Research Notes

Facebook is behaving like a new born cuckoo

– Danish SMS traffic decreased by over 20% in the first six months of 2011. This trend is continuing into 2012.

There is no doubt that Facebook is an enormous success. With over 800 million global users, it is safe to say that Facebook has approximately the same number of “customers” as the largest mobile operators.

Likewise it is common knowledge that many mobile operators actively use Facebook when marketing their mobile data products. A service like Facebook is helping to increase the demand for mobile data.

When we examined recent Danish mobile statistics, we saw that three out of four mobile operators have been experiencing a steady decrease in their SMS traffic month after month, and there is no indication that this trend will change in the coming months. From 1H 2010 to 1H 2011, mobile operator TDC experienced an SMS drop of 17%, Telia lost 18% and Telenor 26%, while the fourth operator 3 was the only operator that had growth in their SMS traffic. Their SMS traffic grew by 29.1% primarily due to their growth in new voice customers. Telia’s customers are sending most SMSs in Denmark and sent 1.53 billion SMSs in 1H 2011, followed by TDC with 1.12 billion, Telenor with 0.99 billion and 3 with 0.55 billion SMSs.

The bottom line is that having topped with over 6.6 billion SMS messages in 1H 2010, the number of Danish SMS messages fell during 2H 2010 to 6.4 billion and to 6.2 billion during 1H 2011. That is a drop of 6.9% from 1H 2010 to 1H 2011 – and this has happened in a country with a population of 5.5 million people.

The increasing penetration of smartphones in combination with the increased interest in Facebook, where we currently have over 3 million out of 5.5 million Danes on Facebook, has resulted in part of the daily communication between people that used to be sent via SMS, is now being transmitted via Facebook.

At Strand Consult, following this development on our own local market is very exciting and we have no doubt that many operators in other countries are starting to see the same trends and will start seeing these trends accelerate in the future. So the big question is how should a mobile operator tackle this development without necessarily having to take a big hit on their turnover or profit?

On the one hand we have Facebook, which has turned out to be an excellent tool in many countries for mobile operators to market and sell mobile data to their customers. But on the other hand we now have data and documentation that proves that Facebook is acting like a young cuckoo, throwing SMS out of the operators’ networks while they are not looking!

Strand Consult has analysed this phenomena and used our results to examine how this will affect mobile operators and where operators should adapt their business strategies in a number of areas to compensate for this new trend. There are two main areas where operators need to reassess their business strategies; the prepaid and smartphone areas.

Basically the challenge is how to ensure that a mobile operator’s cash flow does not decrease at the same rate as their decrease in SMS traffic? Additionally, how can an operator stimulate data sales to e.g. smartphone customers? The road forward is really quite simple and has been very successful in Denmark, where mobile operators now no longer view their loss of SMS traffic as a vital challenge.
What Danish operators have done is to bundle data offerings together with SMS and MMS packages, when selling smartphones. In other words instead of just selling data packages, the operator is selling a package that contains a certain amount of data and usually unlimited SMS and MMS.

In other words every time a customer purchases a data package in order to use their mobile phone for e.g. Facebook, the customer is actually also purchasing a SMS and MMS package which is included in the price.

Selling SMS packages is by no means a new product in Denmark. SMS packages have been sold to Danish customers for many years. When they were originally introduced, SMS traffic literally exploded. Even today, Danish mobile customers are still among the mobile customers that send most SMS messages in the world, with an annual average of around1200 SMSs per customer.

A close examination of the Danish market leaves no doubt that Facebook is currently cannibalising Danish SMS traffic. On the other hand Danish operators were fortunate that their customers were already used to having SMS packages bundled with their voice minutes, long before Facebook became so popular. Today this is helping Danish operators maintain their SMS revenue streams despite the significant decrease of sent SMSs.

We believe most operators can learn a great deal from the current SMS events in Denmark and that operators need to move quickly if they want to start getting their customers used to having SMS bundled with data products. The alternative will be customers soon demanding that they only pay for a data product without SMS or MMS.

If you would like to learn more about these challenges and how mobile operator can change their prepaid and smartphone strategy to help minimise the effects of the decrease of SMS traffic and revenue, please do not hesitate to contact us. We have already held many workshops for mobile operators around the world where we have described these challenges and explained how a mobile operator can adapt their business strategies to minimise and benefit from these changes in customer behaviour.

Strand Consult offers a number of different workshop concepts that covers these and other challenges that mobile operators around the world are currently facing. We have no doubt that operators that are currently starting to see any decrease in SMS traffic and SMS revenue should seriously start considering how they should react to stop this negative trend.

Please contact us if you would like to receive more information about Strand Consult and how we can help you: Contact Us
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