Source: Reuters
Text-messaging has long been a big-time profit generator for US mobile operators, but they now risk losing these profits as consumers find cheaper ways to communicate.
SMS ‒ short message service ‒ is no longer all the rage, but it still generates an estimated 12 per cent of service revenue for US operators.
Now, with many consumers turning to low-cost alternatives such as iMessenger, BlackBerry Messenger and Facebook’s mobile messaging service, operators including Verizon Wireless, AT&T Inc and Sprint Nextel risk losing a steady, superbly profitable source of income.
Customers using the new crop of messaging services must still pay for mobile internet access, but the cost per message is much smaller than a monthly SMS service plan or per text charges, particularly as US carriers charge both the recipient and sender.
US operators still carry a lot of text messages on their networks, but they are seeing warning signs ahead.
“I do expect SMS to be under attack,” Verizon Chief Executive Lowell McAdam told the audience at an investor conference in December, noting that some European carriers have already seen texting alternatives hurt their financials.
In particular, Dutch operator KPN blamed the messaging services of social networks such as Facebook and Twitter for a dramatic drop in text messaging revenue in 2011.
In South Korea, one alternative service, Kakaotalk, now handles 30 billion messages a month, eating into traditional texting traffic at the country’s three mobile network carriers including SK Telecom.
“Every major wireless operator is seeing some substitution for text messaging,” said Mark Lowenstein, the head of wireless consulting firm Mobile Ecosystem.
Craig Moffett, an analyst for Sanford Bernstein, said carriers have a huge cause for concern as he described text messaging as “the most profitable service known to man.”
At current rates, SMS brings in US$1,000 for every megabyte of data transmitted compared with the US$0.02 to US$0.13 per megabyte generated by a typical wireless internet data plan, according to Moffett.
AT&T and Verizon Wireless have moved to stem a texting revenue decline by eliminating cheaper options for smaller buckets of texts. AT&T eliminated a US$10 a month plan for 1,000 texts in August and now offers only a US$20 unlimited plan or pay-as-you-go texts for US$0.20 each.
Verizon Wireless followed suit in November by dropping a US$5 a month plan for 250 texts. It offers a US$10-plan for 1,000 texts a year on top of its US$20 unlimited plan.
The push towards higher service fees may end up backfiring and hastening a move to alternatives, as consumers have become particularly vocal in their rejection of fee increases. Verizon Wireless ended up abandoning a new US$2 payment fee recently after a consumer uproar.
One saving grace for operators could be the fact that alternative texting services are so fragmented. For example, only BlackBerry users can send or receive BBM messages.
The same goes for iMessenger, a messaging service that is exclusive to users of Apple Inc’s iPhone. Unlike BBM, which requires users to open a separate app, iMessenger is integrated into the iPhone’s texting message.
This means that a text to a non-iPhone user is automatically sent via the traditional channel, but a text to an iPhone user will go via iMessenger and circumvent the carrier fee.
While services such as Facebook and Twitter work on all smartphones, many consumers may keep paying for traditional text messages if they want to continue to text with people who have a different phone or service.
