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SMS: A Cash Cow?

SMS: A Cash Cow?

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.

More Stories By Tom Dibble

Tom Dibble , a wireless entrepreneur, is a cofounder of
Global Wireless Forum, a forum dedicated to dealing with commercial, strategic,
and
technical issues on the evaluation of the wireless age in Europe and
the U.S.

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