Executive Summary
|
Pricing mobile (continued)
For mobile operators, a critical indicator is average revenue per user (ARPU). For most of them, ARPU is declining over time. This is partly the result of price-cutting in competitive markets, but it also reflects an expansion in the user base; newer subscribers tend to be lower-spending than longer established ones. The decline in ARPU is partially offset by declining costs per
subscriber. Economies of scale are a significant element. As the total number of subscribers increases, the marginal operating cost per subscriber of functions such as transmission, switching, acquisition of cell sites and billing, will fall. On the other
hand, the costs of acquiring and retaining customers tends to rise, due to increased advertising expenditures and use of customer loyalty schemes.
Other cost elements, which have tended to rise over time, are non-operational costs. These include items such as licence payments, spectrum fees and taxes. As governments have realized the revenue-earning potential of mobile communications, they have tended to increase the financial burdens on the sector, especially in the form of licence fees. These are inevitably passed on to the consumer.
Probably the most significant cost that a mobile operator faces are interconnection fees. In markets where the fixed-line network is well-established, the majority of calls to mobiles will originate on the fixed-line network and, equally, the majority of calls from mobiles will go to the fixed-line network. Thus the interconnect arrangements between mobile and fixed-line can make or
break the business plan of a new mobile operator. They also determine the degree of mark-up passed on to consumers.
For the moment, the price of ownership and usage of mobilephones is considerably higher than for the fixed-line network. But looking ahead, it is likely that the gap will narrow over time:
- At present, a high percentage of calls originating on mobile networks terminate on fixed-line networks. As the user base of
mobile subscribers grows, a higher percentage of calls will remain on the mobile network, thereby obviating the need for an interconnect payment.
- Most mobile operators are relatively recent in origin, and their digital networks are generally less than five years old and still
growing rapidly. Consequently, the investment has not yet been amortized. Over time, as the market matures, the capital requirements for mobile operators should be reduced and their asset base will grow. This should also serve to reduce their cost base.
At present, in a buoyant market, mobile operators do not have to try too hard to gain new customers. As the level of penetration increases, and market saturation approaches, price-cutting should become more prevalent. |
The interconnect arrangements between mobile and fixed-line can make or break the business plan of a new mobile operator |