Here are some useful metrics you can use to evaluate telecommunication companies!

Anthony Fernandes
/ Categories: Knowledge, Fundamental
Here are some useful metrics you can use to evaluate telecommunication companies!

These 3 metrics will help you understand the performance of telecom organizations.

Evaluating stocks requires specific knowledge about the company’s sector and industry. You need to know all the forces that impact companies in the same category. For example, factors that drive the profits in a shipping company are very different from those affecting a bank’s bottom line. 

Fortunately for retail investors, telecommunication companies make it easier relative to other industries as they report various performance metrics that are specific to their industry. Today, we will understand three fundamental metrics common to most companies in the telecommunication industry that you as an investor should be aware of. 

Average Revenue Per User (ARPU) 

The average revenue per user or ARPU is an important metric in the telecommunications industry as it illustrates the operational performance of the company. It is calculated by simply dividing the total revenue for the period by the average number of users during that period. 

This is a good indicator to measure marginal profit and cost on a unit level and reveals how well the company is utilizing its resources. The higher the average revenue per user, the better. Generally, telecommunications companies that offer bundled services enjoy higher ARPU. In the Indian telecommunication industry, ARPU averaged about Rs 96 during FY21, an estimated rise of 20.6 per cent on a yearly basis. 

Churn Rate 

The churn rate is a metric that measures the number of subscribers that leave and cancel their services with the company. The number is usually reported as a percentage on a quarterly or annual basis. Companies that are internet providers, cable and satellite TV providers, and telephone service providers, track their churn rate. For example, if two out of twenty subscribers of a wireless phone service cancel their subscriptions in a year, then the company would report an annual churn rate of 10 per cent. 

Obviously, a low churn rate is ideal. Companies that experience a high churn rate are under more pressure to generate revenue from other areas or gain new clients. 

Subscriber Growth 

For telecommunications to grow, it needs to grow its customer base and add new subscribers that will add to revenue growth. So subscriber growth is an extremely important metric to track. A steady growing subscriber rate indicates a competitive telecommunications company that is keeping up with technology trends, thereby keeping customers happy and attracting new customers. When reporting subscriber growth, telecommunications companies will often report what is called "net additions" and will break down this category by product line. 

Any upward movement in the share of 4G subscribers augurs well for a telecom company as this set of users are better-paying customers compared to 2G and 3G network users.

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