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Worldwide A2P SMS Markets2014-2017Understanding and analysis of application-to-persontext messaging markets worldwide

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Worldwide A2P SMS Markets 2014-2017

2 © 2013, Portio Research. All Rights Reserved


Portio Research Limited. Published March 2014 by Portio Research Limited © Copyright 2014. www.portioresearch.com [email protected]

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Contents Mobile Market Worldwide ........................................................................................................ 6

Introduction .......................................................................................................................................... 7 Mobile Subscriber Base ....................................................................................................................... 7 The evolution of Mobile devices to Smart devices – Smartphones and Tablets .................................. 8 The Evolution of Mobile Services ....................................................................................................... 11 What this implies ................................................................................................................................ 12

Mobile Messaging Services ..................................................................................................14 Mobile Messaging Revenue ............................................................................................................ 15 History and Future Outlook of SMS ................................................................................................. 20

SMS Traffic & Revenue – Worldwide ...................................................................................23 Growth of SMS .................................................................................................................................. 24

A2P & P2A Text Messaging ...................................................................................................29 SMS Revenues........................................................................................................................32 SMS Traffic & Revenue: North America ...............................................................................36

Canada .............................................................................................................................................. 41 The US ............................................................................................................................................... 42

Latin America SMS Market: Brief Overview ........................................................................44 Mobile Messaging and SMS Conclusions ...........................................................................48

SMS versus OTT – what’s REALLY going on? .................................................................................. 50 The BIG question: ........................................................................................................................... 50 Is SMS over; is it about to drop off a cliff? ....................................................................................... 50 Are OTT messaging apps killing and replacing SMS? .................................................................... 50 Well, the answer is… ....................................................................................................................... 50 Will SMS Crash and Burn? .............................................................................................................. 51 Closing Summary ............................................................................................................................ 52



List of Figures Figure 1: Mobile Subscribers – Worldwide (In Million, End 2010-End 2017F) ................................................... 7 Figure 2: Mobile Subscriber Base Growth Rate – Regional (In Percent) ........................................................... 8 Figure 3: Mobile Handset Industry – Key Milestones ......................................................................................... 9 Figure 4: Smartphone Shipments – Worldwide (In Million, 2010-2017F) ......................................................... 10 Figure 5: Tablet Shipments – Worldwide (In Million, 2010-2017F) .................................................................. 11 Figure 6: Mobile Industry – Key Milestones ..................................................................................................... 12 Figure 7: Mobile Services Revenue – Break Out (In Percent, 2012) ............................................................... 14 Figure 8: Comparison of Mobile Messaging Services ...................................................................................... 15 Figure 9: Mobile Messaging Revenue – Worldwide (In USD Billion, 2010 – 2017F) ....................................... 15 Figure 10: Messaging Revenue – Regional Contribution (In Percent, End-2012, End-2013F & End-2017F) .... 18 Figure 11: Worldwide Mobile Messaging Revenue Break-out (In Percent, 2012, 2013F & 2017F) ................... 19 Figure 12: Key Markets Break-Out - SMS (In Percent) ...................................................................................... 21 Figure 13: SMS Traffic Growth (In Billion, 1992-2017F) .................................................................................... 24 Figure 14: SMS Traffic – Worldwide (In Billion, 2010 – 2017F) ......................................................................... 25 Figure 15: SMS Traffic–Regional Contribution (In Percent, 2012, 2013F & 2017F) .......................................... 27 Figure 16: P2P SMS Traffic – Worldwide (In Billion, 2010 – 2017F) ................................................................. 29 Figure 17: P2A and A2P SMS Traffic – Worldwide (In Billion, 2010 – 2017F) ................................................... 30 Figure 18: SMS Revenue – Worldwide (In USD Billion, 2010 – 2017F) ............................................................ 33 Figure 19: P2A and A2P SMS Revenue – Worldwide (In USD Billion, 2010 – 2017F) ...................................... 34 Figure 20: SMS Traffic – North America (In Billion, 2010 – 2017F) ................................................................... 37 Figure 21: P2P SMS Traffic – North America (In Billion, 2010 – 2017F) ........................................................... 37 Figure 22: P2A and A2P SMS Traffic – North America (In Billion, 2010 – 2017F) ............................................. 38 Figure 23: SMS Traffic – North America: Growth Snapshot .............................................................................. 38 Figure 24: SMS Revenue – North America (In USD Billion, 2010 – 2017F) ...................................................... 39 Figure 25: P2A and A2P SMS Revenue – North America (In USD Billion, 2010 – 2017F) ................................ 40 Figure 26: SMS Traffic and SMS Use per Subscriber per Month – Canada (2010 – 2012) ............................... 41 Figure 27: P2A and A2P SMS Traffic – Canada (In Billion, 2010 – 2012) ......................................................... 41 Figure 28: SMS Traffic and SMS Use per Subscriber per Month – The US (2010 – 2012) ............................... 42 Figure 29: P2A and A2P SMS Traffic – The US (In Billion, 2010 – 2012).......................................................... 42 Figure 30: SMS Traffic – Latin America (In Billion, 2010 – 2017F) .................................................................... 44 Figure 31: P2P SMS Traffic – Latin America (In Billion, 2010 – 2017F) ............................................................ 45 Figure 32: P2A and A2P SMS Traffic – Latin America (In Billion, 2010 – 2017F) .............................................. 45 Figure 33: SMS Traffic – Latin America: Growth Snapshot ............................................................................... 46 Figure 34: SMS Revenue – Latin America (In USD Billion, 2010 – 2017F) ....................................................... 46 Figure 35: Worldwide Mobile Messaging Revenue Break-out (In Percent, 2012, 2013F & 2017F) ................... 48 Figure 36: Revenue Potential – Key Services ................................................................................................... 49



