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Wireless industry contraction possible as mobile data slows, SMS declines: report

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Wireless carriers could face challenges on two fronts as mobile data growth slows and consumers spend less on messaging through carrier services, according to two different reports.

A recent report from Analysys Mason suggests that, contrary to popular opinion, growth in mobile data may not be as strong as expected going forward. This trend coupled with a loss in messaging revenue forecast by Strategy Analytics could lead to a contraction in the industry. 

“While mobile data traffic might be growing fast last year and this year, there are all kinds of reasons why in Western Europe and developed markets it won’t be growing as fast going forward,” said Rupert Wood,  a principal analyst with Analysys Mason, London.

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“The next 30 to 40 percent who want a smartphone but don’t currently have one are not going to be the heavy users of data that the first round of users are,” he said. “New users will dilute the growth rate quite a lot.

“The biggest factor by far is the use of WiFi, particularly in the home.”

WiFi use entrenched
While many are expecting an explosion in mobile data growth as smartphone penetration grows and users increasingly use their devices for data-hogging activities such as watching videos, Analysys Mason forecasts the volume of mobile data traffic will grow at a more subdued rate of 40.8 percent between 2012 and 2017.

Western Europe is expected to have the lowest growth rate in mobile data but, the rate will be lower than expected in the United States as well.

The research firm lays out several reasons why mobile data growth rates will be lower, including that later adopters of smartphones are not likely to be as heavy users of mobile data as early adopters.

Other contributing factors will be delays in availability of 4G and the growing use of WiFi to access data via smartphones.

“In Europe and to a lesser extent in the U.S., the default network for in-home use is WiFi,” Mr. Wood said. “That is something that is quite established as a pattern of behavior in many smartphone users and we don’t expect that to change any time soon.”

Industry contraction
Carriers will also face pressure from declining unit transport costs, which will make it very cheap to transport what little demand there is.

There are other factors putting cost pressures on carriers, such as the loss of messaging revenue to over-the-top services and the growth of new devices that have very little impact on carrier revenue, such as tablets.

As a result of the various cost pressures on wireless carriers, Analysys Mason expects there to be a contraction in the industry.

“All of these factors will lead to a critical contraction in the size of the operator business,” Mr. Wood said. “Those effects are greater in Western Europe, where we see the slowest growth in data traffic.”

Messaging revenue to drop
The Strategy Analytics report reveals that the amount consumers spend on SMS and MMS via wireless carriers has peaked this year and will begin to decline. Consumers are expected to increase their spending on SMS and MMS by just 2.5 percent this year and this amount will drop 12 percent over the next five years.

The trend is being driven by competition between operators and the growing use of over-the-top instant messaging services as well as messaging apps from BlackBerry and Apple.

“Overall, we expect US non-voice revenue to continue to grow over the next 5 years, largely as a consequence of rising spend on data plans for various connected devices,” said Nitesh Patel, London-based senior analyst for wireless media strategies, Strategy Analytics.

“However, clearly the 20 percent drop in messaging revenue will not help mobile operators,” he said. “Essentially, we expect consumer expenditure on messaging to fall from approximately 31 percent of carrier data revenue to 16 percent between 2011 and 2017.

“It’s a clear transition from messaging to data, a trend that has been apparent over the last few years.”

The decline in messaging revenue will be more pronounced in regions with the greatest penetration of smartphones and data users, such as North America and Western Europe, where SMS and MMS expenditure will decline by 18 percent and almost 25 percent respectively.

To address the decline in messaging revenue, wireless carriers should try to tap new opportunities in mobile marketing or increase innovation by opening up to the developer community, per Strategy Analytics.

“We believe SMS will remain essential for mobile marketers due to its ubiquity and its reach across network and device,” Mr. Patel said. “While we do expect consumers to reduce expenditure on SMS, we believe adoption will remain high and volume will continue to grow.

“More broadly, competition and downward pressure on SMS pricing will make SMS more cost effective more mobile marketing,” he said.

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York

Associate Editor Chantal Tode covers advertising, messaging, legal/privacy and database/CRM. Reach her at chantal@mobilemarketer.com.

 
Related content: Research, SMS, mobile data, Analysys Mason, Rupert Wood, Strategy Analytics, Nitesh Patel, mobile marketing, mobile

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