SMS was the original “killer app” for mobile. In terms of the volumes involved and the revenues generated, it is arguably one that has never been bettered. According to the ITU, there were a staggering 6.1 trillion SMS sent globally last year, a figure that has tripled since 2007. Assuming an average cost of US$0.07 per message, the ITU reckons that SMS traffic generated about US$14,000 every second for operators in 2010. Not bad for a service that was originally designed simply to push network notifications to SIM cards.

But is the SMS cash cow about to be put out to pasture? That appears to be the conclusion to draw from recent data from mature mobile markets, which shows that SMS volumes have started to decline as users switch to third-party messaging services such as Whatsapp, BlackBerry Messenger and Skype.

Such services have gained traction in line with rising smartphone penetration. Many to date have been word-of-mouth hits – but the recent launch of similar services by the likes of Apple and Facebook could mean their impact could soon be huge, putting operator SMS volume and revenue at serious risk. 

Our number-crunching friends at Wireless Intelligence recently analysed a market where this phenomenon is already visible: the Netherlands. According to recent figures from Opta, the Dutch regulator, the total number of SMS sent in the country declined to 5.7 billion in the first six months of the year, down 2.5 percent – or some 200 million messages – from the 5.9 billion recorded in 2H 2010. Revenue from SMS services still inched up slightly (by 0.6 percent) but the numbers were enough to start alarm bells ringing at the country’s operators.
 
Lower SMS usage was cited as a key factor behind an 11 percent decline in mobile service revenue at the market leader, KPN. According to Wireless Intelligence estimates, the average number of SMS sent per user at KPN declined to 32 in the quarter, down from 49 a year earlier. 

KPN’s initial response was to float the idea of charging for OTT messaging services. But this alarmed net neutrality advocates and only served to hasten the introduction of net neutrality laws in the country – establishing the Netherlands as the first European country to pass such legislation.

The operator’s subsequent strategy involved a radical overhaul of its tariffs, aimed at locking in customers to higher value contracts which (in the operator’s opinion) better reflect the amount of data being consumed. KPN said that it had migrated 35 percent of targeted subscribers onto these new contracts by Q3, suggesting that this strategy is seeing some early success.

Monetising mobile data is therefore key to offsetting the decline in SMS usage. But this may prove a tricky one to untangle as operators frequently combine SMS and non-SMS as “non-voice” revenue in a bid to show how effectively they are migrating away from legacy voice services.

In the developing world, SMS still (usually) accounts for the vast majority of non-voice revenue, but that’s not now the case in mature markets such as the Netherlands. Opta’s figures show that non-SMS data revenue in the country in the first half of the year grew 16 percent over the previous period to EUR405 million, surpassing (for the first time) total SMS revenue of EUR378 million.

These trends are being seen across many Western European markets. Wireless Intelligence has detected similar falls in SMS volumes this year in markets such as France, Ireland, Spain and Portugal. And when volumes fall, revenues will soon follow suit. Like KPN, operators in such markets will need to address the matter soon or risk seeing another source of income syphoned-off by the OTT players.

Matt Ablott


The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members