List of Tables Table 1: Mobile Messaging Revenue Growth Trend – Regional and Worldwide ............................................ 16 Table 2: Mobile Messaging Revenue – Regional and Worldwide (In USD Billion, 2010-2017F)..................... 16 Table 3: Break-out of Mobile Messaging Revenue by Service – Worldwide (In USD Billion, 2010– 2017F) ... 19 Table 4: Growth of SMS – Worldwide (In Billion, 2000 – 2017F) .................................................................... 20 Table 5: SMS Traffic Growth Trend – Regional and Worldwide ...................................................................... 25 Table 6: SMS Traffic – Regional and Worldwide (In Billion, 2010-2017F) ...................................................... 26 Table 7: A2P and P2A SMS Traffic – Regional and Worldwide (In Billion, 2010-2017F) ................................ 30 Table 8: A2P and P2A Top Markets (2012) .................................................................................................... 31 Table 9: SMS Revenue Growth Trend – Regional and Worldwide ................................................................. 33 Table 10: Mobile Messaging Services – Key Indicators (2013F & 2017F) ....................................................... 49 Table 11: SMS Vs. Countries ........................................................................................................................... 50 Table 12: Growth of SMS – Worldwide (In Billion, 2000 – 2017F) .................................................................... 52



Chapter 1 Mobile Market Worldwide



Mobile Market Worldwide Introduction

The ubiquitous mobile phone has become the single most prolific and the single most widely adopted device in the history of technology, arguably in the history of mankind itself. The global mobile ecosystem economy easily has the largest number of participants among all competing economies. Over the space of little more than two decades, worldwide mobile penetration is nearing 100 percent, implying that there are almost as many mobile phones in use as there are people on the planet. Mobile Subscriber Base

The worldwide mobile subscriber base reached 6.4 billion at the end of 2012. The mobile subscriber base worldwide is anticipated to grow at a CAGR of 4.8 percent over the period 2012 to 2017 and exceed 8.0 billion subscribers at the end of full year 2017. The figure below shows the mobile subscriber base for the period 2010-2017.

Figure 1: Mobile Subscribers – Worldwide (In Million, End 2010-End 2017F)

Source: Portio Research Ltd.

F – Forecasted

Worldwide mobile subscriber base growth will be led by the Middle East & Africa and Asia Pacific regions. The Middle East & Africa is expected to grow at a CAGR of 6.4 percent over the period 2012-2017. During the same period, Asia Pacific will witness a CAGR of 6.0 percent.

