Messaging Apps, VoIP Already Eating Into Carrier Revenue

An anonymous reader writes "A new breed of messaging services and mobile Voice over IP clients like Skype are already eating into carrier revenues according to a new study. '... one-third of carriers are already seeing voice traffic and SMS revenue decline as a result of the increased popularity of third-party solutions. ... For years, Research In Motion’s BlackBerry Messenger service has been one of the top features consumers and enterprise users loved about BlackBerry devices. It took much longer than some expected, but other vendors and third-party developers have finally come out in full force with competing services that provide SMS-like messaging over data networks at little or no cost to the user."

Comments

The funny part

[0123456]

Is that the data messaging probably costs the carrier more than SMS...

Re:The funny part

[Anonymous Coward]

SMS is technically free. The only cost is counting/bill.

Re:The funny part

[TWX]

Considering that SMS uses the same packet radio features that cellular networks use to keep the network appraised of where the phone is, and that packet size is much larger than the data that is transmitted per packet requiring the packets to be buffered out with null data, and that fitting the SMS messages just fill the rest of the packet that has to be transmitted anyway, even charging for SMS messaging is a crock.

I can understand charging for image or audio messages, as those actually do impact the use of the network. Charging for SMS, though, that's just sheer greed.

My wife and I got unlimited minutes cell plans when they were novel and first introduced to long-term customers several years ago, and we didn't get any SMS or data for her since she doesn't have a smartphone. Consequently, we used voice airtime even when SMS would have worked, as we didn't want to pay $0.20 for less than 300 characters. Because the carrier is greedy it actually cost them more for us to be customers.

I also believe that data features on smartphones that are provided by the carrier and OS on the phone, like e-mail, directory services, map data, and other non-web, fairly low-bandwidth data services should be complimentary with the purchase of the data plan, and should subsequently not count against one's 2gb cap or whatever the cap may be. But, apparently cell companies right now don't agree with me.

When I travelled overseas I found cellphones to be a much better deal. That they cost so much here for what one gets compared to overseas where they have the hell regulated out of them means to me that letting companies operate as they will, with contracts to the users, carrier-locked phones, and more than a single network standard further preventing even unlocked devices from conveniently switching between some carriers to be BS.

Re:The funny part

[Captain Splendid]

Won't somebody please think of the free market?

Not gonna happen. Libs fear it, Conservatives abuse it, and the Corporations want to get rid of it.

Best of luck.

Re:The funny part

[TWX]

The Free Market is a myth and always has been. Like the Laffer Curve and the trickle-down theory of wealth distribution.

Re:The funny part

[roc97007]

Right. And by charging extortionate prices for what is essentially a free service, the carriers have made it financially viable for competitors to flourish, even if they are ostensibly more expensive to run. Which is fine, that's how capitalism is supposed to work. The carriers could shut down these other services by significantly lowering the price of SMS services, but it's such a cash cow I think they'll try something else... maybe legislation?

Re:The funny part

[icebike]

SMS is technically free. The only cost is counting/bill.

If you consider only the radio spectrum involved in delivery, you could make that argument.

But the messages have to be routed, handed off to other carriers, stored and forwarded, etc. This has a real cost, even if the last mile imposes no additional burden on the cell tower.

Further, you must amortize your network, every switch, tower, transmitter, fiber optic. You spread these costs over every service you provide. If people dropped their voice plans and kept only their sms plans, you STILL end up having to maintain the same towers, networks, and switching centers.

So SMS messages are essentially free as long as you look ONLY at that segment of open air between the tower an your phone.

That being said, the rate charged for these things are beyond all measure of the actual costs. I'm not defending the pricing.
I'm simply calling into question the rather myopic view that they come down the same pre-existing signaling channel and are therefore free.

Re:The funny part

[Anonymous Coward]

Right. So, in other words, it doesn't cost the carrier any extra than it would otherwise, therefore it's free. QED.

Did someone enable your -verbose and -idiot flags when you booted up this morning, or what?

Re:The funny part

[teg]

SMS is technically free. The only cost is counting/bill.

Carriers don't charge SMS usage fees because of the big variable costs... they charge because they can, because it has a value to the customer.

A large part of the cost for a carrier is fixed cost - the various priced services is just how to they believe they can recoup most of it and make their profit. If noone pays for SMS anymore, they'll instead have higher costs for talk or data than they do now. They know how much money they need to earn per handset on average, and that's what they'll get one way or the other.

Re:The funny part

[linuxwolf69]

But don't they have to do all of this to be able to make calls anyway? The only difference being that SMS could be sent out more frequently than calls, thus causing slightly more handing off to other carriers.

