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Posted at 9:00 AM ET, 03/ 3/2011

Free messaging apps threaten wireless carriers' cash cow

By Cecilia Kang

beluga.png

Here's the dirty secret about text messages. It costs a wireless carrier close to nothing to send and receive them -- even though they charge about $10 a month for 500 to 1,000 texts.

Now, a new crop of messaging apps -- including one recently bought by Facebook -- are threatening the wireless industry's cash cow. GroupMe and Beluga, bought by Facebook earlier this week, is among several free group messaging services that allows users to send texts to contact lists, Twitter followers and Facebook friends through a smartphone application. Fast Society also allows users to customize groups for messages and provides conference calls.

As more cell phone users turn to smart phones, the new set of messaging software allows users to bypass text messages offered by carriers. And that's perked the interest of Web giants, analysts say.

"Facebook is, at its core, a communications company," wrote Craig Moffett, an analyst at Sanford C. Bernstein research. "The move to acquire Beluga makes this explicit. Beluga puts Facebook squarely into competition with carriers for the first time."

He and analyst Amelia Chan wrote in their recent note to investors that a trend toward in-app texting could eat into the revenues of wireless carriers who don't get the same rate of returns from data consumption. Watching videos on a device is a much greater burden on a network than texting. They said wireless data makes up only 9 percent of a carrier's revenues while voice and texting bring in the majority of revenues.

Carriers will likely respond by strapping texting plans to data packages, the analysts said. Trade group CTIA-The Wireless Association said U.S. text messages rose to 1.8 billion June 2010 from 1.3 billion the year earlier.

"The question is: how long will it be until this inefficiency is addressed?" wrote the Sanford analysts. "Just because there is demand doesn't mean that consumers are willing to pay so much for a service that costs so little to the operator."

By Cecilia Kang  | March 3, 2011; 9:00 AM ET
Categories:  Apple, FTC, Facebook, Mobile  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: The Circuit: Twitter denies J.P. Morgan reports; Kerry, Snowe introduce spectrum bill; Microsoft mad at Facebook
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Comments

Great app. Can't use it any more since i don't have a FB account.

Posted by: jimv12 | March 3, 2011 12:30 PM | Report abuse

Wow, those are some really cool programs. We need stuff like that to keep the greedy carriers in check!

www.Privacy-Web.tk

Posted by: clermontpc | March 3, 2011 1:52 PM | Report abuse

"Just because there is demand doesn't mean that consumers are willing to pay so much for a service that costs so little to the operator."

Recent history suggests otherwise. There seems to be no limit to what people will pay to send text messages. I'm constantly amazed.

Posted by: higginsrj | March 3, 2011 3:23 PM | Report abuse

really REALLY want to see billing for txt messages go the way of the dodo bird

but then.. i'm afraid what the carriers will replace it with
:(

don't trust them as far as i can throw them

Posted by: SDsc_rch | March 4, 2011 2:02 AM | Report abuse

I really dislike paying for text mesages. As another contributor here wrote, it costs the carriers essentially nothingZ>

Lickily for m,e though I'm American I live in Thailand, where I pay virtually nothing to send a text message to a local cell phone, and only a slightly higher fee to send one domestically but to a phone in a different area code. I also pay more, but still not much, to send a text message internationally.

More irksome to me than having to pay something for sending texts is having to pay for RECEIVING them, as I have tro do in the U.S., where I'm now located for a lengthy visit of several months and using a local cell phone on a pay-as-you-go basis.

Also, different but related, through my service in Thailand, I can call a regular phone or a cell phone for as cheap as the rough equivalent of 5-6 cvents per minute. On my service here, I pay 25 cents per minute. That seems pretty steep to me. (A different service in Thailand offers rates to the U.S. at certain times of the day for about *3* cents per minute, by the way.)

Posted by: MekhongKurt1 | March 4, 2011 5:05 AM | Report abuse

Deloitte: Text Messaging Still Far More Popular Than Mobile Twitter, Other Social Networks http://lnkd.in/JNKbx4

Smartphone users prefer SMS to social networking or email http://bit.ly/fi523M

A billion SMSes sent in a single day in Beijing http://ndtv.in/f6dITv ---- WOW!!!!!

Informa states - 5 TRILLION Text messages sent in 2010 will rise to 8.7 TRILLION in 2015 http://vator.tv/v/2460

BBC News - Over 5 billion mobile phone connections worldwide http://www.bbc.co.uk/news/10569081 - WOW!!!!

You need to be more accurate in your research. Are you the intern?

Posted by: tomsheahan | March 4, 2011 10:44 AM | Report abuse

Fantastic news that the big names are going to have to reassess something they've been abusing for so many years! My son's been working in South Africa for a year now, and he tells me "MixIt" has been going there for many years now-allowing anyone who has web access on their phone to enjoy the benefits of free texting. Seems they run by very different measures there-no charge on receiving calls or texts, all sim cards have to be registered with a national board for control and an odd thing for me was that apparently, their prepaid sector is more expensive than contract based plans. From where I sit, using net10, I couldn't imagine wanting to be stuck to a contract because their rates were lower. So while other countries may be ahead in other areas, we still have the benefit of cheaper prepaid services without the ties to the contract, bills and etfs that go with it.

Posted by: wayup | March 5, 2011 9:38 AM | Report abuse

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