.S. (out of a population of 310 million) the people saturation point has been reached for all practical purposes. The benchmark CTIA Wireless Industry Survey, it should be noted, measures “connections” rather than “subscribers” (since one subscriber can have multiple connections) and some carriers have even begun to break out non-traditional “connections” in their reporting.
 
    The nature of a wireless connection is changing in a manner that will challenge the concept of a “User” even further. Forecasters tell us there will be 50 billion (or more) wirelessly connected devices in the next few years. From machine-to-machine (M2M) communications, to health monitors that look like a big Band-Aid but transmit vital signs, to carpets that know and report if there is an intruder or if an older person keeps falling down. There will be so many wirelessly connected microprocessors that some have started calling it “digital dust.”

Is a Coke machine that calls home to report that it’s out of quarters a “User”? Looking toward a future of imbedded wireless connections numbering 10 times the number of current connections means we should also be looking toward a denominator other than “Users.”

    What about the numerator of the calculation? Revenue will always be a relevant metric, but in a data-driven world where optimal margin per bit is the goal, doesn’t margin measurement provide more insight than the blunt instrument of ARPU? Wouldn’t it make sense to begin to wean Wall Street off its subscriber and revenue growth fixation to reflect the new realities that come with variably priced wireless data networks?

    Let’s remember our history. In the industry’s early days carriers were measured on POPS, the number of people in their license areas. It was a measurement of potential at a time when there were few users and little revenue. When the industry started having significant numbers of real paying customers POPS fell by the wayside to be replaced by ARPU. But ARPU is a concept for a rate card-based telephone company, not a wireless bit aggregator for billions of pieces of digital dust talking to each other.

When ARPU was adopted the industry’s highest aspiration was to be like a wireline carrier in terms of “subscribers.” The concept of a “sub,” however, is becoming as antiquated as a “POP.”

The effect of variable data pricing will be to teach consumers how to use their mobile devices most efficiently. The effect of such data efficiency has already been felt in the developer community where it is pushing apps creators to have the best possible efficiency so as to not discourage usage of their product. Should efficiency not also be the opportunity for the industry to begin to explain to Wall Street how to properly measure a digital network?

Variable data pricing allows carriers to control costs by using price to control demand. The base charge provides a good return from serving the casual user, while tying charges to usage keeps the uber-user from breaking the bank. The success at accomplishing that goal is a more valid measurement of network performance than dividing revenue by users.

ARPU was a measure that was relevant in the quiet old days of telephony and minutes of use. The carrier challenge today is to price data so as to maximize revenue per megabit while simultaneously driving down the cost of delivering that megabit. Since those two variables of price and efficiency are today’s key performance indicators why not replace ARPU with something like Average Margin Per Megabit (AMPM – “amp-em”) or some other construct that reflects today’s realities?

    ARPU was the management metric for the early voice-based mobile business and should go the way of other transitional metrics such as POPS. It is a new data-driven day in the wireless business – let’s measure it.

Tom Wheeler, a Managing Director at Core Capital Partners, is the former president of the National Cable Television Association and Cellular Telecommunications & Internet Association. He writes the Mobile Musings column for TMCnet. To read more of Tom’s articles, please visit his columnist page at http://www.tmcnet.com/tmcnet/columnists/columnist.aspx?id=100106