Mobile operators lost $13.9 billion in SMS revenues to media apps

by CXOtoday Staff    Feb 22, 2012

Operators need to rework their legacy services if they want to secure their future position in the messaging market, says research firm Ovum.

With smartphones and data plans becoming cheaper and more accessible, there has been an increase in the usage of messaging apps too.

Users favour instant messaging, and free services like WhatsApp, BlackBerry Messenger or Facebook over SMS.

New estimates from independent technology analyst firm, Ovum finds that increasing use such IP-based social messaging services by users on their smartphones cost telecom operators $8.7 billion in lost SMS revenues in 2010, and $13.9 billion in 2011.

In a new report titled The Casualties of Social Messaging, Ovum reveals that it expects the decline, representing nearly six percent of total messaging revenue in 2010 and nine percent in 2011, to continue as the popularity of messaging apps continues to grow.

Recently, Bharti Airtel’s mobile operations in India witnessed a decline in SMS as a percentage of revenues in the third quarter. Non voice revenues that include data, VAS and SMS declined for yet another quarter to 14.27 percent of total, down for the third consecutive quarter.

“Social messaging has disrupted traditional services, and operators’ revenues in this area will come under increasing pressure,” said Neha Dharia, Consumer Analyst at Ovum and author of the report.

Ovum warns operators to rework their legacy services if they want to secure their future position in the messaging market.

However, despite the threat to messaging revenues, the research firm believes that the strong presence of social messaging should be looked upon as an opportunity. “This threat will drive telcos to consider alternative sources of revenue, such as mobile broadband. And now the market has been tested, operators know what types of messaging services work,” said Dharia.

Ovum states that operators are 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,” Dharia said.

However, offering innovative messaging services and aligning revenue schemes with models in the social world will not be enough to win the battle against social messaging. Industry-wide collaboration and co-operation will be the key to growth in the messaging realm, according to Ovum.

The report mentioned that operators must remain open to partnering with app developers, sharing end-user data with them and allowing integration with the user’s social connections. Working closely with handset vendors will also be important, as they control some of the most popular social messaging apps, and can also provide preloaded applications.

“The most important factor, however, will be co-operation between telcos. They are no longer competing merely among themselves, but must work together to face the challenge from the major Internet players,” said Dharia.