Free texts pose threat to carriers
iMessage lets iPhone owners send messages with text, photos and video to other iPhone owners over a Wi-Fi or cellular data connection for free.
Sun, Oct 09, 2011 at 08:00 PM
TEXTING: More than 2 trillion text messages are sent each year in the United States, generating more than $20 billion in revenue for the wireless industry. (Photo: Cazimiro/flickr)
At a time when e-mail and many other forms of electronic communication are essentially free, wireless carriers are still charging as much as 20 cents to send a text message to a phone, and another 20 cents to receive it.
Paying so much to transmit a handful of words is starting to look as antiquated as buying stamps.
There are a growing number of ways to bypass the charges by using an Internet connection — much as Skype allows people to make calls without relying on a traditional telephone line. If these services catch on in a big way, they could take a big bite out of the profits that text messages generate for wireless carriers.
On Wednesday, Apple plans to introduce a service called iMessage, which could quickly become the biggest fish in this pond. It lets iPhone owners send messages with text, photos and video to other iPhone owners over a Wi-Fi or cellular data connection. The service, part of an update to Apple's iOS mobile operating system, will automatically handle messages sent between iPhone, iPad, and iPod Touch users who have the latest software.
"There's a huge amount at stake here,'' said Craig Moffett, an analyst at Sanford C. Bernstein. "They are undermining the core business model for an industry that makes most of its money from services that are high-priced and low-bandwidth, like texting.''
The basic idea is the same with both old- and new-style messages: short bursts that pop up almost instantly on the recipient's phone. But the path they take is different. A text message is sent over cellular networks. Services like iMessage transmit messages over the carriers' data networks and the Internet. Cellphone customers pay for each text message or sign up for a texting plan; the newer messages will fall under a customer's wireless data plan.
More than 2 trillion text messages are sent each year in the United States, generating more than $20 billion in revenue for the wireless industry. Verizon Wireless alone generates as much as $7 billion a year in revenue from texting, Moffett said.
At 20 cents and 160 characters per message, wireless customers are paying roughly $1,500 to send a megabyte of text traffic over the cell network. But the cost to send that same amount of data using a $25-a-month, 2-gigabyte data plan works out to 1.25 cents.
Over time, analysts say, the new messaging services could cut into the amount of money that carriers can make from each of their customers. They point to examples where the slide has already begun, as in the Netherlands, where the popularity of social networks and messaging applications has shrunk texting traffic and eroded profits.
Analysts say Apple is trying to duplicate the success of services like BlackBerry Messenger, or BBM, a free application to send messages back and forth, as in an instant-messaging conversation. It has sparked loyalty among BlackBerry users and kept some from switching to an Apple or Android device.
Because iMessage will work only between iPhones, iPod Touches, and iPads, at least at first, it is not clear whether it will inspire customers to ditch their text-messaging plans. And Apple devices account for only 5 percent of the texting traffic sent each year, said Chetan Sharma, an independent mobile analyst. "But if Apple makes iMessage open and available on other platforms, you could see a much bigger impact,'' he said.
Samsung and Google are reportedly working on services to allow owners of their phones to swap free messages. Analysts anticipate that Microsoft, which recently acquired Skype and GroupMe, will soon incorporate both services in its new line of Windows smartphones. And other downloadable apps like TextPlus, WhatsApp, and Kik are gathering a following. Pinger says it has 19 million U.S. members.
"It always comes down to the economics,'' said Greg Woock, Pinger's chief. "Free is a compelling price point.''
Copyright 2011 The Boston Globe