Text messaging remains key to wireless carriers’ business, analysts say

Text messaging revenues may have fallen in the past few years though the services will continue to be key to wireless carriers’ business plans as free messaging apps become more popular on smartphone devices, analysts said in interviews. Since November, incumbent carriers Telus Corp., BCE Inc. and Rogers Communications Inc. have included unlimited text messaging in their basic wireless phone plans. Prior to that, the companies had charged subscribers up to 20 cents for sending a text message or required them to pay for a package of text messages per month. Johanne Lemay, co-president of media and telecom consultancy Lemay-Yates Associates, said the carriers’ unlimited text messaging plans “absolutely” came in response to the rise of free, instant messaging apps and services, such as BlackBerry Messenger (BBM), Apple Inc.’s iMessage, and apps WhatsApp and textPlus. Lemay’s firm conducted a study in spring 2012 that found that more than 50 per cent of BlackBerry owners used BBM and that the percentage was about the same for the iPhone’s iMessage. “If you have one of those devices, why would you pay for a separate texting plan?” she said. “You have no interest in doing that.” WhatsApp, one of the world’s top five downloaded mobile applications, is also available for BlackBerrys, Google Inc.-powered Android phones, iPhones, and Microsoft Corp. Windows and Nokia Corp. devices. The app offers users free messaging, including internationally, and Canada’s privacy commissioner said last week that it facilitates the transmission of over one billion messages per day. Reuters reported in November that WhatsApp is the best selling iPhone app in Spain, where the number of paid sent text messages dropped from 1.9 billion in the second quarter of 2011 to 1.5 billion in the same period of 2012. In response, the three largest wireless companies operating in Spain, Telefonica S.A., France Telecom, and Vodafone Group Plc were partnering to offer a new free messaging service, Reuters said. In Canada, consumers’ use of paid texting services continues to rise, according to data released last month by the Canadian Wireless Telecommunications Association (CWTA). The data said Canadians sent an average of 274 million SMS text messages (as opposed to free instant messaging) each day by the end of September 2012, up from about 240 million messages a day in September 2011. MacDougall, MacDougall & MacTier telecom analyst Troy Crandall said in a phone interview that carriers are “adapting” to a new world in which they no longer get paid for each text message subscribers send. He said the carriers’ unlimited text messaging plans are priced to reflect the cost of transmitting those messages, even if the plans don’t say so. “Text messaging used to be an extremely profitable venture for the carriers,” he said in a telephone interview. “They have had to really adapt the method that they use for charging for them.” Wireless carriers have always been reluctant to release their revenues or profits collected from text messaging services, he said, and speculated that reluctance was due to the high profit margins the services provided. “It’s been an important revenue source for them, but it’s a revenue source that they don’t break out,” he said. “We pretty much know that margins are extremely high on .” Lemay said free instant messaging diminishes carriers’ texting revenues, though it also helps push subscribers onto more expensive data plans. “Those messages, obviously do not require a lot of data, even though you make thousands and thousands of them in a year,” she said of the free instant messaging applications. “They don’t cost much to send.” According to the CRTC Communications Monitoring Report released in September, standard mobile broadband services accounted for 57 per cent of the wireless industry’s $19.1 billion in revenues in 2011. On monthly data plans, the report said, carriers on average collect $39 for a 500 megabyte plan; $58 for a two gigabyte plan; and $75 for more than two gigabytes per month. CWTA spokesman Marc Choma agreed with Lemay that as consumers move away from traditional voice communications to more data rich applications, carriers can collect revenues from “all kinds of different services” that require monthly data plans. He said texting will continue to be a universal mode of data communication. “If you have an app on your phone, you don’t want to have to make sure that the other person has that app too,” he said. “I can’t think of anyone I know that doesn’t have text messaging.” U.K. research firm Ovum said in release Wednesday that it predicts “turbulence” for Internet companies like WhatsApp Inc., based in California, whose business models are based on data collection. Ovum referred to the findings released last week by a joint investigation of Canada’s privacy commissioner and the Dutch Data Protection Authority. Released Jan. 28, the report said WhatsApp broke Canadian and Dutch privacy laws by collecting and retaining information stored on users’ contact lists. The investigation also found that WhatsApp messaging was vulnerable to security breaches. “In September 2012, in partial response to our investigation, WhatsApp introduced encryption to its mobile messaging service,” a release from the Office of the Privacy Commissioner said, adding that the company also introduced a security upgrade. The privacy offices said WhatsApp had resolved the issues. “Unfortunately, in the gold rush that is big data, taking the supply of ‘little data’—personal data—for granted seems to be an accident waiting to happen,” Mark Little, principal analyst at Ovum, said in a statement. “However, consumers are being empowered with new tools and services to monitor, control, and secure their personal data as never before, and it seems they increasingly have the motivation to use them.” Ovum said in its release Wednesday that it conducted a survey of 11,000 people in 11 countries in Europe, Asia, North America, and South and Central America, and found that 68 per cent of respondents said they would use a “do-not-track” feature online if one was easily available. The firm did not say when its latest survey was conducted. Crandall said he does not believe privacy issues with applications like WhatsApp are likely to lead consumers to switch to traditional text messaging. Telus Corp. spokesman Shawn Hall said the company believes text messaging will continue to rise despite the availability of other instant messaging options. “Texting continues to increase and it’s become really ubiquitous,” he said. “Our thought on text messaging was that making them unlimited in even our most basic plans was the right thing to do for our customers over the last year.” —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Simon Doyle at sdoyle@thewirereport.ca

Text messaging remains key to wireless carriers’ business, analysts say

News | February 7, 2013

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