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What's up with text messaging?

The following graphs show text messaging volumes, pricing and revenues for SMS in Spain.

Screen Shot 2013-01-18 at 1-18-2.40.39 PM

After peaking at the end of 2008 at about €450/quarter, revenues have fallen by 60% to about €171 million in the third quarter of 2012. These figures represent almost 100% operating profit for operators so the impact is felt directly in the bottom line.

The culprit is IP-based messaging. Services like Whatsapp, iMessage and even Facebook offer “free” messaging to users who have a smartphone and a data plan. I’ve been told that 97% of Spanish smartphone users have Whatsapp installed. In some markets this “free” messaging is offered via BlackBerry Messaging.

The decline in SMS is coupled with a vast increase in IP-based mobile messaging. Whatsapp reported that it set a record of 18 billion messages processed over New Year’s Eve. In October Apple announced that iMessage had delivered 300 billion messages during the preceding 12 months.

Globally SMS traffic is still rising. It’s expected to reach 9.6 trillion in 2012, but at least one analyst forecasts  that SMS’s share of global mobile messaging traffic will fall from 64% in 2011, to 42% in 2016.

The data from Spain suggests that the drop may happen more quickly than anticipated.

  • masquisieras

    But the real peak is 2007 the decline in SMS began then, the peak on revenue is due to an increase in price.

    The product is selling less so you increase the price so that you not only keep your revenue but you increase it !!.

    Of course everybody will began to look for alternatives.

  • Pascal

    Beware of the nominal price of SMS : in my country at least (Switzerland), very few persons pay the “nominal” price of 10-15 ç per SMS; most people have either unlimited messages or a fixed amount of messages in their monthly contract.

    • masquisieras

      In Spain you pay the nominal if you are prepaid, the unlimited and fixed amount only exist in the postpaid (contract) market and only in the last couple of years, in the -2010 period where unheard of

    • http://twitter.com/handleym99 Maynard Handley

      The point is not the price of SMS.
      The point is that if you don’t cannibalize your business with something better, other people will do it for you.

      SMS is a very obvious example. Voice may well be a similar example. I do all my international calls via Skype, and a substantial irritation with phone calls is the low quality compared to VoIP (either Skype or iChat).
      The carriers are (possibly too little late) finally waking up to the fact that this is an issue, but T-Mobile only a few days ago activated AMR-WB (a somewhat better quality voice codec) on its network. Sprint is kinda sorta vaguely rolling out the same sort of thing (the CDMA equivalent codec), but without much urgency, and VZW and ATT seem uninterested.

      At some point, when they feel they can withstand the carrier backlash, I imagine Apple will drop the hammer, and provide a preference to allow one to start FaceTime without video automatically starting, or, even more aggressively, allow calls to a FaceTime number to be routed automatically via FaceTime (like iMessages took over from SMS).
      At that point you have essentially a clone for voice — only at substantially higher quality. And the great thing is that it is the very sloth of the telcos that will allow Apple to provide this, by providing the perfect excuse that “our customers want a higher quality voice connection than the telcos are able to provide”.

  • vincent_rice

    Milking the cow before it becomes a dog…

  • http://www.BarnesFamily.com/ davebarnes

    What happend? Is happening?
    Free Wi-Fi everywhere.

  • eugenekim

    “The culprit is IP-based messaging.”
    I disagree. I think the culprit is years of telecoms padding their numbers with basically what amounts to a scam, a bubble that is finally beginning to pop. Telecoms are slowly descending down into what they should be, a dumb pipe; a utility.

    • http://twitter.com/kidderek kidderek

      4 words: could not agree more. Next up? Cable tv providers.

      • jameskatt

        CableTV Providers – such as Comcast and Time-Warner – actually also are content owners and producers. For example, Comcast OWNS NBC and Universal Studios.

        Additionally, CableTV Providers BUY the rights to content with lots of money. This is why studios are WARY of allowing 3rd parties such as Apple into the game. Studios make a lot of money from CableTV Providers. They don’t want to destroy their golden goose by taking the lowball dollars that Apple, Intel and others want to pay. HBO, for example, makes a lot of money from CableTV Providers. It wouldn’t want to offer its content for nearly nothing on iTunes since the CableTV Provider would squawk and want a similar lowball deal.

        Thus CableTv Providers can never be dumb pipes.

        They are players who own the monopoly to the control of content to your home through a build-in fat pipe (I would include AT&T via DSL in this mix).

        Everyone else – Apple, X-Box, Intel’s dreams, Roku, etc. takes the dregs. This won’t change since there is so much money on the CableTV Provider side and that all important monopoly.

