Friday, June 23, 2017

ARPU Will be an Issue for 5G

One way fixed network operators have had an advantage over mobile operators is the ability to create differentiated offers for internet access. It is common to find fixed network internet service providers offering a range of speeds, and a range of prices.

You might well wonder why mobile operators have not done so. Technology constraints are the issue.

That regime has not developed in the mobile market (for reasons related directly to the way radios are used in mobile, compared to fixed network customer premises equipment.

Fixed network modems are “nailed up” to specific locations and accounts. That means different offers can be created and supplied.

Use of mobile radio resources always is temporary. Radio resources are allocated and then released on a routine basis, over a period of minutes or maybe hours, with lots of contention for ports. So it simply is inefficient or impossible to offer dedicated speeds.

There are other differences. Retail pricing in the fixed networks business often is by "speed." Higher speed tiers cost more. Retail pricing in the mobile business is by "consumption." Retail pricing is based on actual or expected usage (Gigabytes used). 

To some extent, fixed network ISPs have been able to justify investment in "faster speed" in a couple of ways. Taking market share is probably the biggest reason for doing so. But consumers, over time, also have shown willingness to spend more, to get faster speeds. 

In the mobile business, the upside has largely been in terms of consumption or overages. Speed has not proven a dependable, long term method of gaining and holding market share. Coverage, and the consistency of coverage, arguably is more important, in that regard. 

So the issue is whether mobile internet incremental revenue has grown, in direct proportion to incremental cost. That might be debatable.

By some estimates, revenue is developed nation markets has been remarkably flat, in recent years, despite mobile data revenue growth. The reason is that voice and messaging revenues have fallen almost as fast as mobile data revenues have grown.

The point: ubiquitous gigabit speeds might not boost average revenue per account as much as you think.

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