Research Notes

SAC and ARPU should be joined at the hip

For a long time, it’s been seen as acceptable for mobile operators to massively subsidize terminals in order to acquire new customers. These subsidies are typically offered without regard to the individual customer’s consumption patterns.
These massive subsidies have contributed to very high subscriber acquisition costs (SAC). This approach was understandable before mobile markets became saturated. However, in a saturated mobile market, where consumers are simply moving between operators, it’s vital that operators think of terminal subsidies in relation to a customer’s consumption pattern –or lifetime ARPU.
Mobile operators are finally beginning to admit this. Many have already shifted to a differentiated subsidy strategy, where the subsidy depends on the individual terminal model and subscription type. This is part of making sure that the expense of bringing a customer into the fold is adequately compensated for by the revenue the customer will generate for the operator over the long term.
We have explored and analysed the link between the cost of acquiring a customer and the ARPU the customer generates (SAC/ARPU) in our new report How to Succeed in the Second-Generation MVNO Market. The mobile operator’s EBITDA is also brought into the equation, helping to provide a clear picture of the impact of an operator’s subsidy strategy on its overall economic performance.
This kind of analysis reveals that those with the best performance in terms of profitability are also those mobile operators that have successfully adapted their strategies linking SAC to ARPU. It also shows that having high acquisition costs is not necessarily a bad thing – so long as the same customers give back more than the cost of getting them to sign up.
Our report shows that mobile operators with a SAC/ARPU ratio of around 1, also boast an impressive EBITDA margin. These operators include Vodafone in Germany and Telcel in Mexico. However, operators who statistically are singular also exists. China Mobile has a relative high SAC/ARPU but manage keep their EBITDA margin high. These singular points do however not change the clear connection between SAC/ARPU and EBITDA. 

These and many more issues are analysed in How to Succeed in the Second-Generation MVNO Market, which assesses the key challenges mobile operators face today.

How to get success in the second Generation MVNO Market

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