SMS faces capacity crunch

Logica has warned that spending cuts by debt-laden mobile phone network operators mean they will soon be unable to cope with text-messaging traffic. The cuts are also delaying the appearance of picture-messaging services, Logica warned.

The consultancy, which makes a large part of its revenues from selling Short Messaging Service (SMS) and prepay products to network operators, reported on Wednesday that its telecoms revenues had dropped 20 per cent over the financial year ended 30 June. In the mobile networking sector alone, revenues dropped 16 per cent over the course of the year, largely due to a drop-off in sales of SMS infrastructure.

"Mobile networks faced the toughest trading environment for a decade and revenues fell as heavily indebted operators all but cancelled capital expenditure as the year progressed," the company said.

Logica sells messaging and prepay services to more than 160 customers worldwide.

In what may be a sign of future difficulties for mobile phone users, the consultancy argued that network operators are putting the quality of text-messaging services at risk by putting off upgrades. "This is causing service level degradation in some networks and we believe that traffic in some operators' systems is close to current messaging capacity," Logica said.

The company also cast doubt on the immediate future of Multimedia Messaging (MMS), which is being introduced by network operators such as T-Mobile and O2, and is being built into some new handsets from Nokia, Sony Ericsson and others.

While operators are counting on MMS to boost revenues, they are reluctant to invest in rolling services out, Logica said: "Few operators have launched MMS services, and many tier two and tier three operators have deferred decisions following trials, as availability of handsets, and an as yet indifferent consumer experience, delays launches."

Logica also said revenues had been hit directly by the decisions of some network operators to postpone or cancel introductions of 3G services.

Matthew Broersma writes for ZDNet.co.uk