Also, I've never heard of an SMS only plan. I think the argument here is that since all of this connectivity must be maintained for the Voice network, why are we paying so much for the SMS, which essentially costs a very small amount of cost on the provider's end when looking at the fact that all of their infrastructure and interconnectivity is needed for the voice portion of the service? That's what GP means by "technically free".

Re:The funny part

[EdIII]

But the messages have to be routed, handed off to other carriers, stored and forwarded, etc. This has a real cost, even if the last mile imposes no additional burden on the cell tower.

I agree with you, but it important to point out that routing, including "peering and transit" is already established and not part of the cost calculations for SMS. SMS is just a different type of communication, and does not require its own special hardware or communication protocols specifically. At least not to my knowledge.

Routing the SMS message internally does not add significant cost or complexity. The OP is actually correct in a sense. The billing and reporting on SMS messages actually costs more than sending the SMS, at least internally.

There is already a TON of traffic in between carriers. Validating roaming status, call set up and teardown, etc. The costs, that the carriers created, was the massive gateways and complicated short code system to sell SMS to businesses.

As you said, even considering the costs of the gateways themselves and the bureaucracy of SMS shortcodes and premium charges, they are still making 6 figure profit margins, at a minimum.

The cost of SMS is completely artificial. It has never made sense to me, other than greed and avarice, to sell SMS at all. It should be a completely free service intended to be "added value" to the services already being charged for. Considering people's penchant for using it so damn much, it actually lowers their costs and increases how much service they can sell. If a typical SMS exchange is 1/1,000,000th (or less) of the data passed during a conversation then it is to the advantage of the carrier to encourage it. Such egregious charges do the opposite.

Now they are fucked.

Skype and persistent IM solutions using their data connections represent a HUGE increase in actual traffic passing from the tower to the handset, where it is most expensive.

Not to mention the solutions that allow you to send recorded messages back and forth. No charges for SMS. No charges for cellular minutes usage. Nothing but data, which they still make unlimited on the handset.

Not smart. They deserve what they have coming to them because it was so easy to stop. Longer SMS messages and a completely free service would have provided a heck of lot less incentives to find solutions around their crazy pricing.

Google Voice and GrooveIP

[oakgrove]

Between the 1 2 combination of Google Voice and GrooveIP, Verizon is "losing" a ton of revenue from me. My text messaging needs are natively handled by Google Voice and with some help from the grooveip app, Google Voice handles my voip needs as well. I just turned off my texting carrier plan and cranked my minutes to the absolute minimum. Fortunately I'm grandfathered in on an unlimited data plan from Verizon to make this all possible. I have unlimited monthly calling minutes and messages on the lowest plan Verizon carries. I just carry my OG Droid around as a glorified Mi-Fi and keep my Nexus S tethered. You wouldn't even realize theNexus doesn't have a similar card the system works so well.

Prices go up, usage goes down?

[jandrese]

So shortly after all of the major carriers dropped the even slightly reasonable SMS plans, people started using the hacky but free alternatives? What a shocker. This seems like a classic example of what happens when you price yourself right out of the market.

Re:Prices go up, usage goes down?

[jeffmeden]

So shortly after all of the major carriers dropped the even slightly reasonable SMS plans, people started using the hacky but free alternatives? What a shocker. This seems like a classic example of what happens when you price yourself right out of the market.

If you want to see Price Discrimination at work, check out the prices on Mobile Virtual Network Operators (companies that buy access to Verizon, ATT, Sprint, etc. in bulk and resell it via subscription or prepaid contracts.) MVNO carriers offer basically the exact same coverage footprint, you can use the exact same set of handsets (but without a contract, the prices are obviously much different) and yet a MVNO will charge you at least *half*, if not less, for the exact same number of minutes, text messages, and data. Why more people don't use them instead of continuing to be extorted by the big carriers is beyond explanation. If gas cost half as much but you had to pump it yourself (oh, wait) how many people would ever go to full-serve filling stations?

Re:TextFree+Voice

[oakgrove]

I can't receive random pictures and videos over text messages with Google Voice you say? That's a feature!

Re:TextFree+Voice

[MobileTatsu-NJG]

All the solutions I'm aware of lack Picture Capability...

iOS 5's iMessage supports sending of photos and videos. Chances are I won't have an SMS plan much longer.

Re:iMessage

[Nerdfest]

Proprietary solutions are not helping anybody but the people who create them, be it Apple or RIM.

Re:Good for several reasons

[TWX]

I thought the whole point was that SMS uses the remainder of the defined packet size that's otherwise filled with null characters because of the nature of the packet sizes that were chosen when this kind of radio communication was implemented... In short, SMS costs nothing when the data is already being transmitted OTA anyway...

