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Is SMS under threat?

One of our Telco 2.0 event speakers, Tomi Ahonen, has written a passionate eulogy on the end user joys of SMS. We’re soon publishing our Consumer Voice & Messaging 2.0 report, and have been looking at the evolution of arbitrage and toll bypass schemes. Will the future be as rosy for operators as it is for their customers? Could SMS revenues be under threat despite growing volumes and adoption?

At the event we ran some survey questions on the first day with the full plenary audience. Given that SMS is a super-high margin product delivering between a third and half of most mobile operators’ profits, we asked if this service could be Skyped? These alternative services let you connect to a third party SMS gateway over the Internet (using GPRS, 3G, or Wi-Fi) and send SMS messages at well below standard operator prices. It’s much more plausible than VoIP displacing mobile voice, since there are few quality of service issues sending a one-off message.

The question we asked was:

What proportion of SMS messages will be originated from non-operator third-party services in 5 years time?

The results were quite interesting:

There seemed to be little consensus among the participants of whether the threat was real, and if so whether it was small or large. Each respondent was also asked for a reason why they chose their answer.

Those predicting a smaller haemorrage of customers to rival services cited several common factors:

  • users are too lazy or indifferent to the cost of SMS to try lowering their expenditure
  • there will be a general move towards IM, which will regulate costs and provide a richer alternative
  • spam and privacy concerns will keep people away from non-operator services
  • operators will just drop prices given any competitive threat

Those citing a larger threat suggested that messaging will be embedded in 3rd party applications, notably social networking services, and that operators will lose control of the context from which messages are initiated — as well as the revenue.

A common theme on both sides was the user experience. Those predicting a low rate of defection cited poor experience, whereas those forecasting some of the telepocalyptic scenarios felt it would come right over time.

We’ve been using a couple of such services recently. Given it costs 40p (about €0.59 or US$0.80) to send an SMS when roaming, we’ve had plenty of incentive. I’ve run out of credit on Vyke having used it a lot, and Jajah only lets me initiate voice calls, so we’ve screen captured all the stages of sending a message from smsBug instead. They all have a fairly similar user experience.

I’ve not included any of the sign-up and installation stages, as we’re assuming users will put up with considerable one-off inconvenience to switch (usually by handing a bank note and phone to a nearby youthful technophilic relative). You set up a pre-paid balance on each of these services, and download a Java client onto your handset. It’s not difficult.

We’ve laboriously documented all the steps, as there are more than for the standard texting experience.

We start from the home screen on my smartphone. I’ve set up smsBug as the (pretty horrible) second icon in the quick access row — the pair of bug eyes. I could have assigned this to the standard messaging hotkey — but we’re relying here on users knowing how to do quite advanced customisation to their phone UI. This isn’t part of the “out of the box” install (and probably never could be on the current generation of phones and Java.)

For some reason the message editor starts with the last message you sent, so you have to do a bit of selection and deletion to get rid of it.

Enter a new message — all standard text entry using native UI features like predictive text.

Then we select the options hotkey which gives us this menu. Somewhat strangely the next step is “send”, even though we haven’t entered any recipient details. And we now discover a “clear text” option, which isn’t visible or obvious to the user on first using the application. (You could fix this with a “select ‘clear text’ option from menu to create new message” down the bottom of the screen when the application is first used.)

A blank screen to type in a number.

We select the option to add a contact from the address book.

Pick the user using the native UI.

Pick the number. Note the boilerplate text glitch in that the UI assumes the purpose of an address book is to support calls, not messaging. (I really must delete that old Kansas City office number — I never look at my own address entry in Outlook!)

Now we’ve got our destination number. Unlike the native SMS user interface, you can only enter a single recipient.

Now send the message. This time “send” means “send”.

Ah, so as we’re going to use the 3G interface, we have to give this Java application permission. Every time.

And also select which access point to use. This is really the fault of the Symbian UI in not giving me more configuration control here. (“If in UK, always use T-Mobile”.)

Now a wait… This has taken up to 25 seconds before now.

A message briefly flashes by with my remaining balance and we’re dropped back into the message editor — unlike the native UI, it’s another keystroke to exit to the idle screen.

The service works — one new message.

And here it is:

None of this is integrated with the rest of the messaging UI of the phone. Your message won’t be stored in the outgoing messages folder. (The story for email is just the same — I have a 3rd party email application installed, but if I select “send via email” for an image I’ve snapped, the only choice is the native email UI, which isn’t configured in my case to send to anyone.)

Overall, I’d say that it’s worth jumping all these hoops to save yourself the best part of a dollar for sending a single SMS. Even when roaming, the combined cost of the bypass service and packet data charges are only a tiny fraction of the roaming messaging charge. I’ve found the services to be as reliable as those of the operators: even when sending “native” SMS when roaming, I’ve had messages fail to be delivered.

The real threat to operators was identified earlier. The owners of social networking applications will replicate these small arbitrage businesses and integrate them into a much slicker user experience. As SMS is hybridised with instant messaging they will also arbitrage termination charges when messages can be delivered over IP to a phone or PC.

Alternatively, as Truphone has done for VoIP telephony from mobiles, it gets integrated with the native UI and the user sees no difference except the price.

In the meantime, services such as these will put pricing pressure on the high-margin users (roaming, prepaid), and encourage the adoption of large or unlimited buckets of messages.

In either case, the SMS party may not be over, but the DJ has finished playing upbeat house music and is starting to rifle through his blues collection.

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Are you not aware that OFCOM are demanding that users be able to change their SMSC to any provider they like? There's a number of companies ready to take advantage of this, just wait.

Australia is probably the worst country for SMS! 25 cents per LOCAL SMS!

Anyway, i've actually had a play with SMSbug - it's a good program, but i came across something sexier (or maybe i'm biased towards the new iphone look & feel!).

I'm on the beta for yoober.com, it uses data rather then SMS to send free text messages, but i personally like the way it looks and functions (and i can use it from my PC as well)

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