5,3575,963 6,367

6,803 7,185 7,515 7,796 8,034

0

2,000

4,000

6,000

8,000

10,000

2010 2011 2012 2013F 2014F 2015F 2016F 2017F

Mob

ile S

ubsc

riber

s

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illio

n)

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Figure 2: Mobile Subscriber Base Growth Rate – Regional (In Percent)


The evolution of Mobile devices to Smart devices – Smartphones and Tablets

Over the years, the increase in the processing power and computational speed of mobile devices has made them significantly more multi-functional, progressively extending their utility beyond voice communication to simple text messaging followed by Internet browsing and emailing, onto multimedia messaging and multimedia entertainment (playing music, running video clips etc.), on to video communication on the mobile device, to running a variety of applications. The new age mobile smart devices run on their own Operating Systems, and are a personal computer in their own right by all benchmarks. The most important among these are the Smartphone and the Tablet.

1.3%

6.0%

2.0%

2.9%

6.4%

0%

1%

2%

3%

4%

5%

6%

7%

Europe Asia Pacific North America Latin America Middle East & Africa

Gro

wth

Rat

e (In

Per

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)

Region



Figure 3: Mobile Handset Industry – Key Milestones


Smartphone: A smartphone is a handset that is based on an Operating System that allows it to run applications. A smartphone is capable of downloading and running applications that includes third-party applications and has its own built in memory. A smartphone has a processor and RAM, and is able to run multiple applications simulatenously. Smartphones also usually include a USB connection, which allow users to sync data with other devices and create back-ups. Smartphone shipments worldwide are expected to reach 823 million this year, in 2013. Smartphones accounted for around 41 percent of total handset shipments during the full year 2012. This figure is expected to reach 46 percent during 2013. Furthermore, by 2017, more than half (56 percent) of total handset shipments will be smartphones.

1983 •First mobile handset launched

1991 •First 2G mobile handset launched

1993 •First PDA cum handset launched

1994 •First mass produced mobile handset launched

1996 •First mobile handset with a display screen launched

1999 •First mobile handset with music player launched

2001 •First colour display handset launched

2001 •First mobile handset with QWERTY keyboard launched

2002 •First mobile handset with camera launched

2002 •First mobile Handset with touchscreen launched



The figure below shows smartphone shipments for the period 2010-2017.

Figure 4: Smartphone Shipments – Worldwide (In Million, 2010-2017F)


F – Forecasted

Tablet: A tablet (also called media tablet, or tablet PC) is also based on an Operating System that allows it to run applications. It is capable of downloading and running applications that include third-party applications and has its own built in memory. It has a processor and RAM and is able to run multiple applications simulatenously. Tablets also usually include a USB connection which allow users to sync data with other devices and create back-ups. A tablet differs from a smartphone on two key aspects (i) screen size – tablets usually have a screen size of at least 7 inches, and smartphones less than 6 inches, (a new category, phablets, are starting to occupy the middle ground) (ii) using the mobile operator’s voice network – a majority of, though not all, tablets are primarily data devices, which cannot connect through a mobile operator for voice calls. Tablet shipments worldwide are expected to cross the 200 million mark this year, in 2013. This figure is forecast to nearly double by 2017, reaching 398 million. Tablet shipments are already sizable compared to shipments of Laptop and Desktop PCs, and are forecast to average a CAGR of 24 percent over the period 2012-2017.

300

478

680823

9781,094

1,2051,296

0

300

600

900

1,200

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2010 2011 2012 2013F 2014F 2015F 2016F 2017F

Sm

artp

hone

Shi

pmen

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The figure below shows tablet shipments for the period 2010-2017.

