Let us not mince words. Like any business, even the telecom business is a profit-driven business. You need to be able to make enough money to cover your capital costs and also to reward your shareholders. An absolute focus on costs and revenues are a must. Hence, the big focus on ARPUs is absolutely essential. However, the focus on ARPUs is resulting in loss of millions of customers; mostly customers with low purchasing power and low revenue contribution. That is logical, but considering the unique positioning of telecom industry and considering its economics, it could be erroneous. After all, telecom industry by itself is based on the network effect; more the merrier! 

In a sense, the telecom industry, like the ecommerce industry, runs on what is popularly called the network effect. For any telecom company, it is not just the ARPUs, but the network effect also that matters a lot in the long run. Let us go back to how telecom grew in India. When there were few people using mobile services in the 1990s, it remained a high-end, yet peripheral, service. Telecom became a mass product after 2000 when the surge in demand for telecom was an outcome of more people joining the network. The real value for players in the telecom industry comes from the network effect. Ironically, the network effect can be very easily lost by companies. 

The sharp ARPU focus is losing out on the network effect. More than 30-35 million customers have been lost by the big telecom players, largely because they did not want to service them. When asked about the prospects of the telecom business, the legendary Dhirubhai Ambani had said that the price of telecom must be like a postcard. It may have been an exaggeration, but it did catch the crux of the matter. In any network effect driven business, the value of the network remains only as long as there are millions of active members on the network. That is how postal services and telegram services eventually lost out to mobile telephony. They misunderstood the network effect. 

Most investors believe that there is really no alternative to an ARPU focus. Once the ARPU focus goes away, companies will struggle financially. However, it is also critical to remember what forms the theme of the business. In telecom, the theme is about the network effect. Even with a focus on profits, it is essential that quality telecom services are made available to a large number of people at reasonable prices. It takes years to build the network effect, but just months to give it up. ARPUs are volatile, and the growth since 2020 looks big due to the sharp fall in ARPUs since 2015. Network effect is the real story; and Indian telecom players would do well not to lose it!