mHealth and ARPU

A calculation that I made to highlight the potential ARPU upside of a 3G Video Medical Call Centre for mobile operators has led to a certain amount of confusion with FierceMobileHealthcare’s Tammy Parker.

It’s unclear what the revenue-sharing deal between Avea and Acıbadem is, however, so Avea’s ARPU likely would not increase as much as calculated by the blog

I know it’s quite hard to imagine that USA operators are currently ignoring the potential Billion $ of business that a medical call centre solution (like the one set up by this innovative Turkish operator) could offer, but it’s a fact that if it’s money paid to the operator (eg. in this case the customer pays the charge along with their mobile bill to Avea) then it adds to the revenues generated. It is from these total revenues that the ARPU’s are calculated.

ARPU is a calculation that is completely unaffected by any “particular revenue sharing deal”.

For a bit more detailed explanation I posted a comment on the Fierce Mobile Healthcare article that explains how ARPU’s (Average revenue per user) are an approximation that are showing their age and have less meaning as mobile spend continues to expand to cover mobile payments, high bandwidth data services and ownership of 2 or more Phones/SIM’s.

You might find an example helps to make it clearer:

Let’s say we’re calculating the ARPU at a Japanese operator with 100,000 customers.

A new service is introduced that lets customers buy drinks out of vending machines on the street corner.

Let’s say the operator manages to shift a $1 million worth of bottled drinks per month to customers through these machines.

That’s an average monthly ARPU increase of $10 per customer.

Obviously in this case you can see this ARPU doesn’t take into account the investments in machinery, real estate, marketing, stock etc etc. that is needed to make the service work.

Profitability is of course only achievable by those who’ve done their homework and know their market. In relation to this finer point it’s worth noting that Avea haven’t tried to hatch this mHealth initiative on their own but have drawn in a leading private sector healthcare provider. I have heard noises that it’s going well… more soon!

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2 Responses to mHealth and ARPU

  1. james Smith says:

    Hi David

    You raise an interesting question here – what does the R in ARPU really measure?

    I see the difference in opinion here between you and Tammy as follows: you quite reasonably define revenue as the money collected from the user, while Tammy’s definition focuses on the true revenue collected by the provider, which excludes any explicit revenue sharing agreement.

    For example, take the premium SMS services used by charities to collect donations. The operator might charge the user £3 for the SMS, agreeing to pass £2.50 to the charity, taking 50p for itself.

    Would the accountants at the operator count £3 of revenue, or 50p? I suspect it’s not consistent from one player to another.

    Ultimately the argument and semantics surrounding the ARPU metric’s definition eclipse the real issue – operators should care about profit per customer, not revenue per user.

  2. Hi James,

    Thanks for your comment,

    The fact is ARPU is measured by totalling the operators revenues and dividing this by the total “users”. You can’t argue with this. Likewise you can’t argue that ALL revenue an operator charges is automatically in the ARPU. This is the definition of the metric.

    It has been proven that ARPU and profit have no direct correlation. More so it’s highly likely that many of the highest spending monthly subscribers may not even be profitable!

    My use of mobile operator services is a good example of this. I might pay £30 a month but for that I get a subsidize phone as a part of my contract and every month I use as much as 10GB of international roaming data, place thousands of international roaming minutes on Skype (voice and video calls), send hundreds of SMS etc etc and I recieve no incoming calls or texts (as I use another Number/SIM to receive) so this operator doesn’t even get interconnect revenues from me. £30 a month might seem a lot but I guarantee you it’s not profitable.

    If you want to talk APPU (Average Profit Per User) or SSS (Same Subscriber Sales) which I personally find even more interesting and useful you’ll find that the Avea Hello Doctor service looks much more favorable than the vast majority of the VAS’s I’ve seen being hyped the world over by 3G mobile operators.

    Check back on my blog soon as I’ll be posting an entry that contains a detailed comparison showing exactly how much more profitable this is compared to other VAS’s. The potential for ARPU growth should keep you interested in the meantime!

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