Revenue from SMS messaging at wireless carriers will decline by $23 billion over the next five years as over-the-top messaging applications such as WhatsApp continue to gain in popularity, according to a new report from Informa Telecoms & Media.

The report, "World Cellular Revenue Forecasts 2012-2018," reveals that SMS revenues will fall from $120 billion in 2013 to $96.7 billion in 2018. However, despite the decline in revenues, Informa believes SMS still has a role to play if wireless carriers proceed appropriately.

?SMS must evolve, and evolve now,? said Pamela Clark-Dickson, senior analyst for mobile content and applications at Informa Telecoms & Media, London. ?Otherwise it will likely dwindle and die, not immediately and not even in the short term ? ie to 2018 ? given the substantial base of mobile subscribers globally who still rely on SMS on a daily basis, but eventually.

?The shift to IP-based communications services by mobile subscribers should be seen as a catalyst for mobile operators to overhaul their SMS services, so that SMS remains a legitimate choice as a communications service for mobile subscribers,? she said.

Enterprise growth
While SMS revenues will decline in a number of markets, Informa also expects carriers to see growth in revenues from enterprise as the corporate and government sectors realize benefits of using SMS as an inexpensive, reliable and widely-available messaging channel for engaging with customers, employees, partners and the general public.

Wireless carriers have typically focused on providing wholesale SMS to various providers of enterprise messaging services, which is often low-quality bulk SMS that may be discouraging enterprises from using SMS.

Going forward, wireless carriers could play a greater role in the provision of high-quality, reliable, wholesale SMS to enterprises and brands, which could help the carrier generate additional revenues.

?There is data to suggest that enterprise/brand use of SMS is increasing, and that the revenues from enterprise/brand use of SMS is increasing,? Ms. Clark-Dickson said.

?The penetration of smartphones and mobile broadband acts as both an enabler and an inhibitor for OTT messaging applications, and subsequently their use by brands,? she said.

?At the moment, the penetration of smartphones and mobile broadband is not universal, which means that SMS still has an advantage over IP-based messaging services with regards to enterprise/brand use of it as a communications channel.?

Revenues drop off
The region expected to experience the highest drop in annual SMS revenues is Asia Pacific, where revenues are expected to total $38 billion in 2018, down from $45.8 billion this year.

Much of the revenue loss in this region will come from China, where annual SMS revenues are expected to total $19.6 billion by 2018, down from $25.4 billion this year.

In Western Europe, where over-the-top messaging apps have taken a strong hold following the financial crisis of 2008, SMS revenues are also expected to drop significantly.

Informa forecasts that Italy will see the steepest decline, falling to $2.2 billion in 2018 from $3.3 billion this year.

Mitigating factors
Wireless carriers in both of these regions will be able to mitigate the impact of over-the-top messaging apps where there is a high proportion of postpaid subscribers to whom they can offer unlimited SMS or large bundles of SMS with a contract. As a result, they will see a lower rate of decline.

For example, Informa expects that in South Korea, where 99 percent of mobile subscribers are postpaid, SMS revenues will decline by a compound annual growth rate of negative 3.5 percent, less than half the rate Italy is expected to experience.

In France, where 74 percent of subscribers are postpaid, the rate of decline will negative 4.1 percent.

Informa also expect SMS revenues to continue to decline significantly in North America.

In a few areas, growth in SMS revenues will continue for the next few years but will eventually start to decline as well. These areas include Japan, Argentina, Egypt, Kenya and the United Arab Emirates.

?I do think it?s too early for marketers to be rethinking their SMS strategies,? Ms. Clark-Dickson said.

?We?re not saying that users are not engaging with SMS as much,? she said. ?Informa?s historical SMS traffic data shows that SMS traffic is increasing for most of the almost 300 operators tracked by Informa on a quarterly basis.

?It?s just that SMS isn?t generating as much revenue for mobile operators as it used to. It has pretty much become a commodity, and mobile operators need to add some value to it if they want to grow their revenues from it.?

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