Carriers Worry iMessage Will Destroy Their SMS Texting Business



As the number of voice calls have dwindled, mobile carriers now rely on text messaging as a profit center. Now that source of revenue is under attack as Apple prepares to release iOS 5 and iMessage, a feature allowing free messaging between iPhone, iPad and iPod touch users.

The service, to be unveiled Wednesday as part of the iOS update, allows Apple users to text one another, including sending video, photos and contacts in an encrypted format. While the service would still require a data plan to contact friends that don’t own an iOS device, the introduction of iMessage could upset carriers’ very lucrative apple cart.

Although texts cost carriers about a third of one cent, according to an expert who talked with the New York Times, they charge up to 20 cents for each text message sent or received. With 2 trillion texts sent each year in the U.S. alone, it is a $20 billion cash cow for carrier, Sanford C. Bernstein analyst Craig Moffett says. Texts virtually ‘ride free’ on carriers’ networks, using the same signal needed to just keep lines open for voice calls. One University of Waterloo professor estimated there is a “4,090 percent markup” on texts.

Little wonder iMessage has some carriers shaking in their boots. If you sent 1MB of texts each at 20 cents, you’d rack up $1,500 in charges. However, iMessage could drop that to a fraction — about $1.25 — even after paying $25 per month for a 2GB data plan, the newspaper reports.

If you need to know where this all might be going, check out what’s happening in the Netherlands. There, the combination of free messaging and social networking has “shrunk texting traffic and eroded profits,” the Times says. Hoping to keep some of their texting profits, carriers are offering deals on unlimited texting – even throwing in free voice calls if you sign up for texting. In the case of AT&T, you can now pay $20 per month for unlimited texting. The past $10 per month for 1,000 texts is history.

At Verizon, which rakes in $7 billion a year from texts, they are embracing iMessage, knowing iOS devices account for just 5 percent of the devices sending texts each year. “From a business perspective, customers still need a data plan to connect to a device. They are only making a choice on how they are using the data,” a carrier spokeman told the Times.