SMS at Hubble data rates

[quixote9]

just shouts "more money than brains." It was on /. a while back. (! yr? 2 yrs? more?) Somebody costed out what people were paying for texting, and on a per-byte basis, it cost more than what NASA paid to communicate with the space telescope. I never could understand people putting up with that. Voip + wifi for me since about 2005.

Re:SMS at Hubble data rates

[what2123]

I remembered this also and had to go find it; http://science.slashdot.org/story/08/05/12/1419204/sms-4x-more-expensive-than-data-from-hubble

And this is the REAL reason for Data caps -at home

[denis-The-menace]

1-Imagine if people could get unlimited data plan not for their Smartphone but at home.
2-Imagine if many (not most or all) people offered limited but free WIFI to Cell phones. (Don't ask how, just follow me on this)
3-Few people would need a data plan at all on their SmartPhones
4-Cell phone providers would have to lower their rates or die.

However, with great corruption comes draconian laws.
Therefore, cell phone providers have little to fear.

Re:Welcome to dumb pipes.

[TWX]

Keep in mind that for everyone who wants a dumb pipe, there's someone who wants America Online, even if they have no idea why they want it.

That's how all of these "features" that cell phone companies concoct manage to keep customers coming in.

Re:Good for several reasons

[alexandre_ganso]

There IS NO channel load for SMS. Every time you phone says "hello, I'm here", it receives an equivalent of an ACK with SMS WITHIN THE SAME PACKET.

So you can receive as many sms as times as your network knows in which antenna you are, without using a single extra byte from them, because that would be zero-filled otherwise.

If there is such a thing as an immense scam right now, it is SMS.

Good!

[RazorRaiser]

Fuck 'em! They get what they deserve. Maybe one or two might even learn to charge a fair prices.

They just add data plans to make up for it!

[cs668]

T-Mobile added a per MB data plan to my service when I specifically set up my plan 2 years ago to have no data component. I told them that I did not what my phone to be able to access the Internet and surprise me with charges. Everything was fine until me last bill, when I had $40 of data charges. They had added an on demand data plan to my service and like any good smart phone when it couldn't get wifi it went ahead and used the mobile carrier, and racked up a big bill. I think that is their way of upping revenue.

Re:Who cares?

[MobileTatsu-NJG]

For years the American Consumer has been saying "We want to pay the same amount every month for a service, worry-free about overages. We want predictability. We want to be able to budget and plan ahead." It makes sense, right? But for some reason, we can hand these companies over a fairly large sum, more than we'd pay if we really fine-tuned our service preferences, and they'll still want more out of us. The SMS thing, in particular, kills me just on the grounds that we are just handing them over pure profit. Yet they still keep upping the prices on it.

I was really happy to see people stand up and tell the banks NO to the debit card fees. I can't help but hope that we start stepping up more to fight all this nickel-and-diming. I think it's time for me to start putting a little more energy into doing just that. I recently had a problem where Time Warner would call me every few months to offer me digital phone service. Each time I'd tell them to stop calling me. I had to spend an hour on the phone one night to finally nail that down for good. (To their credit, it has been almost a year and not even an advert has come through the mail.) But... if they do, I'm dropping one of my premium services. I like HBO, but I don't really need it. I'm wiling to bet if other people started removing upsells from their services these companies might settle down a bit.

Re:Good for several reasons

[schwaang]

But they have to make up for the cost of billing you for it somehow....

Re:iMessage

[icebike]

Yup, but the protocols for their own video calling system are open and published. You are welcome to implement your own alternative. Which no one did so far, AFAIK.

If you are bothered by it, did you do something?

Published, maybe, Free, not.

With a zillion protocols to choose from why did apple invent their own.

XMPP (Jabber) was there all along, and its under active development and enhancement, its free, cross platform and is being extended to handle video, voice, and multimedia with the formalization of LibJingle. In addition to a world wide network of free servers, it can now work with no server at all.

Google uses it. Microsoft uses it. Why did Apple have to invent their own?

Could it be that XMPP could reach out beyond the garden walls?

Dear Carriers:

[IGnatius T Foobar]

Dear Carriers:

What you want the least, is what your customers want you to be the most: a dumb pipe.

Please get out of our way.

Sincerely,

Your Customers

Re:iMessage

[shutdown -p now]

Thing is, Apple could easily run this infrastructure in an open way - say, as a federated XMPP server - and just publish an open extension that lets you figure out if the sender (defined by his phone number) is signed up for that infrastructure or not. Then it'd all work just as transparently as iMessage does today, but for all phones that would implement this system.

Unfortunately, it seems that their solution is restricted to their ecosystem - even if Google wanted to, say, run their own servers to do the same for Android, they couldn't interoperate with iPhones. That sucks.