Analysys Mason: European SMS revenue and usage growth is slowing down
The SMS market in Europe is facing significant challenges in terms of retail revenue growth and usage, despite the successes of previous years. It is a mature market that no longer delivers growth in most countries--there was a marked deterioration in SMS retail revenue growth in most European countries between 2009 and 2011.
SMS retail revenue growth is declining in most European countries
There is enormous diversity within the European SMS market. Average SMS usage (the number of SMS messages sent per active mobile connection per month) in Europe was 81.2 in 2011, but10 countries had extremely low levels of SMS usage: below 50 messages per month. It is no coincidence that in these countries the price of SMS messaging is comparatively high. For example, in Spain, where SMS usage in the fourth quarter of 2011 was a mere 11.2 messages per month, the effective price per SMS is the highest in Europe (€0.11 per SMS, compared with a European average of €0.022). Five countries had levels of SMS usage per connection of above 150 messages per month, and Ireland and Turkey had more than 200.
The European SMS market has, until recently, been characterised as having generally solid growth in retail revenue. In Western Europe, the average compound annual growth rate (CAGR) was 3.8 per cent between 2007 and 2011, and the equivalent figure for Central and Eastern Europe was 6.5 per cent. (All revenue comparisons are based on euros converted at a constant exchange rate, at the fourth quarter of 2011, in order to eliminate the effect of currency fluctuations.) However, in most countries, there was a marked deterioration in SMS retail revenue growth during the second two years of that period (see Figure 1).
Figure 1: CAGR in SMS retail revenue, selected European countries, 2007–2009 and 2009–2011 [Source: Analysys Mason, 2012]
There was positive revenue growth in Austria, Bulgaria, France, the Netherlands, Russia and Ukraine in both 2007–2009 and 2009–2011, but a reduction in growth rates in the two later years. In all the 14 remaining countries shown in Figure 1 there was a decline in SMS revenue in absolute terms between 2009 and 2011. The worst deterioration occurred in Spain, at a CAGR of –9.7 per cent. The most notable turnabout of fortunes took place in Sweden, where SMS revenue growth in excess of 25 per cent between 2007 and 2009 plummeted to a decline of –2 per cent between 2009 and 2011.
Changing consumer behaviour accounts for the decline in SMS revenue
Declining or plateauing revenue is the signature of a mature SMS market where demand is becoming saturated and competition is forcing bundle prices down. Changing consumer habits account for the decline in SMS retail revenue, as well as the difficult economic climate that had an impact on most aspects of telecoms mobile revenue. Many users see email and instant messaging as viable alternatives to SMS messaging, and the threat to operator revenue from IP-based messaging systems (such as BlackBerry Messenger, iMessage and WhatsApp Messenger) is potentially strong in countries where the take-up of smartphones is high. Figure 2 plots the evolution of SMS usage per connection for some of the worst-affected countries.
Figure 2: SMS usage per active mobile connection per month, selected European countries, 2004–2011 [Source: Analysys Mason, 2012]
SMS usage accelerated in most countries during 2007 and 2008, but growth has been slowing down, or even going into reverse, in many European countries. There was declining or negative annual growth in SMS usage per connection in 2011 as compared with 2010 in 21 of the 30 European countries Analysys Mason studied. Of these, eight countries experienced absolute decline in SMS usage per connection during 2011. These include Denmark and Sweden, where smartphone penetration is high (at 40 per cent and 37 per cent of total handsets), and the challenge from IP-based messaging systems has been most pronounced.
Reduced SMS usage is a feature of both high- and low-volume markets. In Denmark, SMS usage reached a significantly above-average 158 messages per connection in the fourth quarter of 2008, but then declined steadily to 118 by the fourth quarter of 2011, declining particularly sharply during 2011. The SMS market in Lithuania also matured early. SMS usage accelerated quickly to peak at 180 messages per connection in the second quarter of 2006, after which it began to decline.
At the low-usage end of the market, the Netherlands and Spain are both interesting cases. In both countries, SMS messaging never really took off because of high pricing. In Spain, SMS usage has been declining constantly since its (relatively very low) peak of 27 in the second quarter of 2007, largely because SMS prices have been steadily climbing. In the Netherlands, prices fell during 2009–2010, and SMS usage grew from 34 in the first quarter of 2009 to 52 in the fourth quarter of 2010.
Operators have been slow to respond to this changing consumer behaviour. Some are now finally launching their own next-generation messaging services using Rich Communication Suite-enhanced (RCS-e), but the success of these services is by no means assured. For further information on this issue see Analysys Mason's viewpoint, RCS-e services: operator strategies for next-generation messaging. Without some significant action in the short term, operators can expect their long-term prospects for core service revenue to continue to be in steep decline.
Hilary Bailey has worked for Analysys Mason for more than 20 years. She specialises in quantitative forecast modelling and is a key contributor to the Core Forecasts research programme. She manages the Telecoms Market Matrix, which tracks and compares telecoms metrics and market shares for all the major fixed and mobile operators in Europe. Hilary has a degree in Economics from the University of Bristol, and an MPhil in Economics from the University of Cambridge.