How Much Text Messaging Cannibalization, Really?

Following up on the issue of how much the Internet has harmed telecom revenues, the amount of revenue destruction is rather complicated. While most wouild agree that some amount of telecom service provider revenue from voice and text messaging has been disrupted by over the top alternatives, the net revenue impact has to be balanced by creation of new revenue streams directly created by end user use of the Internet.

For example, Portio Research questions the actual amount of lost revenue. While in some markets over the top messaging presumably does cannibalize significant text messaging revenue, in other markets, where mobile Internet access is not widespread, dramatic growth of mobile adoption means more text messaging revenue is being created.

“During 2012 and 2013 we have seen many reports that operators are losing $20 billion to $30 billion in SMS revenue to OTT messaging apps,” said Karl Whitfield, a director at Portio Research. “We see reports that OTT traffic will be double that of SMS by the end of 2013,” he says. “This is wrong on both counts.”

It may be true that SMS revenues are levelling off and that OTT is on the rise, but SMS is still generating revenues of $15.3 million per hour, 24/7, that’s a massive $133.8 billion in 2013, Whitfield says.

Over the top apps generate about $3 million an hour, by way of comparison.

Worldwide SMS revenue has gone up year after year since the early 1990s and will continue to be above 2010 levels until 2017, Whitfield said.

In fact, in some markets, SMS and OTT apps are coexisting, serving end users in different ways.

There is a huge uptake of OTT messaging in Japan, particularly with local player LINE, yet the SMS market remains healthy and stable, he says.

The same goes for South Korea, where KakaoTalk is enjoying huge success; here again the SMS market remains stable and is not declining as many predicted.

Where SMS has seen a decline, in markets such as Spain and Greece, there has been an overall fall in subscribers and revenues at the same time.

“Our research into mobile messaging completely contradicts what some other industry observers are saying,” said Whitfield.



Global OTT and P2P Messaging Traffic (Billions)


2010
2011
2012
2013F
2014F
2015F
2016F
2017F
P2P SMS
5,812
6,546
6,623
6,687
6,654
6,522
6,304
5,931
OTT Messaging
1,494
3,840
6,774
10,452
14,970
20,437
26,359
32,141

The point is that product substitution, while a fact, might not be as destabilizing a revenue trend as sometimes  believed.
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