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The Golden Goose Called SMS

MG Siegler has a nice rant this morning about how wireless carriers are making a killing from SMS (aka text messaging). It includes this bit of sweetness:

“Look, SMS is great in that it connects so many people around the world. But the fees associated with it are an absolute joke. It’s a very small amount of data yet carriers seem to think it’s okay to charge an arm and a leg for it.”

Welcome to the ARPU-driven economics of the wireless industry where it’s all about squeezing as many dollars as you can from consumers. The wireless business is not about launching cool and innovative services, although there are lots of them available. It’s about selling as many of these services as possible at the highest possible price so a consumers’ bill keeps getting bigger.

I’m not naive about the realities of business but we’re talking about an industry with only a small amount of competition in which the players are, at best, modestly competitive with each other. It’s not like anyone is battling it out using low prices as a competitive weapon.

SMS is a perfect example of how the wireless industry is so good at the “Honey Pot” sales model. They lure in consumers with a sweet service such as SMS, get you hooked on its usefulness, and then slowly start to charge more for it.

By the time you realize how much it’s costing, you’re already hooked. This means no one abandons a service but looks to buy a monthly bundle (aka recurring revenue for the carrier) to make the service more affordable.

Look at what Telus and Bell are doing in Canada with a new initiative to charge consumers for incoming SMS messages – a move that will affect the 5% of wireless consumers without an SMS bundle. Bell and Telus see an opportunity to bump up ARPU so they’re going for it.

MG’s rant that SMS prices are a “joke” is on the mark but as long as the carriers can continue to sell a high-margin product with little pushback, they’re going to sell, squeeze and ARPU you as much as they can.

You could extend MG’s argument to wireless data services in general. The carriers see data as another Golden Goose so the focus is on ARPU, margins and profits – as opposed to providing consumers with an affordable ways to access a tsunami of new services and devices.

It’s the way of the wireless world. Get used to it because nothing’s going to change any time soon.

More: Twitter has made some changes in how it uses SMS outside Canada, the U.S. and India. As well, Michael Geist’s column in the Toronto Star offers some good insight into some of the key issues facing Canada’s wireless industry.

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  • http://www.parislemon.com MG Siegler

    Thanks Mark, I just think that the change that has been happening in the industry since the launch of the iPhone (albeit slower in Canada) will push SMS towards either being bundled with other data or being killed off by some service that utilizes the already paid for unlimited data (which I know Canada doesn’t have, but eventually in a few years)

  • http://crueltobekind.org Nicole Simon

    I see a big comparison to prices of phone calls out of hotels. Nothing was going to change that – until mobile phones came along.

    Yeah, Twitter might have us hooked on SMS but then again, we just now move over to data and not SMS. Charging for incoming SMS is probably one of the reasons Canada still gets them but over here in GErmany we do not pay for simple SMS. Introduce that and we will just go mobile. No mobile available? We will push wifi.

    Telefone carriers could make another big boom out of this, but insisting on old ridiculous pricing structures is not going to move us towards using them – but finding better alternatives.

  • http://marshallk.com marshall

    what nicole said. good post mark.

  • E Guy

    “The carriers see data as another Golden Goose so the focus is on ARPU, margins and profits – as opposed to providing consumers with an affordable ways to access a tsunami of new services and devices.”

    Laws of supply and demand indicate that the carriers are behaving as they should…optimizing their position…not sure that “providing consumers with affordable ways to access a tsunami of new and devices” is what the investors of carriers would want them to do…although it would nice for consumers…competition is a powerful ally for consumers…

  • t

    Mark,

    The statement that this will only affect the 5% of wireless customer without a SMS bundle is simply not true. A large majority of wireless customers are not on a bundle, and therefore subject to the new fees. Although, many of them never send or receive text messages.

    A recent US survey identified 15% of users as regular (weekly or more. Canadian behaviour has been comparable in the past.

    The 5% number is a by-product of people not understanding the stats. It derived from comments early in the story by a Bell spokeperson who said, accurately, that 95% of text messages sent are on a bundle and then inferred, incorrectly, that only 5% of customers would be affected.

    Usage of MSS is heavily skewed (as is voice calling and broadband usage and virtually every other similar service). A small percentage of customers produce a large percentage of the traffic. As such, the 95% of messages referred to are based on, maybe, 10%-20% of customers. Add some others who use little SMS but have messages bundles with other features and — at best — 20%-30% of customers are on a bundle.

    The remaining 70%+ customers are subject to the incoming SMS fees… which, of course, is the point of introducing them.

    To be fair, I don’t think this was a deliberate lie by the Bell spokesperson. Based on other comments by Bell people, I think this misunderstanding is widespread even within the company. On the other hand, someone there knows it is wrong and has allowed this error to stand.