SMS: A Cash Cow?-
by Tom Dibble - Jul. 28, 2003
As much as a parent
might be beguiled by the acronyms that teenagers use when texting
to each other, MNOs definitely are not. Handsets nowadays are
building on SMS "speak" by integrating the truncated
phrases into their phones so messages can be sent by pressing
a single key on their handsets. Make no mistake, text messaging
is on a roll in the U.S., and MNOs seem to be scrambling to
take advantage of the mushroom cloud forming.
SMS is fast becoming an established line of revenue
for operators who are seeing dwindling long-distance revenue
and roaming charges float off into the outer-hemisphere. Phone
manufacturers also are hoping the trend will jump-start sagging
sales via consumer upgrades to ever-advancing handsets capable
of supporting new technologies.
A recent study by J.D. Power and Associates found
that wireless subscribers replaced phones every 18 months in
2002, compared with every 16 months in 2000. And the average
cost dropped to $75 per phone in 2002, compared with $100 in
1999. New camera phones with MP3 capabilities and games could
push up the average cost per handset, but SMS seems to be the
most popular reason for upgrades.
Analysys Ltd. predicts annual text-messaging volume
will grow globally to 2.6 trillion messages by 2007 from 670
billion last year. Much of the growth is coming from the United
States where the product is just now catching on, continuing
the explosive growth Europe has seen with SMS over the past
few years. An ever-growing tech-savvy youth are the main drivers
for the growth. Verizon Wireless increased its monthly SMS traffic
700% over last year, handling 200 million billable text messages.
New bearers are increasing the amount of data
that can be sent and received, giving rise to the take-up of
camera phones, which are currently locked in a price war between
manufacturers. Pricing is a big concern for consumers and finding
value in being able to take pictures on a whim is still a struggle.
But two- or three-year contracts and heavy early termination
fees do not seem to be deterring the consumer from the inexpensive
cost of the camera phones at time of signing.
Sprint, for example, offers the camera phones
for as little as $99 once rebates are collected, and charges
users $15 per month to send an unlimited number of pictures;
$1-$5 a month allows subscribers to download Java games, and
for 99¢, a ringtone. It's apparent that MNOs are taking bundling
for new data services seriously, and not doing a bad job of
it either.
Worldwide indicators from Telecom Trends predict
text-messaging revenue will grow to $69 billion a year by 2007,
from $31 billion last year. Factor that in with the SMS charges
from say Verizon Wireless which charges 10¢ to send a message
and 2¢ to receive one, and you will begin to see the effect
on the bottom line this is likely to have for MNOs in the U.S.
This is only taking into account MO (mobile originated) messages
between friends, and not CO (computer originated) messages such
as premium services offered by MNOs.
We all know the impact that "American Idol"
had on AT&T. AT&T reported the show generated 2.5 million
messages, one-third coming from first-time users. Besides voting,
viewers who were AT&T subscribers could opt-in to receive
text-based updates on the show. This mass media approach of
tying in with a single MNO will be removed soon enough though
as cross-network short codes come into play. These will allow
the whole audience to interact with a program using short destination
codes rather than one number for one network. Not the best practice
when it comes to drawing in en masse.
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