New messaging apps from Apple, others may hit fees.
Growth in the volume of text messaging is slowing sharply, just as new threats emerge to that lucrative source of wireless carrier profits.
While U.S. cellphone users sent and received more than 1 trillion texts in the second half of 2010, according to CTIA, a wireless industry trade group, that was just an 8.7% increase from the prior six months. It was the slimmest gain since texting exploded last decade.
Text traffic will come under more pressure in the months ahead. This week, Apple Inc. (Nasdaq: AAPL - News) showed off an application that will allow iPhone and iPad owners to bypass carriers and send text messages over the Internet to other people with Apple devices.
Google Inc. (Nasdaq: GOOG - News), whose Android software is the most popular operating system on smartphones, has also recently worked on a messaging application, a person familiar with the matter said.
The new messaging tools -- answers to Research In Motion Ltd.'s (Nasdaq: RIMM - News) popular BlackBerry Messenger -- are a growing threat to a texting business that generated $25 billion in revenue in the U.S. and Canada last year.
Carriers, such as AT&T Inc. (NYSE: T - News) and Verizon Wireless (NYSE: VZ - News), charge fees ranging from 20 cents per text to $20 a month for unlimited texting. The texting business has low costs and high margins. A dollar of texting revenue produces at least 80 cents of profit compared with about 35 cents of profit from $1 in wireless data or voice services, according to analysts at UBS.
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The challenges posed by alternatives to text messaging reflect the broader changes roiling the wireless industry as carriers scramble to adjust to devices like the iPhone and Android handsets, which give cellphone users more flexibility in how they communicate.
"It's not cool anymore to SMS," Eelco Blok, chief executive of Dutch telecommunications company Royal KPN NV, acknowledged on an April earnings call. The company reported its youth-oriented brand, Hi, saw an 8% decline in outgoing SMS or text messages per customer in the first three months of this year compared with the first quarter of 2010.
Carriers are betting that sales of smartphone data services that let users connect to the Internet will offset the fast decline in voice revenue. In the meantime, however, text services are playing an outsized role in holding up carrier profits.
In the U.S., carriers are contending with subscribers like Hadi Mulhem, a 27-year-old New York City beer vendor and iPhone owner who says he texts more than he talks and would welcome the chance to lower his bill by using Apple's iMessage. "If I'm able to use it and not pay $20 a month, then of course I will," Mr. Mulhem said.
Texting growth has been uneven at the biggest U.S. operators. At Verizon Wireless, the number of text messages sent by its retail customers dropped from an average of 2,110 in the third quarter of 2010 to 2,068 in the fourth quarter, then reached 2,104 in the first quarter of this year.
At AT&T, year-to-year growth in text messages per handset was 21% in the first quarter, but down from 41% the year, according to UBS.
Mark Collins, AT&T's senior vice president for data and voice products, expects high demand for texting plans to persist for a long time, because texting, unlike the Apple or BlackBerry messaging services, allows cellphone users to send instant messages to people with different devices.
Verizon said the number of texts sent by its users continues to grow every year and highlighted that a high percentage of its smartphone users select pricing plans that include SMS, an abbreviation that dates to 1985 when texting was known as short message system.
Texting stems from a decades-old technology that with relatively modest investments let users swap brief bits of text (under 160 characters apiece) over carriers' voice networks.
The technology is outdated now that carriers offer wireless Internet services. In fact, some carriers are already shifting their messaging traffic to their data networks, according to Devesh Agarwal, vice president of mobile messaging at telecommunications company Tekelec. It's only natural that subscribers would follow suit.
By downloading applications developed by other companies, smartphone users can make calls and send texts via the Internet without adding to their minutes or message count. Voice-over-Internet apps like Skype allow users to make voice calls over the Internet while instant-message apps from WhatsApp to Kik let people exchange text and photos without being charged for a text message.
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Adoption of such technologies by companies like Apple and Google could push Internet messaging into the mainstream.
In some countries, that's already happening.
In the Netherlands, KPN saw a surge in adoption of the free WhatsApp messaging app -- from 0% of Hi's Android phone users in August 2010 to 85% in April 2011. The company's CEO, Mr. Blok, said the move from texting to such applications was expanding rapidly from its younger subscribers to adults.
A KPN spokesman said the carrier plans to roll out a new portfolio of subscriptions this summer that likely will charge customers more for data use to make up for the decline in texting.
Germany's Deutsche Telekom AG insists SMS remains a dominant platform that continues to post slight growth. "It's a very established way to communicate," Chief Executive Rene Obermann told analysts last month. "Not everybody is a techno freak, and not everybody wants to deploy these new applications such as WhatsApp."
Part of KPN's problem, analysts say, is that many of its users pay for each text message individually rather than subscribing to a texting plan. In the U.S., texting ballooned in the mid-2000s, as more carriers started offering unlimited plans.
