You Cannot Manage What You do not Measure

The adage that we cannot manage what we cannot measure is fair enough. So is the adage that "you get what you inspect, not what you expect."

Different eras in the connectivity business tend to bring distinct concepts and terms to the fore, and the changes in terminology reflect new business issues as much as efforts to measure progress in meaningful ways or enhance perceived firm value. 

Prior to the 1980s, a public company’s value might more often be stated in terms of equity valuation. Two decades later, “enterprise value” was more common--and useful--for startups and potential acquisition targets. Enterprise value is equity value plus debt, and provides a snapshot fo the price to acquire a firm. 

In the 1980s, “revenue per line” still  made good sense for consumer accounts. Most lines were producing revenue and revenue per account was still simple: voice only, and one line per house. Simply, consumer “revenue per line” and “revenue per account” were virtually identical. 

None of that makes sense in any market where serious facilities-based competition exists. 

Twenty years later, that metric was not useful. There was a significant difference between deployed assets and take rates: an active line passing a location might, or might not, have a paying customer. So “revenue per line” and “revenue per account” were no longer comparable. 

After U.S. cable companies started selling broadband access and voice, while telcos sold video entertainment and broadband, matters were even more complicated. A single house might buy voice, video entertainment or broadband, in any combination. 

Revenue contribution per product, and profit margin per product were distinct. Also, the question of how to define revenue contribution from any single location became complicated. So the concept of “revenue generating unit” arose. A house buying two services represented two RGUs. 

That concept replaced the concept of counting “subscribers.” RGU is a measure of units sold; a subscriber is an account. 

Similar issues arose with the concept of average revenue per user, in the mobile business especially, when the majority of accounts served multiple users on the same account. Average revenue per account and ARPU diverged. 

In the business segment, as competitive local exchange carriers emerged, upstarts wanted some way to describe sales in ways that generated larger numbers, since sales were often largely T-1 data lines. So the concept of the “voice grade equivalent” arose, representing the virtual number of voice grade circuits sold, at 64 kbps each. So a single T-1 line represented 24 VGUs. 

Undersea networks and other long-haul transport networks use dark fiber and lit fiber as metrics. 

Now Telstra uses a metric called “transacting minimum monthly commitment” (TMMC). It applies to postpaid mobile accounts.  TMMC is regarded as a lead indicator of ARPU trends, since actual ARPU might vary based on roaming revenue, handset revenue and out-of-bundle revenue. 

TMMC might be considered a measure of service contract value. 

The point is that new metrics reflect changes in the core business. Deploying lines or capacity is different from sales of capacity. Accounts and units sold are different. Revenue for products varies, as does profit margin. Contract value provides insight in a way that total revenues might not. 

Nearly all changes in terminology reflect changes in business models.