SMS traffic and revenues decline for the first time ever in U.S., Chetan Sharma says
U.S. mobile operators raked in third quarter 2012 data revenues of $19.9 billion, up 3 percent quarter-over-quarter and 17 percent year-over-year—despite suffering their first-ever decline …
Context & Ripple Effects
The warning signs on texting date back to mid-2011, when the Wall Street Journal reported carriers sweating over cooling message volumes. Chetan Sharma's Q3 2012 numbers turn that anxiety into a milestone: U.S. SMS traffic and revenues declined for the first time ever, even as operator data revenues hit $19.9 billion, up 17 percent year-over-year.
The timing compounds pressure on the weakest of the big carriers — T-Mobile USA's Q3 2012 results showed revenue down 6 percent and profit down 15 percent the same week. The story drew wide pickup across Computerworld, Ars Technica, GigaOM and others, a sign that the end of SMS growth reads as an industry inflection rather than one analyst's data point.
First-order effects
- U.S. operators lose their highest-margin revenue line just as it stops growing — SMS was nearly pure profit on top of network costs, so the first-ever decline hits margins faster than the $19.9 billion data figure offsets it.
- Carrier messaging plans and per-message pricing lose their justification with subscribers, forcing a rework of tiered texting bundles that were designed for a growth market.
Second-order effects
- Operators must accelerate the pivot to data-tier and shared-plan pricing to replace SMS margin, which compresses average revenue per user at exactly the moment weaker players like T-Mobile are already posting double-digit profit declines.
- Handset makers and OS vendors gain leverage: the device ecosystem, not the carrier, now controls where messaging traffic flows, weakening operators' traditional grip on the subscriber relationship.
Third-order effects
- If the pattern holds, voice and SMS follow the same path toward unmetered add-on status, leaving carriers competing purely on data volume and network quality — a structural shift from selling services to selling access.
- Regulators and investors will increasingly evaluate carriers as bandwidth utilities rather than service companies, changing how spectrum, capex and consolidation debates get framed.
The trend: Mobile carriers are crossing over from metered per-service revenue (SMS, voice) to flat data-centric business models, with 2012 marking the quarter SMS growth finally ended.