Telcos must face up to the reality of declining SMS revenues
Global expenditure on operator messaging services, including SMS and MMS, declined for the first time in 2013 following its peak in 2012. Both Strategy Analytics and Deloitte have released research on the changing nature of the messaging business.
The so-called OTT providers, like WhatsApp, Line Messenger and Tencent’s WeChat, are seeing their businesses flourish, as messaging fragments and becomes more associated with specific social media sites and applications, rather than being a distinct telephony feature linked to the network operators and service providers.
According to the latest Global Mobile Messaging Forecast from Strategy Analytics, operator revenue from messaging services fell by almost 4 per cent last year to just below $104bn. The firm predicts that the decline in messaging revenue will be more pronounced in regions with the greatest penetration of smartphones and data users, such as North America and Western Europe, where SMS and MMS expenditure will decline by 38 per cent and almost 28 per cent respectively.
Strategy Analytics believes the increasing popularity of OTT messaging will drive a 3 per cent fall in SMS volumes by 2017, and a corresponding 20 per cent fall in global operator messaging revenue by the end of the period.
“The fast rising popularity of smartphone messaging applications, both from smartphone vendors Blackberry and Apple, and independent messaging applications like WhatsApp, Line Messenger and WeChat, is significantly hurting both operator messaging volumes and revenue,” said Nitesh Patel, Director, wireless media strategies director at Strategy Analytics. “While SMS volumes remained flat in 2013, operator revenue from messaging declined by almost 4 per cent”
The telecoms practice at consultants Deloitte predicts that instant messaging services on mobile phones will carry 50 billion messages per day globally in 2014 – more than twice the number of messages sent by SMS. However, it believes that SMS will continue to generate significantly greater revenues than IM services until 2018.
“Despite the growth in instant messaging services, Deloitte expects text messages to generate more than £60 billion ($100 billion) globally,” said Ed Shedd, head of Deloitte's UK TMT practice. “This is about 50 times the total revenues from all instant messaging services.”
Deloitte believes that the incompatibility of various OTT messaging services will mean that there will always be a place for SMS, almost as a default cross-platform application. SMS should still generate significant margin for the mobile industry, and its importance should not be underestimated.
The mobile industry continues, for the most part, to be trying to compete with new messaging start-ups by creating the GSMA-backed Joyn – and in the process completely missing the point.
Strategy Analytics believes mobile operators must act on a number of fronts in order to mitigate the decline in messaging revenue, including bundling SMS into integrated price plans. David MacQueen, Director, Media & Apps added "
“While RCS/ RCS-e enables mobile operators both to evolve mobile messaging beyond SMS and MMS and keep operators relevant in mobile messaging, it will not offset the current decline in messaging revenue,” warned David MacQueen, director of media and apps at Strategy Analytics. “We forecast that by 2017 there will be just below 180 million users of RCS/ RCS-e based services. However, RCS/ RCS-e messaging will contribute little direct revenue for mobile operators.”
To offset lower consumer spend levels, MacQueen says that carriers should aim to tap opportunities such as mobile marketing, or increase innovation by opening up SMS platforms to businesses and the developer community.
Deloitte also supports the view that mobile operators should do more to encourage the use of the new third-party messaging services, rather than competing head on with them. For example, by opening up network and data assets via APIs , the developers of these new apps can integrate their services more closely with the mobile device, the SIM card and elements of the network. In so doing, operators will bolster the take-up and usage of mobile data.
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