IM threat to SMS revenue

Mobile operators are facing a "potential revenue time bomb" because upcoming wireless instant messaging (IM) services look set to severely undercut how much can be charged for SMS text messaging.

A new research note from Ovum makes the obvious point that while SMS is text messaging, not all text messaging is SMS. Phone users are increasingly turning to other bearer technologies such as IM, MMS and email.

The important distinction is that these types of messaging, mostly over 2.5G GPRS phones, are typically charged for per kilobyte. SMS is infamously expensive on a per kilobyte basis and even MMS pricing is in some cases almost as attractive, with the added bonus of the option of including sound and pictures.

John Delaney, Ovum principal analyst, wrote in 'The text messaging time bomb: More messages but fewer dollars': "Increasing numbers of people will start to realise that wireless IM offers a better - and far cheaper - way to engage in texting sessions. Once this starts to happen, it will be very difficult to change the way wireless IM is priced without suppressing the early uptake of the service."

Benefits of IM over SMS - besides price - include presence management, larger limits on characters in each message and multi-party dialogues. Of course SMS has the advantage of being ubiquitous across Europe, unlike newer alternatives.

And the move towards mobile IM - like mobile email and MMS - is real. Last week European operator mmO2 announced the roll out on its German O2 network of an IM partnership with AOL, which runs AIM and ICQ. Meanwhile other operators such as T-Mobile are experimenting with MSN Messenger and Orange and Vodafone both have their own IM environments.

The bottom line, for operators, is all about whether overall text revenues will continue to increase. Ovum's Delaney concludes: "The answer, on a global level, is: 'Yes - but only just'. And more worryingly still, in most advanced regions, the answer is simply: 'No'."