Have we hit peak SMS? WhatsApp, Facebook, BBM, Skype, iMessage and the many other free messaging apps for smartphones are finally beginning to erode one of telcos’ most lucrative cash cows – SMS.  SMS has had a fantastic growth run, but it looks to have now peaked as a revenue generator. 

In the third quarter of 2012, US mobile operators’ messaging volumes and revenues declined for the first time, according to Chetan Sharma Consulting. UK-based multinational operator Vodafone reported that its messaging revenues fell 3.3% on an organic basis in the six months to September 30 even though volumes were up 1.7%. In the three months to September 30, the organic decline in Vodafone’s messaging revenue was even steeper at 5.3%.

SMS revenue is clearly headed in the wrong direction, but the volume metric may actually be more important strategically. It is crucial that telcos don’t cede this space entirely to others – messaging is both an important marketing platform for other services and the generator of valuable social graph data. Without messaging, telcos will become far less relevant in the eyes of the consumer.

Remedial action - fast

What should telcos be doing to shore up SMS? First of all they have to recognise the extent of the competition and the need to move fast. One of SMS’s key advantages has been its ubiquity. But some communications apps, notably Facebook, are now used by hundreds of millions of people.  Nokia is even adding a dedicated Facebook button to some of its new handsets. If telcos don’t act now, SMS could end up on a slippery slope to oblivion.

Secondly, telcos need to accelerate the roll out of their own IP-based communications apps, but ensure they can also send SMS messages when necessary, in the same way that Apple’s iMessage service defaults to SMS if the recipient doesn’t have an Apple device. Telcos should do deals with handset makers to ensure that as many smartphones as possible ship with their own IP-based/SMS messaging app on the home screen. If the telco uses the SIM card to authenticate the customer, they should be able to set up this app with a couple of clicks.

Telcos should also keep messaging simple, putting the emphasis on dependability and interoperability. Many consumers aren’t that bothered about fancy additional features, such as photo sharing or file sharing. For many, the real value of SMS is being able to send simple time-sensitive messages, such as “I am running 20 minutes late” or “do you have your keys?” SMS is good enough in many circumstances.

Telcos’ postpaid bundles should include unlimited SMS as a matter of course. That gives consumers peace of mind and, if telcos move fast enough, may yet ensure that they maintain a large share of mobile messaging traffic.

Metered SMS is dead, long live unmetered SMS.