Changing Revenue Metrics Always Show Industry Evolution

Back in the middle 1990s, many U.S. service providers, especially competitive local exchange carriers, began reporting usage metrics in a different way. For most of its history, "phone lines" made sense as a key metric for telcos, just as "basic video" customers made sense for cable TV operators.


But as each of those businesses began to change, different metrics were needed. For CLECs, the perceived better metric was "voice grade equivalents," since much of the revenue came from private line revenue, typically to support delivery of Internet access and voice trunks. 


You might argue that such changes also were a way of trying to refocus investor and analyst attention, but there still was a logic to the practice, as "voice lines" were starting to become less important, as broadband access revenue become more important.


In a similar way, once cable operators started selling voice and broadband access, "basic video subscribers" became less meaningful as a key metric. Instead, "revenue generating units" became more significant, although, as always, there is an effort to redirect analyst and investor attention. 


Something like that is about to happen in the mobile business, as average revenue per user becomes less important for some providers, especially Verizon Wireless, which expects to see a big shift to "revenue per account," as it introduces family plans for mobile data, and as it moves into machine-to-machine applications, where average revenue per "user" (in this case telemetry devices) is modest. 


In fact, given enough volume, M2M sensor connections, which might represent only a couple of dollars a month of revenue, will distort all the other older average revenue per user metrics that have assumed a "user" was a person with a mobile account. 


During Verizon's first quarter 2012 conference call, CFO Fran Shammo said Verizon is not disclosing total connections because "M2M is more complicated." He said the main thing for investors to focus on is that the company's revenue is increasing and it is adding more customers. 


Shared data plans likewise will require different metrics, according to a transcript of the event. As voice, messaging and mobile broadband shift, for many users, to a "shared account" basis, it will be harder to compare "device" revenue in a meaningful way. 


On current family plans for voice and data, the first device might "cost" more than a hundred dollars a month, while each additional phone might cost only scores of dollars, while stand-alone mobile broadband dongles, or personal Wi-Fi hotspot services have different revenue metrics as well. 


Those changes in "how to measure" and "what to measure" always are signs that a business is changing.