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As traditional connectivity revenues continue to stagnate, telco CFOs and executives are under increasing pressure to find new avenues for growth.
Diversified ARPU offers a powerful metric to measure and drive financial performance beyond core connectivity services. By expanding revenue streams into areas like digital content, IoT, and financial services, telcos can not only offset declining traditional revenues but also capture new value in the rapidly evolving digital landscape.
For telcos, diversified ARPU is more than just a metric—it’s a strategic lever that reflects how well a company is monetizing its full range of offerings. This focus on both core and non-core revenues provides insights into the effectiveness of monetization strategies, pricing power, and customer engagement.
In a market where success increasingly depends on innovation and differentiation, tracking diversified ARPU can guide telcos in making data-driven decisions that enhance both customer satisfaction and financial outcomes.
Our industry has seen little connectivity revenue growth, especially in regions like the US and EU, where mergers and acquisitions are heavily regulated.1 CSPs that are diversifying their revenue streams are the ones showing signs of revenue growth.2
5G monetization still has potential but is only just beginning to ramp up. TMForum3 back in September 2023 mentioned that 5G was still underperforming during that period. They noted that many telcos migrated users from 4G to 5G without raising costs as users were initially unconvinced of 5G’s benefits over 4G.
In the future, 5G use-cases like improved slicing, IoT capabilities, and multi-access edge computing can help to bring in more revenue but this will still take time to materialize.4
In the meantime, diversifying non-core revenue streams has been a reliable source of revenue growth for CSPs, as GSMA,5 TMForum,6 and McKinsey acknowledged.7 In 2022, GSMA Intelligence published a report on CSP revenue trends.8 They acknowledged that Telcos that diversified their revenue sources indeed saw revenue growth. GSMA’s report noted:
With revenue diversification’s importance established, we can explore diversified average revenue per user (diversified ARPU) as a metric to measure a telco’s financial performance.
At Circles, we refer to diversified ARPU as tracking both core and non-core revenue generated per user.
Diversified ARPU considers all different revenue streams both connectivity-related and otherwise including earnings from digital content, IoT services, and other value-added services.
ARPU itself monitors how well our current monetization strategies are working. Year-on-year growth in ARPU can indicate the following:9
While there is promise in expanding to B2B markets, this is limited to large telcos that have already made moves into B2B expansion and is also largely experimental for everyone else.
Smartphones are the hub of modern life, and telcos can take advantage of this by engaging in smartphone-based lifestyle activities.
Here’s a list of core and non-core sources of telco revenue:
Not everyone will use all these different services, so it's key to select the right consumer segments for your telco.
“1 in 5 Newly Acquired Telecom Customers are Value-destroyers”12
These customers have a high cost to serve, a high cost of acquisition, and a high churn rate leading to a negative lifetime value. These are the sorts of customers that we risk onboarding if we focus too much on volume-based thinking.13
To maximize diversified ARPU, it is key to increase our share of high-value customer segments and ensure that our non-core service offerings match their needs.
We recently conducted market research into two thousand mobile phone users aged between 16 and 65 in our home markets and identified 4 consumer segments:
Digital Vanguards and Savvy Selectors represent those who want more out of their digital lives. They tend to be the first to adopt new digital trends while being more discerning and demanding of what telcos can offer.
They are more likely to use various OTT services and content while using apps for different lifestyle activities, such as fitness and mindfulness, adopt smart home apps, and use finance-related apps on their mobile devices.
All these provide direction regarding which service offerings and bundles telcos can focus on next when targeting these customer profiles. Telcos can focus on adjusting their offerings and infrastructure to capture value from these habits. Turkcell has a superapp that includes Paycell, a payments platform in Turkey. SK Telecom’s 11Street is a massive e-commerce player in South Korea.
In short, monitoring diversified ARPU can be a way of seeing how well a telco understands and serves its customer segments.
The longer people stay loyal to us, the longer their customer lifetime value.
With mobile users switching services becoming easier these days, telcos need to get creative to keep customers loyal. As telco providers ourselves, we’ve been experimenting with various approaches.
We don’t need to maintain customer service and value only within the services customers pay for but also in the rewards we give to loyal customers. If you’re traveling with our Jetpac plan, why not get lounge access to go with it? Using food delivery? Why not get more coupons and discounts as a reward for staying with us?
Focusing on diversified ARPU can help to shake us out of myopically focusing on only customer acquisition and focus on the quality of their experience to extend their average lifetime with us.
Focusing on the right segment and their needs was the basis of our plan for onic, a Pakistan-based digital mobile operator brand we manage with our Abu Dhabi-based regional partner e&.
Our partnership’s goal is to use Circles’ model as a base for international digital mobile operator brand expansion. Together with e&, we selected Pakistan due to its customers’ cellular-first outlook and fast-growing market.
We knew that being disruptive and digital-first would serve this South Asian market well. In a market where the largest two incumbents make up nearly 70 percent, we knew we had to focus on an underserved segment instead.
To reach them, Circles and e& focus on brand building, variable plan pricing, a loyalty program, and a digital-first customer experience. For a greater experience, onic features partnerships in terms of food delivery (FoodPanda), eCommerce (Golootlo), and ride-hailing (Careem). You can check these out here.
More ideas are in the works, and we’re continuing to build our platform and offerings to provide greater customer experiences. You can check out more details on our partnership with onic here.
Diversified ARPU can help telcos track how well they serve their market, from matching the right services to their needs to customer satisfaction and loyalty that can extend average customer lifetimes and, hence, customer lifetime values.
Are you curious about telco economics? Don’t miss our upcoming articles, where we’ll explore the impact of Loyalty, NPS, and the crucial OPEX and CAPEX factors in telco digital transformation!
Stay tuned!
Justin Choi
CFO at Circles
Author Bio:
Justin Choi is the CFO at Circles, driving innovative strategies that propel growth and transformation in the telecom industry.
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