Kindle may generate $2 ARPU, but is it really that bad?

The mobile operator industry, in its quest to tap new markets as the voice market saturates, is moving heavily into the machine-to-machine communications and embedded device space, but that move brings new financial realities.

To wit: During its first quarter earnings call, Sprint Nextel touted that sales of the Amazon Kindle ereader device drove the majority of its 394,000 wholesale additions. That's a strong number, except when you consider that the average [1]revenue per Kindle device is just $2 per month, Nielson estimates. A typical Sprint postpaid subscriber ARPU (average revenue per user) is about $56 per month.

Nielsen analyst Roger Entner predicts that because Kindle is included in Sprint's overall subscriber numbers, the carrier will see pressure on its ARPU numbers going forward. It's an issue operators will need to grapple with and perhaps educate the financial community about as they add significantly more embedded wireless devices such as smart-grid modules, ereaders and navigation devices.

I have a feeling Sprint, looking to bolster its numbers any way it can, was looking to show a stronger quarter of additions of any kind. Going forward, however, those numbers probably should be broken out. But $2 ARPU really isn't as bad as it sounds. Sprint didn't have to put any of its own marketing and sales muscle into the Kindle. Moreover, the Kindle really can be considered a passive device, meaning no one is clogging up the network downloading a massive amount of ebooks. The same will be true for most other connected devices. Bandwidth uptake will be minimal. As such, maybe the industry shouldn't be too alarmed, especially when the number of connected devices could easily number many million going forward.

Remember when Verizon CEO Ivan Seidenberg said connected devices could push penetration rates up to 500 percent and beyond [1]? "There will be no limit on the number of connections as part of the mobile grid," he said. "Everything has the potential to be connected to the web. Call it the 100 percent ceiling." Now that could generate some serious ARPU, er ARPM (average revenue per machine).--Lynnette [2]