There are a number of Canadian telecommunications industry observers who seem to have trouble with basic mathematics. One of the areas they frequently confuse is mixing up “ARPU” (average revenue per user) with “prices”. <\/p>\n
A number of financial analysts produce regular reports that have typically shown that Canadian wireless carriers enjoy some of the world’s highest ARPU, to which the knee jerk reaction is that this is evidence of Canadian prices being among the highest in the world. <\/p>\n
There are a number of problems with this. If subscribing to wireless services was a binary purchase decision (either I subscribe, or I don’t), then ARPU might be a reasonable proxy for price. <\/p>\n
But we don’t just subscribe to mobile. We choose a data plan, we choose certain feature options (long distance, US calling, unlimited text and messaging, roaming packages) and we choose whether we want a device subsidy bundled in. It is that mix of features that we add that leads to our monthly bill rising, resulting in aggregate to the carriers’ ARPU. Canadians and Americans are among the world’s biggest users of mobile data, so the data ARPUs will naturally be higher.<\/p>\n
Price may contribute toward ARPU, but if the price rises too high for an option, demand drops and the overall ARPU can fall. I spend more at a certain store each month, than I do at another, precisely because their prices are lower. The ARPU for the first store is higher, but ARPU in that case is be a very bad proxy for comparing relative prices at the stores. <\/p>\n
That explains why ARPU should not be used as a proxy for comparing prices. <\/p>\n
But there are also differences in the way carriers recognize revenues. In a recent investor note related to the Shaw-Freedom “$0 iPhone”, Jeff Fan at Scotiabank observed:<\/p>\n
Shaw\u2019s Freedom ARPU and subsidy accounting difference.<\/strong> Under Shaw’s accounting methodology, subsidies are not expensed initially (booked as receivables that are amortized against future revenue). This means EBITDA is higher and reported ARPU will be lower. <\/p><\/blockquote>\n
The major carriers have been reporting that there will be a transition to International Financial Reporting Standards (IFRS 15), resulting in a substantial change in reported service revenues. For example, from Rogers’ latest annual report, we read: <\/p>\n
We anticipate this will most significantly affect our Wireless arrangements that bundle equipment and service together into monthly service fees, which will result in an increase to equipment revenue recognized at contract inception and a decrease to service revenue recognized over the course of the contracts.
\n…
\nThe standard is effective for annual periods beginning on or after January 1, 2018.<\/p><\/blockquote>\nSimilar notes appear in the annual reports for Bell and TELUS. In the near future, we are about to see significant drops in the ARPU being reported by the major carriers, solely because of this accounting change.<\/p>\n
To what extent have accounting differences contributed to the general misunderstanding of Canadian ARPU rankings in global comparisons?<\/p>\n","protected":false},"excerpt":{"rendered":"
There are a number of Canadian telecommunications industry observers who seem to have trouble with basic mathematics. One of the areas they frequently confuse is mixing up “ARPU” (average revenue per user) with “prices”. A number of financial analysts produce regular reports that have typically shown that Canadian wireless carriers enjoy some of the world’s …<\/p>\n