In 5G Era, ARPU Will be Highly Variable

It is an almost-inescapable conclusion that 5G will lead to a tug of war between higher and lower overall average revenue per user metrics for mobile service providers. On one hand, ARPU for the latest mobile generation tends to be higher than for each older generation. So it is not unreasonable to argue that 5G ARPU will be higher than 4G, higher again in relation to 3G and 2G.

On the other hand, to the extent that much 5G revenue growth will come from new use cases, ARPU per account could vary by an order of magnitude from current “phone account” levels. Today, ARPU is driven primarily by phone accounts.

But 5G is going to add a number of other revenue sources, with highly-disparate ARPU implications. Internet of Things sensors might each generate less than $1 a month in connection revenue.

Fixed wireless services will generate ARPU more in line with fixed internet access services, an order of magnitude higher than IoT devices, and perhaps double what a phone connection might generate each month.

So we are entering an era where various use cases generate as much as two orders of magnitude more ARPU variance. So ARPU will start to have less relevance. Think of whether ARPU makes sense when looking at grocery store sales.

We have been moving in this direction for decades, it is worth noting. Retail service providers no longer track “lines” as such, but rather “units sold.” The net result is a revenue per service and revenue per account metric that matters more than “revenue per line.”

The other important development is that retailers now sell a mix of services with different profit margin contribution, video entertainment now providing maybe 15 percent to 20 percent margins, while internet access can generate 40 percent margins. Voice margins likely are someplace in between.

Many of the newer services (home security, advertising, internet of things, connected car, streaming) are not yet big enough or, in some cases, mature enough to produce predictable margins.

The larger point is that ARPU will now become something that hinges on sales volume and operating costs for a variety of discrete products, each with distinct margin and gross revenue profiles.