On declining ARPU

Since ICT is the connectivity backbone of a modern economy, this space has been keeping track of development in the telecom sector during Covid-19. The recently released annual report by the sector’s watchdog, the Pakistan Telecommunications Authority (PTA) has some good insights on the cellular sector’s key operating indicator – average revenue per user (ARPU) – during FY20, the year of tumult.

Collectively, the four mobile network operators (MNOs) – Jazz, Telenor, Zong and Ufone – had an ARPU of Rs213.9 per month during FY20, as per the PTA report. However, this level is 10 percent lower than the monthly ARPU in FY19; it is even 2 percent lower than the ARPU in FY18. Alarmingly, this indicator has continued to decline in real terms, after accounting for inflation incidence in recent years.

The declining ARPU in FY20, after a couple of years of nominal growth, sets back the cellular sector topline a few years. In a telecom market where organic growth in subscriptions is hard to come by and where pricing of data services is rather competitive, this subdued measure of financial health does not reassure wary foreign sponsors of MNOs.

During the year under review, ARPU took the heat on several counts. First, the MNOs suffered a loss of revenue after the apex court annulled in 2019 summer the 10 percent “service fee” that operators used to charge on pre-paid recharge. Second, there was pressure on pricing - also due to poor economic conditions pre-Covid. And third, MNOs had to consider downward price revisions once Covid-19 struck.

This price pressure, coupled with on-boarding of additional subscribers in pre-Covid quarters and limited opportunities to get on board more subscribers during Covid-related shutdowns last summer, seem to have pulled ARPU down. Even ARPU for data (mobile broadband) services took an 8 percent dive in FY20 to Rs240.5 per month, despite a 77 percent growth in mobile data usage during the year.

However, this declining fortune is not equally shared among the operators, which could be a function of the relative scale individual MNOs have gathered over the years. The last-ranked market player, Ufone, for instance, saw the largest, 19 percent, decline in its overall ARPU during FY20. At Rs194.5 per month during last year, Ufone’s ARPU is at a multi-year low.

After showing strong growth in previous two years, Zong suffered a 14 percent decline in its monthly ARPU to Rs220.9 in FY20. Telenor Pakistan’s ARPU continued its decline, dropping 5 percent to Rs183.9 per month. In contrast, Jazz, the market leader, scored an ARPU of Rs239.7 per month in FY20, which was 9 percent lower year-on-year. Jazz is still the ARPU leader, but the tally has visibly come down.

Overall, as per the PTA report, MNOs collectively scored revenues of Rs424 billion in FY20, which was lower 5 percent year-on-year. Some of the weakness can be attributed to the pandemic quarter (Apr-Jun 2020), during which lower voice usage declined revenues and elevated data consumption did not expand the topline much. While FY20 was tough for all firms, it affected Zong and Ufone more than others.

The ongoing fiscal may turn out to be less disconcerting for operators. While the low-income nature of this market is not going to change overnight, ARPU is expected to slightly pick up as economic recovery gets underway. MNOs are hoping for an increase in consumer purchasing power, to make ICT usage patterns attractive. It also helps that MNOs are deeply involved in the digital financial services (DFS) segment, which has shown resilience during pandemic. The valuable DFS income source is poised to grow.