Analysis: Texting profits at risk as users look elsewhere

Thu Jan 5, 2012 2:59pm EST
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By Sinead Carew

NEW YORK (Reuters) - Text-messaging has long been a big-time profit generator for U.S. mobile operators, but they now risk losing these profits as consumers find cheaper ways to communicate.

SMS -- short message service -- is no longer all the rage, but it still generates an estimated 12 percent of service revenue for U.S. operators.

Now, with many consumers turning to low-cost alternatives like iMessenger, BlackBerry Messenger and Facebook's mobile messaging service, operators like Verizon Wireless, AT&T Inc and Sprint Nextel risk losing a steady, superbly profitable source of income.

Customers using the new crop of messaging services must still pay for mobile Internet access, but the cost per message is much smaller than a monthly SMS service plan or per text charges, particularly as U.S. carriers charge both the recipient and sender.

U.S. operators still carry a lot of text messages on their networks, but they are seeing warning signs ahead.

"I do expect SMS to be under attack," Verizon Chief Executive Lowell McAdam told the audience at an investor conference in December, noting that some European carriers have already seen texting alternatives hurt their financials.

In particular Dutch operator KPN blamed the messaging services of social networks such as Facebook and Twitter for a dramatic drop in text messaging revenue in 2011.

In South Korea one alternative service, Kakaotalk, now handles 30 billion messages a month, eating into traditional texting traffic at the country's three mobile network carriers including SK Telecom.   Continued...