Free messaging apps threaten wireless carriers' cash cow
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."
| March 3, 2011; 9:00 AM ET
Categories: Apple, FTC, Facebook, Mobile
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