Text volumes soared from 25 billion text messages in the second half of 2004 to 823 billion five years later, according to the CTIA, before moderating more recently.
Growth in the volume of text messaging is slowing sharply, just as new threats emerge to that lucrative source of wireless carrier profits.
While U.S. cellphone users sent and received more than 1 trillion texts in the second half of 2010, according to CTIA, a wireless industry trade group, that was just an 8.7% increase from the prior six months. It was the slimmest gain since texting exploded last decade.
Google Inc. (Nasdaq: GOOG - News), whose Android software is the most popular operating system on smartphones, has also recently worked on a messaging application, a person familiar with the matter said.
The new messaging tools -- answers to Research In Motion Ltd.'s (Nasdaq: RIMM - News) popular BlackBerry Messenger -- are a growing threat to a texting business that generated $25 billion in revenue in the U.S. and Canada last year.
Carriers, such as AT&T Inc. (NYSE: T - News) and Verizon Wireless (NYSE: VZ - News), charge fees ranging from 20 cents per text to $20 a month for unlimited texting. The texting business has low costs and high margins. A dollar of texting revenue produces at least 80 cents of profit compared with about 35 cents of profit from $1 in wireless data or voice services, according to analysts at UBS.
[More from WSJ.com: Facebook Again in Spotlight on Privacy]
The challenges posed by alternatives to text messaging reflect the broader changes roiling the wireless industry as carriers scramble to adjust to devices like the iPhone and Android handsets, which give cellphone users more flexibility in how they communicate.
"It's not cool anymore to SMS," Eelco Blok, chief executive of Dutch telecommunications company Royal KPN NV, acknowledged on an April earnings call. The company reported its youth-oriented brand, Hi, saw an 8% decline in outgoing SMS or text messages per customer in the first three months of this year compared with the first quarter of 2010.
 Source: CTIA ©Jon Protas/WSJ. Illustration: WSJ. |
In the U.S., carriers are contending with subscribers like Hadi Mulhem, a 27-year-old New York City beer vendor and iPhone owner who says he texts more than he talks and would welcome the chance to lower his bill by using Apple's iMessage. "If I'm able to use it and not pay $20 a month, then of course I will," Mr. Mulhem said.
Texting growth has been uneven at the biggest U.S. operators. At Verizon Wireless, the number of text messages sent by its retail customers dropped from an average of 2,110 in the third quarter of 2010 to 2,068 in the fourth quarter, then reached 2,104 in the first quarter of this year.
At AT&T, year-to-year growth in text messages per handset was 21% in the first quarter, but down from 41% the year, according to UBS.
Mark Collins, AT&T's senior vice president for data and voice products, expects high demand for texting plans to persist for a long time, because texting, unlike the Apple or BlackBerry messaging services, allows cellphone users to send instant messages to people with different devices.
Verizon said the number of texts sent by its users continues to grow every year and highlighted that a high percentage of its smartphone users select pricing plans that include SMS, an abbreviation that dates to 1985 when texting was known as short message system.
Texting stems from a decades-old technology that with relatively modest investments let users swap brief bits of text (under 160 characters apiece) over carriers' voice networks.
The technology is outdated now that carriers offer wireless Internet services. In fact, some carriers are already shifting their messaging traffic to their data networks, according to Devesh Agarwal, vice president of mobile messaging at telecommunications company Tekelec. It's only natural that subscribers would follow suit.
By downloading applications developed by other companies, smartphone users can make calls and send texts via the Internet without adding to their minutes or message count. Voice-over-Internet apps like Skype allow users to make voice calls over the Internet while instant-message apps from WhatsApp to Kik let people exchange text and photos without being charged for a text message.
[More from WSJ.com: Let Sleeping Partners Lie]
Adoption of such technologies by companies like Apple and Google could push Internet messaging into the mainstream.
In some countries, that's already happening.
In the Netherlands, KPN saw a surge in adoption of the free WhatsApp messaging app -- from 0% of Hi's Android phone users in August 2010 to 85% in April 2011. The company's CEO, Mr. Blok, said the move from texting to such applications was expanding rapidly from its younger subscribers to adults.
A KPN spokesman said the carrier plans to roll out a new portfolio of subscriptions this summer that likely will charge customers more for data use to make up for the decline in texting.
Germany's Deutsche Telekom AG insists SMS remains a dominant platform that continues to post slight growth. "It's a very established way to communicate," Chief Executive Rene Obermann told analysts last month. "Not everybody is a techno freak, and not everybody wants to deploy these new applications such as WhatsApp."
Part of KPN's problem, analysts say, is that many of its users pay for each text message individually rather than subscribing to a texting plan. In the U.S., texting ballooned in the mid-2000s, as more carriers started offering unlimited plans.
Text volumes soared from 25 billion text messages in the second half of 2004 to 823 billion five years later, according to the CTIA, before moderating more recently.
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