Wednesday, August 11, 2021

Does SKT See Higher 5G Revenue or Something Else?

It is not yet clear whether 5G average revenue per user or per account will be higher, the same or eventually lower than 4G services, as much as mobile operators hope for “higher” numbers. And even where 5G ARPU is higher, the reason might be a shift in buyer behavior about data plans more than a shift to 5G. 


The two trends might be correlated--more 5G and higher-cost data plans--but often 5G might be viewed as a feature that comes with the premium-priced plans. In other words, what customers want is big data usage allowances (even relatively unlimited usage), not necessarily “5G.”


So 5G impact on ARPU might not be easy to measure. 


SK Telecom revenue from mobility operations grew about three percent over the last year, according to the firm’s second quarter 2021 report. Mobility service revenue also grew one percent quarter over quarter. 


Some--including SKT itself--attribute those gains to 5G, as subscriptions more than doubled. But it is a complicated story. 


Mobility segment revenues are driven by multiple sources, including 2G, 3G, 4G, /5G and IoT connections. Service plans come in various usage allowances, for 5G and other networks. If customers upgrade to more-pricey plans, on 5G or any other network, ARPU can change. 


As in the U.S. market, if lots of 5G customers sign up for unlimited usage plans, which are the most-expensive, then ARPU tends to rise. But it never is easy to determine whether it is the “higher-cost data plans” or the 5G network features that explain the shift in behavior. Early 5G adopters use more data than 4G users, but all early adopters are atypical. 


source: Strategy Analytics


Mobility ARPU ought to be different on IoT, 2G, 3G, 4G and 5G networks, simply because customers tend to consume more data on faster networks, and will tend to buy bigger data usage plans on the faster networks. IoT also is a complication.  


IoT connections generally are priced an order of magnitude less than phone plans. So more IoT connections also will affect ARPU.


Nor are posted tariffs always so helpful. Customers can bundle mobility with other services, paying a discounted price for the bundle. That also changes ARPU. 


Average revenue per unit in the mobility segment--up one percent--also included 5G subscription growth of 130 percent. Right now, 5G accounts are about 32 percent of total phone subscriptions (excluding internet of things connections). 


In prior 2020 reports, SKT reported that data consumption is higher, which alone would boost ARPU if higher consumption is matched by choice of higher-cost service plans. That arguably also is true of 5G plans, so the ARPU increase 5G is said to provide might more accurately be described as a shift by consumers to higher-priced plans that support their higher data consumption. 


5G plans, no less than other plans, could see higher ARPU if customers upgrade to plans with bigger data allowances.  


Mobile revenue includes  activation fees, interconnection and other value-added service revenue but also excludes wholesale service revenue from mobile virtual network operators. The point is that any number of changes could have shifted revenue one percent quarter over quarter, or three percent over a year’s time.


Also, operating revenues in SKT’s other  lines of business grew significantly faster than mobility segment revenue, as has been the case in recent quarters. 


Verizon in the U.S. market does seem to see revenue lift in recent days, though not directly because of 5G. Instead, Verizon is driving revenue growth by switching customers from lower-priced metered usage plans to higher-priced unlimited usage plans. 


“We are monetizing the move to unlimited” usage plans, said Ronan Dunne, Verizon Wireless president. There are several angles here. First, the unlimited plan, which offers 5G access as a feature, costs more than the metered plans. 


By the end of the second quarter of 2021, about 69 percent of Verizon’s mobile account base was on unlimited plans, according to Matt Ellis, Verizon CFO. Nearly 27 percent of the account base bought premium unlimited plans, Ellis noted. 


Also, some 60 percent of new accounts sign up for the unlimited usage plan, according to reports.  


But there are other ways to enhance yields. The unlimited plans provide incentives for accounts to add additional devices.  “In an unlimited world, what we see is the propensity of people to add an additional connection, whether that be a smart device, whether that be a tablet is significantly higher,” says Dunne. 


In other words, unlimited plans drive device connection growth. 


The point is that 5G--in and of itself--does not necessarily have to drive higher average revenue per user. In Verizon’s case, the revenue gains come from shifting customers to higher-priced unlimited usage plans. In T-Mobile’s case the revenue gains come from adding new accounts and taking market share, not from any 5G price premium. 


The point is that 5G era mobile revenue, profit margins or revenue growth might well be higher, for a variety of other reasons than the cost of 5G access. 


No comments:

Post a Comment

Is Sora an "iPhone Moment?"

Sora is OpenAI’s new cutting-edge and possibly disruptive AI model that can generate realistic videos based on textual descriptions.  Perhap...