      • http://twitter.com/kidderek kidderek

        I was speaking more about the redundancy in charging for internet and cable tv. It can all be done over internet.

  • Walt French

    These are pretty dramatic declines but I think it’s important to put them in the context of a broader picture. Overall retail sales in Spain fell 10% year-over-year for November; they’re off almost 30% from their 2007 peak.

    Retail sales includes most people’s basic necessities, such as food.

    Meanwhile, unemployment in Spain is at about 27% of the population that wants to work, versus about 8% in 2007 (its lowest point).

    Anecdotally and probably in more detailed analyses, unemployment and constrained personal income are most damaging to the same demographic that would use SMS to communicate. Given this fact, and the fact that SMS is hardly in the same category of life necessity as groceries and clothing, almost all of the SMS decline shown here could be attributable to macroeconomic factors.

    • http://www.asymco.com Horace Dediu

      Do you think SMS use and pricing will increase if/when Spain recovers?

      • Walt French

        Do I think SMS will recover to 2007 levels under 2007-class economic conditions? Not to dodge the question, but any reasonable forecast puts that ten or more years into the future, by which a couple of technological revolutions could have hit.

        To make a semi-useful forecast, I’d have to know how carriers will (do) price/bundle SMS, how convenient and interoperable OTT services become, etc. Because I expect is the carriers to provision SMS so as to maximize profits in their very weak situation, a forecast needs to be based on the outcome a multi-player game, knowing likely responses to others’ moves.

        My best guess would be to use “long distance” services for US landlines: they continue to be offered far above cost due to lock-in (monopoly offering) and the nuisance of selecting alternate plans. They therefore continue to be disrupted by workarounds such as mobile plans (e.g., we make all our long-distance calls on mobiles served by the same carrier as our house’s landline), OTTs (Skype for international calls) and cord-cutting.

        This strikes me as the benign part of being disrupted: no cost-cutting would increase profits—those who care have already quit using it—and cost increases would simply signal more to jump. I imagine the Telcos look on it as prostrate cancer: malignant but so slow that they’ll die of something else.

        Meanwhile, OTT: bypassing services have been a Tower of Babel (Babble?) situation ever since MCI. They depend on strong network effects, so a deep-pocketed hegemon such as Google could take control in any well-defined market. But this strikes me as VERY unstable. I look how eg BBM took over Indonesia—and is losing it, apparently to KakaoTalk. The end game, which we’ll likely see inside of ten years, seems some sort of commoditized, mostly interoperable messaging service, as providers’ efforts to corner the market fail and operators price messaging low enough to prevent less-convenient systems from succeeding. “SMS” is likely to eventually thrive, albeit at much-reduced pricing, until users look for more value-added messaging situations, whatever those would be.

  • http://www.facebook.com/profile.php?id=849372289 Sam Kass

    The assumption I generally see is that text messaging is essentially free for the carrier since it lives in the extra bits the carrier is transmitting anyway. So if the decrease is due to competition, why hasn’t the price declined competitively? Carriers should be able to match IP messaging in price, since data plans DO cost money and is rarely unlimited unless it’s free wi-fi, and constantly finding that can be annoying. So why isn’t the price curve going down faster if the cause of the usage drop is competition?

    • Tatil_S

      If the competition is giving the product away for free, carriers cannot hold on to their customers by reducing the price by a few cents a message. It makes more sense to milk it all the way down by keeping the prices relatively high on customers who are not price conscious or have other reasons not to switch to the competing messaging networks, similar to AOL with its diminishing number of dial-up customers.

      • http://www.facebook.com/profile.php?id=849372289 Sam Kass

        Except that carriers set the prices for data, so it’s not “free” for the customer either way.

  • http://www.ben-evans.com Benedict Evans

    The SMS revenue reported by the CMT will only be that which is directly broken out in the bill or tariff. It won’t include revenue from combined voice and SMS or data bundles, which the operators are all moving quickly towards. That makes the ‘revenue’ figure pretty meaningless.

    • rattyuk

      Ben is very smart on the dataset stuff.

    • Pete

      What about messaging volume? I would be odd if it applied only to volume outside of carrier bundles. And the pretty strong correlation between the volume graph and revenue graph should validate the latter.

  • http://twitter.com/jamesesaldana studentrights

    Dumb pipe. I like the sound of that.

    How we not only see that with telecoms but also the internet providers and cable TV.

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  • Richard Michael Blewis Wasser

    Time to do A2P whatapp marketing !