Is Europe's SMS cash cow losing its shine?

The rise of text messaging was one of those unexpected events that caught nearly everyone in the industry by complete surprise--and brought a glimmer of cheer to the normally cold hearts of many a mobile operator CFO.

The enormous margins that operators have been able to secure from transporting the 160 character messages across their networks has helped them during lean times, and provided them with valuable insight into how mobile data can be positioned and marketed.

But a study just published by Wireless Intelligence might indicate the first signs that the golden days of text messaging are drawing to a close.

As an example, the market research firm points to data provided by OPTA--the Dutch telecoms regulator--that states mobile subscribers in the Netherlands sent 200 million fewer text messages in the first six months of 2011 compared with the last six months of 2010. The decline was felt by the country's largest operator, KPN Mobile, which claimed that a change in consumer behaviour was behind it seeing lower volumes of text messages over the last few quarters.

This worrying shift away from SMS-based messaging was also observed over the same period in France, Ireland, Spain and Portugal. 

The particular situation in Holland is clouded by one of KPN Mobile's competitors, T-Mobile, reporting that SMS revenues had grown 8 per cent during its third quarter, and that the "IP-cannibalisation effect" was not impacting its messaging business.

This IP-cannibalisation refers to the growing popularity (or change in behaviour among consumers) of third-party messaging services such as WhatsApp, BlackBerry Messenger (BBM) and Skype and more. (Our sister publication FierceMobileContent looked at this in an in-depth special report in August.)

A Wireless Intelligence analyst, Matt Ablott, maintains that text messaging in mature Western European markets is showing clear signs that traffic volumes are falling, and revenues will follow likewise.

"This phenomenon is directly linked to the popularity of third-party messaging apps triggered by rising smartphone penetration. Whatsapp announced this week it is now delivering one billion messages a day, while new high-profile messaging services such as Apple's iMessage and Facebook's Messenger will accelerate the trends we are seeing," Ablott said in a statement.

Being among the first to see this threat to its text messaging business, KPN Mobile's attempt earlier this year to impose charges on these IP-based mobile services backfired in spectacular fashion when the Dutch government implemented net neutrality laws.

While these new and more sophisticated messaging systems have been enabled by the ongoing adoption of smartphones and low-cost mobile data bundles, it might be unwise to predict the imminent decline and fall of the SMS empire. Test messaging is cheap, it works (unlike the intermittence of more fancy services), requires no specialist knowledge and is totally ubiquitous.

For all its rather clumsy user interface, SMS has stood the test of time and has many years, decade perhaps, to run--albeit that it might no longer bring that rarity of a fleeting smile to a CFO. --Paul