Current pricing plans for multimedia messaging services (MMS) could cannabilise revenues from the popular SMS text messaging sector, leaving mobile operators in the lurch in the short-term.
This is according to analyst and consulting company Ovum, which says that if operators do not revise their pricing strategies they face a potential revenue ‘time bomb’.
According to Ovum’s latest research, the emergence of more sophisticated texting technologies such as MMS, wireless email and wireless instant messaging (IM), will boost the number of messages sent in mature SMS markets. This will coincide with the explosion of emerging SMS markets such as China, contributing to a surge in mobile text messaging traffic.
It believes that the current pricing of these new services is threatening to cannabilise SMS revenues, rather than add to them. This is because MMS services will be charged by size of message, rather than on a per message basis – what Ovum refers to as event-based charging.
With MMS, which use the higher-bandwidth GPRS system to transfer data, the cost per kilobyte is much lower than for SMS-delivered messages. Ovum says that in western Europe it costs less than 1 cent to send 1K of text at current GPRS rates. In comparison, the price of sending around 140 bytes (0.14K) of text via SMS is typically 10-15 cents.
The group forecasts that the number of mobile text messages sent per year worldwide will grow strongly and will top the 2 trillion mark by the end of 2008. Meanwhile global revenues will slow down sharply from 2005, even decreasing in western Europe from a peak of $14.3 billion in 2006 to $12.8 billion in 2008.
“More messages, but fewer dollars – this is the nightmare scenario for mobile operators,” says John Delaney, principal analyst with Ovum. “Operators cannot afford to let this happen. To defuse this time bomb, they need to implement the event-based charging model (charging per message not by the size of the message) across their whole range of messaging services quickly.”
Delaney says that the operators are laying their own trap with the current model. This is because wireless IM can provide all the elements of text messaging, as well as additional functionality, for a fraction of the price of sending text via SMS. Again, more messages, less money.
Text messaging, in various forms, will comprise the majority of the mobile data market for at least the next five years. Annual SMS revenues, however, look set to peak at just under $39 billion worldwide in 2006 and 2007, and to decline in 2008. On current pricing models, revenues from new text messaging services will not be enough to make up the shortfall, says Ovum.
“Adopting the event-based pricing model may well make it more difficult to encourage early usage of wireless IM services, but it will also ensure that those services do not dry up the vital stream of revenue provided by SMS too soon,” concludes Delaney.
