The increasing popularity of installment plans is resulting in lower ARPU
Until last year, U.S. telecom providers enjoyed an increase in average revenue per user (or ARPU), which signifies user monetization rates. The reason was simple. The penetration of smartphones and tablets has increased, which means users tend to use more data for Internet surfing, downloading apps, or simply watching videos. This helped drive up the ARPU metric. But after the advent of installment plans, this trend reversed.
Market Realist covered this trend for both Verizon (VZ) and AT&T (T) in our articles titled Why Verizon’s average revenue per account remained stable and Why AT&T expects its average revenue per user to increase, respectively. We discussed how increasing adoption of installment programs would lower ARPU. Since those customers bear the cost of their smartphones, their monthly pricing is lower than the customers who get a subsidized smartphone under a two-year contract.
Sprint’s ARPU could continue to decline
T-Mobile’s (TMUS) Jump and Sprint’s (S) Easy Pay program are similar examples of installment plans. For Sprint, the ARPU metric has declined from $64.20 in 2Q13 to $62.07 in 2Q14, as the chart above shows. But, when we include the equipment billings for comparability purposes, this metric has declined by only 1% year-over-year. The main reason for this decline in Sprint’s case was the higher tablet mix. Tablets tend to carry lower ARPUs compared to smartphones, as smartphones include voice-related charges as well.
But the ARPU for Sprint could continue to decline at a faster rate, as Sprint introduced its Family Share Pack plan. This plan gives customers double the high-speed data at a lower price than AT&T and Verizon. In the previous part of this series, we saw that Sprint is undercutting its prices for unlimited plans and that it also introduced a cheaper plan specifically for Apple’s (AAPL) iPhone 6.
Although these initiatives could help Sprint gain subscribers, they will result in lower ARPU.