Smartphone costs wipe out ARPU gains

Smartphones are driving up operator’s costs in mature markets, resulting in lower EBITDA despite the higher ARPU smartphone users generate, research firm Wireless Intelligence claims.
 
Using Canada as a marker for developed global markets, the firm found that EBITDA margins are being hit by higher operational expenses (OPEX) associated with the larger subsidies operators offer on high-end handsets. Those costs are pushing up the price carriers pay to acquire and retain subscribers, which has lessened the effect of higher ARPU from mobile data revenues.
 
Rogers Wireless, the market leader in Canada, told the firm that smartphone upgrade costs was the single biggest factor in a 5.2% increase in OPEX to C$3.8 billion (€2.7 billion) in 2010, while smartphone subsidies resulted in a 5% drop in EBITDA at number two player Bell Mobility to C$1.7 billion during the year.
 
Third-placed Telus Mobility saw its acquisition costs rise 3.9% to C$350 per subscriber, and overall retention costs increase 28% to C$170 million.
 
Senior analyst Joss Gillet points out that expenditure is now becoming a major issue for global carriers, as they seek to offset falling voice revenues with higher income from data. “Handset subsidies have always been an industry paradox, increasing smartphone penetration on one hand, but pressuring margins on the other,” he notes.
 
The bulk of gains generated by Canadian carriers in 2010 have been “wiped out by the impact of discounted handset pricing,” however the pain appears to be worthwhile, with smartphone customers typically signing up to longer contracts and generating “ARPU nearly twice that of voice-only consumers,” Gillet adds.
 
Despite the current problems, the situation should improve over time as more low-cost smartphones in the $150 (€104) to $200 price bracket come to market. Own-brand smartphones from carriers including TMN in Portugal and Turkcell in Turkey will also help cut costs, Gillet states.

Suggested Articles

Wireless operators can provide 5G services with spectrum bands both above and below 6 GHz—but that doesn't mean that all countries will let them.

Here are the stories we’re tracking today.

The 5G Mobile Network Architecture research project will implement two 5G use cases in real-world test beds.