Free Texting Apps Are Threat to Wireless Carriers
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.
Context & Ripple Effects
The per-text fee has been under strain for over a year before this piece: the Wall Street Journal reported in June 2011 that texting growth was already cooling, and back in September 2010 GigaOM flagged T-Mobile's move to exempt Twitter texts from charges even as it raised other prices — an early sign carriers knew flat-rate app messaging was coming for their most profitable line.
The New York Times now names the mechanism directly: with email and other internet communication essentially free, apps that send messages over a phone's data connection make the 20-cents-to-send, 20-cents-to-receive SMS fee look like pure margin under attack. The question is no longer whether smartphone owners can route around paid texting, but how fast they will.
First-order effects
- Carriers' highest-margin revenue line — per-message SMS fees — starts leaking as smartphone users shift conversations to free over-the-top messaging apps that ride on data plans they already pay for.
- Customers on metered texting plans gain a credible exit: any app that delivers messages over IP makes the 20-cent fee optional rather than unavoidable.
Second-order effects
- Carriers are pushed toward bundling unlimited messaging into data plans — following the path T-Mobile previewed in 2010 when it declined to tax app-generated texts while raising prices elsewhere — because defending per-message fees against free substitutes costs more than giving the feature away.
- App makers and handset platforms gain leverage over carriers: whoever owns the messaging client on the phone controls the customer relationship for communication, reducing carriers to transport.
Third-order effects
- If messaging completes its migration to data, wireless economics restructure around data-plan pricing alone, and carriers' attempts to manage or prioritize messaging traffic on their networks become a likely flashpoint for regulators.
- Communication services decouple from network operators entirely — the same pattern email forced on long-distance voice — leaving carriers competing on bandwidth and coverage rather than on metered services.
The trend: Mobile messaging is migrating from carrier-metered SMS to free internet-based apps, eroding one of wireless carriers' highest-margin revenue streams and pushing the industry toward data-plan-only economics.