How carriers can fight “the death of SMS”

The mobile industry is once again awash in stories about how the sky is falling for carriers’ text-messaging revenues: Wireless Intelligence claims “SMS is on the decline,” Dean Bubley expects “massive price erosion” for carrier text services this year, and Paul Wallbank celebrates “the death of the short message service.”

The cause of these premature autopsies is the rise of messaging within social networks and third-party offerings that incur data charges rather than the overpriced SMS packages most major carriers offer. As Tero Kuittinen recently documented in this solid Forbes piece, revenues have begun to decline in Spain, and SMS usage appears to be on the wane in Finland. But Informa Telecoms & Media predicts a bright near future for SMS, with worldwide revenues climbing from $114.9 billion this year to $135.6 billion in 2016. And there is no evidence that U.S. operators are seeing declines — at least not yet.

BlackBerry Messenger, Apple’s iMessage and others are sure to eat into U.S. SMS revenues eventually, but they all still lack the nearly universal interoperability that carriers enjoy. For instance, Apple’s iMessage can be used only by a mere 10 percent of the overall U.S. handset market. The key for American carriers, then, is to find ways to entice customers to continue using SMS rather than turning to alternative — and cheaper — services.

Enhanced services

SMS has suffered from a shameful lack of innovation, and it is still the text equivalent of a walkie-talkie: a back-and-forth conversation between two users consisting of simple, 160-character messages. Instead, carrier SMS apps should make it easy to create circles that enable users to send the same message to multiple others with just a few keystrokes rather than adding one user at a time. A coach, for instance, should be able to quickly inform the team if practice has been canceled because of rain. (Plenty of third-party services offer this functionality, and while some carriers support it, they make it difficult for consumers to use.)

Also, consumers should be charged the same price for international SMS as for domestic messages. AT&T, for instance, charges 25 cents per international message, regardless of whether the user has a package. And users on the same network should be able to see not only when their message was sent but also when it was received and read.

There are ways carriers can leverage their position as network operators to make SMS even more attractive than third-party services. Operators should work with carriers to integrate SMS with games and other apps. For example, they could send SMS weather alerts or notifications when adding another dimension to apps (where relevant) as they increase text activity. (Zynga tried and failed here with its Mafia Wars title, but better integration may have seen increased use of SMS.) And instead of dominating their branded services, they should find partners that can help spur SMS uptake and increase customer stickiness. For example, Google is partnering with Orange in Africa to extend the reach of its web-based services via the carrier’s SMS platform.

Lowering — not raising — prices

The two largest operators have myopically responded to the rise of third-party services by wringing every last cent out of their subscribers. AT&T eliminated its $10 tier for 1,000 text messages per month, forcing users to choose between a $20 unlimited package or an à la carte offering for 20 cents per message. Verizon Wireless followed suit by eliminating its cheapest SMS package, leaving consumers to choose among a $10 plan for 1,000 texts, a $20 unlimited plan or paying 20 cents per message.

But those moves could be costly in the long run. An iPhone owner, for instance, may find he uses iMessage enough that he can drop a text package and pay 20 cents each for the few messages that aren’t delivered through iOS. Reconsidering those lower-end packages and giving users more flexibility may keep them from straying. And with an average markup in the range of 4,000 percent, operators can clearly afford smaller margins.

Making the best of a losing battle

There is no question that the days of lucrative SMS revenues are numbered for operators. Facebook, Twitter, iMessage and countless others will slowly erode the cash cow that is SMS, and text messaging — like voice — will eventually become just another kind of data coming through the pipe. That change won’t occur for a few more years, because no one can match SMS’ universality. Operators who are innovative and take a longer-term view of the market will be able to maximize SMS revenues for at least the next three years, and those who do it well may find those businesses last far longer.

Question of the week

How else can network operators differentiate their SMS services from third-party offerings?
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Colin Gibbs

Colin Gibbs

Mobile Curator Gigaom Network

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27 Comments Subscribers to comment

  1. maybe they start by lowering the cost of shortcodes. Doubt it’ll happen. would really help if they did away with some of the stupid regulations put on by the carriers around shortcodes. Personally I cant wait till their gone but for now we need them.

  2. You raise a great point with the price of shortcodes, jbvick. But all indications are that carriers will continuously (and gradually) try to jack those prices up for short-term gains rather than lowering them. Which, sadly, is true to form.

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