Are Telcos "Trapped" by Language or Operating Metrics?

Sebastian Barros, Circles managing director, might be quite right that average revenue per user and gross additions (new subscribers) no longer make sense. The “KPIs (key performance indicators) they still cling to are built for a world of selling minutes and megabytes, not for today’s digital ecosystems,” he argues.

One might agree with the sentiment, but the logic misses something important. It might be correct to argue that “consumers no longer just buy ‘minutes and megabytes,’” as Barros somewhat rightly notes. “They buy ecosystems: streaming, wallets, commerce, and cloud.” 

Perhaps more correctly, consumers use ecosystems, wallets, streaming, commerce, cloud, minutes and megabytes. What we actually buy from mobile and fixed network access providers is the use of their network resources so we can talk, text and use the internet. 

But “telcos” and “internet service providers” are not in businesses where metrics such as units shipped, book-to-bill ratio or monthly active users or advertising revenue per user make sense as operating indices that inform us about how the business is faring. 

Where ISPs sit in the value chain means they make their money selling internet access and some communication services. So ARPU, churn rates and net additions actually are the relevant operating metrics. 

Those metrics will not make sense for others in the value chain. But ARPU, gross adds, net adds and churn are very much the right numbers to track operating performance. 

Here’s the point: ARPU and gross adds do not “trap” ISPs in old ways of thinking. Those metrics are the right ones for the business they are in and where they are situated in the value chain. ARPU and gross adds might make no sense for other participants in the value chain. 

But just because “ARPU and gross adds make no sense for the business I am in” does not mean “they make no sense for the business ISPs are in.” 

Segment	Example Players	Key Operating Metrics	Typical Characteristics
Semiconductors / Chip Suppliers	Nvidia, Intel, AMD, Qualcomm, Broadcom	- Gross Margin (% of sales) - Fab Utilization Rate - R&D Intensity (% of revenue) - Average Selling Price (ASP) - Units Shipped	Capital-intensive; cyclical demand; high fixed costs; margins vary by product (leading-edge chips much higher).
Networking / Hardware Equipment	Cisco, Ericsson, Huawei, Arista	- Gross Margin - Book-to-Bill Ratio - Installed Base Growth - CapEx as % of Revenue - Service Revenues %	Dependent on telco/enterprise capex; recurring service revenues important; margin pressure from competition.
Access Providers (Telcos, ISPs)	AT&T, Verizon, Comcast, Deutsche Telekom	- ARPU (Average Revenue per User) - Churn Rate - Network CapEx (% of revenue) - EBITDA Margin - Subscriber Growth	Capital-intensive, slow growth, regulated; sticky customer base but high infrastructure costs; moderate margins.
Cloud / Hyperscalers	AWS, Microsoft Azure, Google Cloud	- Revenue Growth Rate - Gross Margin - Utilization of Datacenters - Customer Retention - Operating Income Margin	High scalability; strong growth; capex heavy but high-margin once scaled; sticky enterprise contracts.
Search Engines	Google, Bing, Baidu	- MAUs (Monthly Active Users) - ARPU (via advertising) - Ad Load (ads per page/search) - Click-through Rate - Operating Margin	Network effects; ad-driven monetization; extremely high margins; market concentration.
Social Media Platforms	Meta, TikTok, Snapchat, X (Twitter)	- DAUs / MAUs - ARPU (ad revenue per user) - Engagement Time per User - Ad Fill Rate - Operating Margin	Strong network effects; monetization via ads; margins high, but sensitive to user growth and ad demand.

It is quite true that “pipes and bundles are the only game in town,” as Barros notes. Unfortunately, most of those other businesses in the value chain are not the ones telcos and ISPs are in, for the most part. 

I find it is common in business for people to make a certain sort of mistake. They might argue something “cannot be done” because “my company, with its resources and business model, cannot do so.” That never means some other company, with different resources, cannot succeed in doing so.

Nor, in this case, do the prevailing operating metrics “trap” participants. Telcos and ISPs are access providers. It is their role in the value chain. If they were to substantially change roles, and move elsewhere in the value chain, of course the operating KPIs would change. 

But ISPs are not limited by their choice of metrics: they are “limited” by their chosen roles in the value chain.