Ronnie05's Blog

SMS- The Operator cash cow is dying. Time for telcos to wake up & smell the data coffee.

Posted in Business Cases, Industry updates, Revenues and Monetization by Manas Ganguly on May 2, 2013

As SMS celebrates its 20th anniversary , Chat apps are overtaking SMS communication globally. The Operator cash cow is dying. Time for telcos to wake up & smell the data coffee.

A new study by Informa loads the dice up for Chat apps. For the first time, more messages are being sent via applications such as iMessage, WhatsApp and Viber than traditional texting. Messages sent using such apps outnumbered those sent through carrier-based SMS in 2012 and the lead is expected to widen this year as chat apps send twice as many messages as texting. Although traditional SMS has a larger user base, iMessage, WhatsApp or other chatting apps are sending more texts per user, giving them the momentum. Informa estimates that on an average, a chat app user sends 32.6 messages per day, versus just five for SMS. This despite there being 3.5 billion SMS users compared to 586 million among the top six messaging apps surveyed by the researchers.

Mirroring this sentiment, Ovum estimates that Indian telecom operators may lose $3.1 billion in SMS revenues by 2016. In 2012, the Indian telecom industry lost close to $781 million in SMS revenues, as mobile telephony subscribers increasingly used social messaging apps for quick communication. According to data from the Telecom Regulatory Authority of India (TRAI), the number of monthly SMS sent per GSM subscriber fell by 5.62 per cent to 36 for the three months ended September 2012 from 38 in the year ago timeframe. For CDMA users, this number was marginally up to 25 during the same period. Industry watchers believe that there is a secular fall in SMS revenues for both CDMA and GSM operators.

There are a couple of reasons that are driving the consumer growth in the chat apps segment
1. As smartphones outnumber dumb feature phones, app-based messaging is set to eclipse texting. The next evolutionary step is likely to be calling from Facebook, now in limited roll-out, and other social networks.
2. In addition to being cheaper, these apps are more interactive as compared to the traditional SMS. (We could see the popularity of messaging apps wane if they decide to charge for the service. WhatsApp, for instance, is reportedly considering a paid 99 cents a year subscription.)

The demise of SMS is perhaps most symptomatic of the evolution of communications underway. First was the voice call, which largely vanished as texting became common. As SMS slowly declines as a significant revenue opportunity, mobile Internet (broadband or narrowband) is steadily growing as a key revenue generator.

Carriers, globally are playing to the changing notes, and are giving away unlimited texting on data plans. The intent is to convert dwindling SMS revenues into a broadband revenue opportunity. Indian telecom operators seem to be cognizant of this shift. They are increasingly co-bundling free messengers and content services to push data usage as an alternative to cascading SMS revenues. Last year, Reliance Communications tied up with WhatsApp and Facebook, enabling its GSM customers to use the two services for Rs 16/month. Aircel, too, has taken the leap by tying up with Nimbuzz. Others have started this integration – Nokia recently launched a new phone, Asha210, which has a dedicated WhatsApp button

The Chat platform providers are riding the wave and are collaborating with telecom companies for monetising the chat platforms through operator billing

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