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The soaring success and steady climb to ubiquity of short message services (SMS) has largely taken the wireless industry by surprise. Its associated phenomenal growth in value and volume has made SMS the closest to a “killer application” for wireless data services that the wireless market has seen thus far. 

A new study by Frost & Sullivan, the international marketing consulting company, points to intuitive applications and services that combine ease-of-use, personalisation and value as the most potent forces driving the uptake of wireless information services in Western Europe.

The study identifies SMS as the dominant data contributor to carriers’ average revenue per user (ARPU), accounting for approximately 10 per cent of total revenues. Network operators are keen to see this figure grow. SMS gives them an immediate and installed data revenue opportunity. 

Frost & Sullivan highlights that SMS was not developed as a person-to-person (P2P) messaging service or content delivery channel. It credits the youth market, which spearheaded SMS usage for P2P messaging, with driving mass-market uptake of SMS messaging. SMS is a basic messaging technology, forecast to rocket from its current level of 186 billion messages per year to an annual 365 billion sent across Western Europe in 2006.

Frost & Sullivan sees continued strong growth in SMS traffic to 2004, as it will take a few years before next-generation messaging technologies such as MMS are fully deployed and mass market adoption of MMS-enabled handsets occurs. After 2004, SMS growth will start to level off, and revenues are projected to decline as MMS rises in popularity and grows its share of premium messaging content services, generating a higher portion of data revenues in the process.

Person-to-person (P2P) messaging is the most popular form of SMS at present, accounting for 95 per cent of total text messaging traffic. SMS content services continue to be developed, and are starting to be more visible in the marketplace. The study believes that SMS content services will account for 7 per cent of all SMS traffic by 2006.

Allison Webb, Research Analyst at Frost & Sullivan, reports: “The advent of 2.5G and 3G networks and devices will usher in a new era for richer, more engaging multimedia technologies. SMS is fully deployed today and presents an instant opportunity for key wireless groups throughout the value chain to generate new revenue streams by delivering premium content services and applications to subscribers.”

SMS offers an immediate and installed opportunity for content developers, operators and innovative brands and companies to reach consumers over wireless. SMS messaging will remain predominantly P2P, and will be used as a stepping stone and support for next generation multimedia applications and services, and technologies like MMS.

“There are several examples of network operators and other influential players in the wireless industry getting ahead of the market by trying to promote emerging technologies, rather than capitalising on what is currently available and in use,” Ms Webb remarks.

“WAP services are one example of this. WAP services were poorly marketed, and the supporting technology needed to ensure an easy-to-use service for the average wireless subscriber was not in place at the time of launch. WAP is a technology, not a service. SMS represents an immediate, installed revenue opportunity,” she continues.

Network operators and content developers should view SMS as a real opportunity to introduce subscribers to data-based services, before trying to push next-generation services like MMS that have not yet been launched for the mass market, and present limited revenue potential.

The study cites the availability of good quality content, clear billing structure, revenue sharing, and a sustainable business model between network operators, service providers, content providers and equipment vendors as some of the issues that must be resolved before wireless data services will boost return on investment (ROI). The key to the adoption of SMS services is for network operators and service providers to identify and market those services that will have mass market appeal and consumers will pay for.

Current GSM networks will be able to carry SMS traffic for the foreseeable future without capacity constraints. It will be several years until the introduction of next-generation technologies and services like EMS and MMS will have a significant impact on SMS traffic and revenues. This is due to the time it will take for an installed base of MMS-enabled devices to reach the market, and the resolution of issues regarding pricing models and billing relationships.

SMS scores highly in simplicity, accessibility and ease-of-use. “Subscribers discovered it themselves, and are aware of its value. This is where SMS has an advantage over newer technologies and services that require packet-based networks, new wireless devices, interoperability, sophisticated billing infrastructure and greater bandwidth to deliver a compelling and value-added user experience. SMS offers immediate revenue, and an effective way to migrate subscribers to more advanced next-generation applications and services,” the study concludes.

Price: €5,000 Code: B056 Publication Date: March 2002




Background
Frost & Sullivan is an international marketing consulting company that monitors a comprehensive spectrum of high-tech markets for trends, market measurements and strategies. This ongoing research is utilised to complement a series of research publications to support industry participants with customised consulting needs. Interviews and free executive summaries are available to the press.

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