To measure and better understand the scope of commoditization within the mobile industry, we developed a commoditization score based on a combination of two independent variables at both the national and regional levels:
- Average revenue per user (ARPU) spread: The difference between the ARPUs of the market’s major players. A declining difference between the highest and lowest ARPU indicates that operators are losing the ability to differentiate among their products and services, and are thus engaging in a pricing “race to the bottom.”
- Market-share spread: The difference between the market shares of the largest and smallest players in the market. The smaller the spread, the more commoditized the market, as the pricing war leads to even greater interchangeability among providers, and thus less inclination on the part of consumers to change providers.
Depending on their score on these two measures, we have placed each country and region we studied into one of four commoditization zones.
- Zone 1: Comfortable. In this zone, there is a greater than 50 percent spread in market share and ARPU between highest and lowest market players indicating that commoditization is far off. However, this can change quickly if new competitors enter the picture or a competitor launches a particularly aggressive pricing strategy.
- Zone 2: Differentiated. There is a large spread in the ARPU between operators in this zone and no more than a 25 percent spread in market share. Several players in such markets have managed to maintain a range of pricing options, which they can maintain only because there is no dominant player in the market—and thus a wide market share spread.
- Zone 3: On the edge. Countries in this zone have no more than a 50 percent difference in market share and ARPU between highest and lowest. Operators in these countries have managed to maintain some differentiation in pricing, but decreasing differences in market share are pulling the market toward commoditization.
- Zone 4: Commoditized. Countries within this zone have less than 25 percent difference in market share between the highest and lowest players in the market and less than 25 percent difference in ARPU. Operators in these countries are fully in the grip of commoditization.
We have also assigned each country a Commoditization Index (CI) score—a single figure that provides an “at-a-glance” summary of where a country or region lies on the path from comfortable to commoditization. The CI score is an average of market share spread and ARPU spread, weighting both spread scores equally.
Although the CI score for a country or region is derived from the market-share spread and ARPU spread, the score provides a complementary perspective to a market’s commoditization zone—and can drive insights obscured by a country’s zone position. For example, a market that is in Zone 4 (‘Comfortable’) may be identified as more competitive overall or ‘On the edge’ by the CI score metric.