SMS usage numbers sending bleak message to telcos

The influx of instant messaging apps has made a deep dent in SMS revenue

Even a few quarters back, SMS or short message service was one of the key metrics for cellular operators with more than 10% revenue contribution. With instant messaging applications like WhatsApp, Blackberry Messenger (BBM), WeChat, Line, Nimbuzz or Hike, among others, which emerged as better and cheaper options, contribution of SMS has dropped to about 5% of operators' total revenue at the end of March 2014.

At the age of 20, SMS is not a preferable way for communication any more. Industry experts say revenue from SMS could have been much lower during the January-March 2014 quarter without the Election campaigns that contributed significantly during the immediate past quarter. While this seemsan area of concern for mobile service providers, it actually isn't.

The estimated loss from a drop in SMS is getting compensated by fast-growing data revenue. Increasing smartphone and feature phone reach, with instant messaging apps, have forced telecom service providers to find ways to compensate revenue loss from messaging services with income from data. "Operators need to develop alternative strategies to cover possible losses. Once 3G (third-generation services) takes off, data will contribute much more in theyears to come," Piyush Choudhary, analyst with CIMB said in a recent report.

Bharti	Mar 31, 2014	Mar 31, 2013
Messaging &VAS as % of mobile revenues	5.6	9.1
Data as % of mobile revenues	11.1	6.5

The data subscriber base in India is expected to touch 350 million by FY16, a penetration of 34% from the present level of about 19%. During the fiscal year ended March 2014, the country's largest operator by subscriber base Bharti Airtel reported a drop of 4.5 percentage points in revenue from messaging and value-added services, at only 5.6% of total mobile revenue.

This was 9.1% in the year ended March 2013. During the same period, data as a percentage of mobile revenues almost doubled to 11.1%from 6.5%.Vodafone India,the country's second largest telecom carrier by subscribers, reported a 12.7% dip in messaging revenue during the fiscal year ended March 2014, at Rs 1,166 crore against Rs 1,336 crore in the year-ago period.

Vodafone	FY14	FY13	YoY (in %)
Voice (in Rs crore)	30,872	27,592	11.9
Messaging (in Rs crore)	1,166	1,336	-12.7
Data (in Rs crore)	4,477	3,175	41
Data browsing (in Rs crore)	3,436	1,997	72
Data – others (in Rs crore)	1,040	1,177	-11.6

And, revenue from person-to-person text messaging is estimated to have dropped by multiples ofthis number. Revenue from data services, however, has grown by 41% during the year. According to Idea Cellular's quarterly report, non-data value added services revenue (as apercentage of total service revenue) dropped 2.2 percentage points in January-March 2014 quarter against the same quarter previous year.

In a recentstudy, mobile communication research firm Ovum has said SMS growth rates had fallen from 14% in 2011 to 8% in 2013. By 2015, its revenues will begin to plateau. It estimated that new messaging platforms will cost operators $54 bn in revenues by 2016. According to Cellular Operators Association of India (COAI) director general Rajan Mathews, only about 30% of the country's mobile subscribers use SMS, due to language restraints and regulatory restrictions also curbed SMS flow during the past few quarters.

Idea Cellular	Q4 FY14	Q4 FY13
VAS as % of service revenue	16.5	15.2
Data as % of service revenue	10.1	6.6
Non data % of service revenue	6.4	8.6

Mathews also believes that introduction of vernaculars for SMS may come as a respite.Telcos have alsotied up with applications providers, such as WhatsApp, Line, WeChat, BBM, to offer cheap monthly plans targeting college goers and specific audiences. US-based WhatsApp has around 40 million active users in India out ofits total 430 million users globally.

While China's WeChat declined to give details of how many users it has in India, industry insiders say that it, too, has close to 30 million registered users in India,followed by Nimbuzz, Japan's Line, BBM and Hike. In the last one year, chat usage amongst smart phone users has witnessed a significant increasefrom 70% in November 2012 to 86% in November 2013, as cited by Nielsen Informate Mobile Insights.