Telecom Industry: Supply & Value Chain
The telecommunications industry has a complex set of suppliers, including vendors for equipment, infrastructure, and service providers. Many service providers own their own transmission networks and infrastructure but there are many who might lease from other players. What is the revenue metric for telecom and who are the major stakeholders in this industry? Read to find out!
Telecom Industry - Supply Chain:
The telecommunications industry has a complex set of suppliers, including vendors for equipment, infrastructure, and service providers. Many service providers own their own transmission networks and infrastructure but there are many who might lease from other players. Business and household telecommunication services make up the largest source of revenue for the industry, followed by sales of products, equipment, and infrastructure services.
Telecom Industry - Revenue Metric:
The telecommunications industry uses a key revenue metric, average revenue per user, or average revenue per unit (also known as ARPU) to keep track of the revenue generated by a typical subscriber or device in a given time frame. To calculate the ARPU, a standard time period must be defined. Most telecommunications carriers operate by the month. The total revenue generated by all units (paying subscribers or communications devices) during that period is determined. Then that figure is divided by the number of units. Because the number of units can vary from day to day, the average number of units must be calculated or estimated for a given month to obtain the most accurate possible ARPU figure for that month.
Also related is ARPPU (Average Revenue Per Paying User) which is calculated by dividing up the revenue amongst the users who paid anything at all. This yields a figure that is significantly larger than ARPU. For example in the case of a subscription game (that has a free play version), the ARPPU, measured by accounts, is the subscription price, diluted slightly by free trials. ARPU is widely used by Internet Protocol television (IPTV) service providers.
ARPU can be a good indicator of how effectively the network is exploiting its revenue-generating potential but a high ARPU does not guarantee high profitability. ARPU does not take the cost of providing the services into account. Because of this, some service providers are relying more on key revenue metric, the average (profit) margin per user or AMPU, which does take the cost of providing services to a user or device into account.
Telecom Industry - Cost Model:
The telecommunications industry requires heavy capital investments to create wired, wireless, or broadband infrastructure and networks. It is a capital-intensive business with high fixed costs and lower variable or incremental costs. Customers pay for a share of the fixed costs apart from the variable costs in their fees. Companies in the industry are continuously looking for new customers so they can distribute these fixed costs among many payers. This helps companies remain competitive under price pressures and profitable in a fiercely competitive market.
Telecommunications Industry Value Chain:
The telecommunications industry is made up of a complex set of suppliers, service providers, regulators, and customers. The key stakeholders in the telecommunication value chain include
- Telecommunication product and equipment manufacturers
- Telecommunication service providers
- Customers
- Regulators
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