Wireless carriers' revenue grab: How you're paying for the machines

Wireless carriers' revenue grab: How you're paying for the machines

Summary: Wireless carriers' never-ending effort to preserve ARPU (average revenue per user) may begin to hurt. Will there be a pushback as consumers and business have to offset less profitable M2M connections.

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The big wireless carriers are going gaga for new services, eliminating unlimited data plans and looking to boost revenue.

Why? It's the never-ending effort to preserve ARPU (average revenue per user) and grow it. The problem: Carriers are boosting their subscriber rolls with machine to machine wholesale connections, which make less than $2 per device, according to T-Mobile. M2M connections can kill ARPU, but ARPU will vary by carrier.

In T-Mobile's latest earnings report, the company said:

M2M customers, which have significantly lower ARPUs (averaging less than $2) than other contract customers, totaled 2.7 million at March 31, 2012.

Overall, carriers have to offset those tight M2M margins somewhere. Tag you're---consumer and business customers who will have to make the difference---it.

In other words, you will be squeezed to pay for those ARPU-destroying e-reader connections so wireless carriers will have something to excite Wall Street about. The most galling point is that AT&T and Verizon are seeing ARPU either stay at high levels or surge.

To wit:

  • Verizon CFO Fran Shammo this week basically said that unlimited data plans, which were grandfathered in for long-time customers, are history.
  • Verizon has also recently touted a home LTE service to compete with wired broadband.
  • AT&T this week touted an effort called Digital Life, which replaces wired alarm and home automation systems with wireless technology.
  • Every wireless carrier is looking to enable vertical applications in health care and other industries.

The common thread: Carriers are trying to shore up a metric---ARPU---that is likely to hit the wall at some point. Subscriber growth in the U.S. is largely saturated. New data plans will boost revenue, but only for a bit as customers offload to Wi-Fi and watch prices more.

Speaking at a recent Jefferies investment conference, Robert Vrij, executive vice president of the Americas at Alcatel-Lucent, said service providers are looking for new revenue streams such as home monitoring and advertising. "Carriers get it and are pursuing add-on services," said Vrij.

Vikash Varma, CEO of mobile broadband access company Stoke, wasn't so sure. Varma said that carriers can alienate customers by moving from flat fee to tiered services. "Carriers will take steps that alienate customers," explained Varma. "Humans react well when they understand the unit of measurement like minutes. What is a GB? It's a unit of measurement not well understood until you use your quote in two days. Carriers shoot themselves in the foot by introducing another message to extract more ARPU."

Topics: Mobility, Networking, Wi-Fi

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4 comments
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  • As consumers we have all the power

    The solution is simple: STOP USING THE DEVICES.

    When it's time to upgrade, go to a dumbphone
    When it's time to upgrade, don't and keep your phone and plan.
    Don't buy the connected device
    Reduce the # of devices on your account.

    If they see sales going down they will adjust as necessary. See the BoA Fiasco and the Verizon payment fiasco as an example of this working.
    itguy10
    • Absolutely

      Yes, by all means, stop using it. People who live in terror of being preyed upon by gigantic entities that invest billions of dollars in capital equipment (as though little entities should be investing billions of dollars) so they can move bits from one end of the world to the other at the speed of light should go back to using paper cups and strings. That'll show those gigantic entities. We're not prey, we're smart! We won't use the billions of dollars in capital equipment that moves bits around the world at the speed of light. Or at least, we won't use it if we have to pay for it! Yay us!
      Robert Hahn
      • What a bunch of ingrates we must be

        How dare mere consumers put their own interests ahead of those of their natural lords? Enlightened self-interest is for the wealthy, well-born, and able, not riffraff.
        John L. Ries
  • Not again...

    With the wife and 3 kids w/ smart phones,do I have to bend over for Verizon.......again? Already spend over $200/ mo. for cell service. I am getting ready to pull the plug. Verizon, you're pricing yourself out of the(my) market.
    dpricepac