Operators increasing SMS allure a short-term fix

SingTel's move to cut data cap and increase SMS quota for users "smart and strategic", say analysts, but add operators will eventually need to offer long-term compelling alternatives to IP-based messaging services.

Singapore Telecommunication's (SingTel) move to reduce its entry-level data cap from 12 gigabytes (GB) to 2GB while increasing its SMS (short message service) quota for postpaid subscriptions has been described by analysts as "defensive" and "combative". It is a short-term measure though, and operators need to figure out how to wrest control back from Internet Protocol (IP) messaging service providers, they note.

Jake Saunders, vice president of forecasting at ABI Research, smartphone users would tend to use IP-based messaging services such as Whatsapp due to their large data bundles, and these apps are cannibalizing operators' messaging revenue.

As such, SingTel's move of reducing its data cap was a "defensive" strategy to lead users back to the more lucrative SMS platform--which provided "100 percent profits" in 1980s and 1990s, he noted.

Nicole McCormick, senior analyst for telco strategy at Ovum, went one step further, saying the move was "partly a combative response" against the operator's IP-based rivals.

"Traditional mobile operators need to protect their messaging revenue bases. Tactics such as offering 'abundant' text as part of certain offers is one way to increase the short-term appeal of SMS compared with IP-based messaging services," she stated in her e-mail.

Saunders added that such a strategy is not a bad strategy for the Singapore telco to reestablish relationships with their customers. "Users still have a strong relationship with SMS," he noted, as not every user is satisfied by third-party messaging apps.

Furthermore, SMS is instantly accessible and the message can reach people without having to go through Internet Protocol and waiting for the app to launch before receiving the full message, the ABI Research executive said.

Frost & Sullivan's Asia-Pacific senior industry analyst for ICT practices, Mark Koh, agreed that SingTel's approach is "strategic and smart".

"For heavy users of SMS, it would save money for them. But in many cases where the consumer does not use their SMS allocation, the marginal cost to SingTel will still be low," he noted.

The analysts' observations are not reflective of one consumer's view though. Student Adrianna Tan said: "I live and breathe Whatsapp and SMS will never replace that. SMS is not cool anymore."

She added that while 2GB might be enough for her monthly use since she does not download movies on her mobile phone, she is unhappy over having to "pay more for [fewer] services".

No silver bullet for operators
There is, however, no silver bullet for mobile operators in terms of keeping customers on the SMS platform, said McCormick. In fact, Ovum has predicted that telcos globally will be forced to offer IP-based services between 2012 and 2014 to win back messaging traffic, she pointed out.

This is already happening, as some mobile operators are collaborating with over-the-top (OTT) service providers to provide such services or launching their own brand of services, the Ovum analyst noted.

"Monetizing IP messaging is difficult, but mobile operators must prevent customers moving to OTT offerings that challenge their relationships with the customer," she stressed.

A separate Ovum report earlier in June warned operators from launching their own brand of services as those offered by South Korean operators have yet to displace OTT service providers such as Kakao Talk, Daum, and Mad Smart. Instead, they are better off working together to create a new messaging service that's interoperable, it suggested.

Koh said telcos could work with developers to integrate its network capabilities to provide more compelling messaging services as another possible strategy. However, these offerings should not be walled off approaches that limits users to just its network, he added, reiterating the Ovum analysis.

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