Texting Revenues Hit By Web Services

22 Feb, 2012

Telecom operators lost almost $14bn in revenues in 2011 from a decline in text messaging owing to the rise in use of social messaging services provided free over the internet on smartphones, research has shown.

Ovum, the independent technology analyst, said that the $13.9bn loss represented nearly 9 per cent of total messaging revenues in 2011, and came on the back of an $8.7bn loss of SMS revenues in 2010.

The growth of smartphone applications such as WhatsApp and Viber, and messenger services on handsets from BlackBerry and Apple, have eroded the use of text messaging in many countries. Operators such as KPN of the Netherlands have already blamed the fall in text revenues for a drop in profits as customers move to free web-based services.

This has mostly affected countries that still charge for each message rather than bundle them into a broader tariff package.

Ovum warned that operators need to revise such "legacy services" to secure their future position in the messaging market. Neha Dharia, consumer analyst at Ovum, said: "Social messaging has disrupted traditional services, and operators' revenues in this area will come under increasing pressure."

The findings by Ovum were supported by research on Tuesday by Informa, the consultancy, which found that the increase in smartphone penetration will cause voice and messaging revenue loss of 3.9 per cent and 1.6 per cent in western and eastern Europe, respectively.

Informa estimates that every 10 percentage points increase in smartphone penetration could cost western European operators $1.19bn in voice and messaging revenues and $306m in eastern Europe – or between 0.5 per cent and 0.6 per cent of service revenues from voice and messaging.

It said that operators also need to provide internet-style communication services to remain relevant to customers. However, Talmon Marco, founder of Viber, a free messaging app, said: "In the not too distant future, the majority of communication services – voice, messaging and video – experienced by users will be provided by [non-SMS] services. We expect carriers to focus on building the best networks."

Ms Dharia said that social messaging could also be an opportunity if it drives operators to providing the mobile broadband needed for such applications. She said that operators were also in a "position of strength because they control the entire messaging structure through their access to the user's phone number and usage data".

"The established billing relationship is a great advantage, as is the fact that operators control to a great extent the services to which the user is exposed," she said.

(Additional reporting by Tim Bradshaw)

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