Research Notes

Facebook is killing the mobile operators’ SMS traffic and revenue

– The golden days where SMS traffic and revenue simply continued to grow are almost over, as customers are now moving part of their mobile communication traffic over to Facebook.

For many years and in many countries, SMS has been an excellent source of revenue for mobile operators – often generating almost 20% of the operators’ turnover. But those days are almost over. The question is whether there is anything at all that mobile operators can do about this?

There is no doubt that when you examine the global SMS traffic, how it has developed over time and its importance to many mobile operators, SMS has been one of the biggest cash cows in telco history. For years, mobile operators have tried to create new types of cash cows to keep the SMS cash cow company in their cash cow stables.

First the operators thought their mobile portals would be their next big cash cow, and more recently they thought it was going to be mobile data. Imagine their disappointment when it turned out that the competition on the mobile market became so tough that they had no option but to sell mobile data as inexpensive flat rate products.

In other words the operators have yet to find a new cash cow that comes anywhere close to their SMS cash cow and now many operators are seeing an increasing number of customers moving their SMS traffic over to Facebook, resulting in their SMS cash cow getting thinner and thinner. In countries like Denmark and Norway this trend is very visible, as an increasing number of customers are reducing their daily SMS traffic because they are moving their communication over to Facebook chat or Instant Messenger.

Today, over 800 million people around the world use Facebook on the Internet and over 425 of them use Facebook on their mobile phone. Measured in minutes of use, Facebook probably transports more mobile traffic, number of messages and time spent online than the world’s largest operator.

People who believe that Google is currently the biggest threat to mobile operators may not realise exactly how much time mobile customers are using on Facebook and how Facebook is currently changing the way over 800 million people communicate on a daily basis. The biggest difference between Facebook and Google is that Facebook is a communication tool that people use to keep in touch with their family and friends every day.

In many ways one can compare Facebook’s development in the mobile industry to how the Internet affected the media industry. Market players like Google, Skype, Twitter and MSN are only marginally important to the mobile industry compared to Facebook.
The question is whether operators can do anything to limit the damage that Facebook is making on their cash flow? Is there any way that mobile operators can retain their SMS revenue even though customers are using Facebook to communicate? Strand Consult believes the answer is yes and that the solution is quite simple.

If you look at how most operators market and sell SMS, you will see that most operators charge the customer for each individual SMS he or she sends. In practice this means that the customer has a choice between sending an SMS that the customer knows costs money, or alternatively use his flat rate data subscription to write a message via Facebook if the recipient is on Facebook.
However mobile operators in Denmark have been selling SMS as a flat rate product for a number of years. A Danish customer pays between €3 to €6 for a flat rate SMS subscription, that is part of their mobile data subscription package. This has resulted in almost all Danish mobile customers purchasing a SMS package every month as part of their mobile subscription, without questioning whether they need it and also without worrying about how many or few SMSs they actually send per month – as they feel their SMSs are “free”.

So despite the Danish market seeing exactly the same trend of decreasing SMS traffic and Facebook traffic skyrocketing, Danish mobile customers are actually still paying the same for their flat rate SMS traffic. Or to put it another way, mobile operators have taken out an insurance on their Danish SMS revenue by marketing and selling flat rate SMS to almost all Danish mobile customers as a natural part of their mobile subscription.

Strand Consult explains these and many other current challenges in our customised workshops that we hold for mobile operators around the world. During these workshops we show operators how to easily take out insurance on their SMS revenue on both their prepaid and postpaid markets. If you would like to learn more about these unique workshops, please do not hesitate to contact us to receive more information about how a number of mobile operators are now handling the many challenges they are currently facing – including those that Facebook is giving them: Contact Us
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