SMS Revenues Threatened By Cheaper Alternatives

Most data revenue for most mobile operators is derived from SMS, in fact operators get an average of 20 percent of their revenue from text messaging, according to Niek Van Veen, an analyst at Forrester Research in London. “In 2010 about 2.3 trillion text messages will be sent worldwide, generating $72.5 billion for the operators, according to forecasts released last year by Gartner Dataquest. Most of that turns into profit, because the profit margin on text messaging hovers around 90 percent, more than double what operators get on voice services” reports the International Herald Tribune. So what happens when third parties set up a business offering cheaper SMS and bypassing the operators? So far nothing, but that could be because it hasn’t become significant enough for the operators to notice. The IHT cites Yahoo’s (NSDQ: YHOO) recent effort allowing people to send free SMS from its web mail, as well as a couple of Italian start-ups JackSMS and Skebby, which are “one-person start-ups run by Italian university students… that lets users in Italy send text messages for free from cellphone to cellphone when the phone sending the message is connected to the Internet”. The programs require people to have a mobile internet connection, and work because mobile internet data is a lot cheaper on a per megabyte basis than SMS…they require that both parties have the software installed, so it’s very similar to a chat application. Of course, the secret to SMS success is that anyone can send a message to anyone else, and that ubiquity will be hard to challenge. David Marrone, who created Skebby, doesn’t even talk about telcos blocking his application — simply lowering the price for SMS would put him out of business.

The operators are at less threat from big internet companies, according to the article, because they want to play nice. “We want to work with the operators and we are wary of models that disrupt their markets,” said Anthony Phillips, senior director of strategic alliances for online services at Microsoft (NSDQ: MSFT). “We realize the operator is going to be the most effective channel to get messages to the clients.”

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