Figure 5: Tablet Shipments – Worldwide (In Million, 2010-2017F)


F – Forecasted

The Evolution of Mobile Services

As the mobile device has essayed a journey from a simple voice communication enabler to its modern avatar of a handheld PC as a Smartphone or a Tablet, so also have the services in the mobile ecosystem moved beyond simple voice communication. First, SMS came into existence in late 1992, enabling a significant value-added service over plain old voice telephony. On top of peer-to-peer messaging communication, it enabled a host of information and entertainment content services for MNOs and third-party VAS providers. By the turn of the millennium, a mobile handset was already a significantly-featured, multi-functional device – it could handle voice and text messaging communication, play music files and radio, had a reasonable quality camera, and had resident memory. Around this time, the wireless technology itself was moving towards enhancing the mobile data experience. Several commercial GPRS/EDGE and CDMA 1x – EVDO networks were launched in the early 2000s, bringing for the first time an acceptable data network experience on mobile devices. Subscribers could now begin to take their network connected desktop/laptop experience of Internet browsing, Instant Messaging and chat, and E-mailing on the move with them; heralding the era of true mobile computing. Also in the early 2000s arrived multimedia messaging, or MMS, which further enabled audio, photo and video messaging communication on top of plain text messaging. MNOs could now enable a variety of content specific services for subscribers, such as downloads of photos, videos, songs and audio clips etc. This was followed by a slew of commercial launches of next generation mobile networks – running on 3G and HSPA – starting with North America and Western Europe. These further enhanced the mobile data experience for consumers, providing higher mobile bandwidth, and preparing a large market of subscribers for both expecting and demanding, new services to harness this networked mobility to enhance their lifestyle and improve their productivity. The emergence of the early smartphone era then contributed significantly to this.

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2010 2011 2012 2013F 2014F 2015F 2016F 2017F

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Figure 6: Mobile Industry – Key Milestones


The next wave of mobile services enhancement was propelled not by MNOs or network and technology OEMs, but led by Consumer Devices giant Apple. It first offered music and video retailing through iTunes (launched for the iPod range of music players in 2003, and the iPhone range of smartphones in 2007), and followed this up with the Apple App Store launch in mid-2008, which offered third-party applications to download on the iPod and iPhone range of devices. The iPad range of tablets was launched in early 2010, adding to the expanded family of smart devices from Apple. Towards the end of the first decade of the new millennium, other technology players followed suit, with Google partnering with a variety of handset brands (Samsung, HTC, LG the most prominent) to offer smartphones running its own Android OS, and mobile applications through Google Play (called Android Marketplace when launched). BlackBerry revamped its mobile devices to enhance its offering for the consumer market in addition to its core business market. Nokia chose Microsoft’s Windows Phone as its preferred OS over erstwhile Symbian. What this implies

By the end of the first decade (2010), both mobile devices and mobile services had undergone a drastic transformation. From plain voice communication, people were now relying on mobile devices and services to manage a significant part of their business and personal lives. From simple voice and text communication, the mobile ecosystem now enables information access, entertainment access and larger social access – all on the move, and all highly personal and individual.

1992 •Launch of SMS

1999/2000 •Launch of Commercial GPRS/EDGE/CDMA 1x – EVDO Network

2002 •Launch of MMS

2003 •Launch of Commercial 3G and HSPA networks

2003 •Launch of Music services for mobile devices

2008 •Launch of Mobile Application Stores

2010 •Launch of 4G networks



Chapter 2 Mobile Messaging Services



Mobile Messaging Services By the end of 2012, operator service revenues from mobile messaging services stood at USD 218 billion, an eight percent increase over the same figure for full year 2011. The four key services that make up this segment are SMS, OTT messaging1, MMS and Mobile E-mail. Mobile messaging services contributed roughly 20 percent to total worldwide mobile services revenue – the largest category after voice in full-year 2012.

A market of such impressive value obviously encourages heated competition and breeds innovation, making it both exciting and testing times for the mobile messaging space. Mobile Messaging services include the following streams:

a) SMS b) OTT Messaging Services (OTT messaging apps) c) MMS d) Mobile E-mail

1 Note: With OTT messaging, MNOs currently earn revenue through data usage on the mobile devices through mobile data plans. Most of the players offering OTT messenger services are currently in the customer acquisition phase, and have only a small focus on monetization. In our 6th Edition, we covered Mobile IM as a separate messaging service along with other services mentioned above. With the rise in smartphone penetration in all markets worldwide, OTT has become the dominant platform, and many OTT apps are – in reality – IM apps, so now we cover OTT messaging apps as a single category; Mobile IM revenue is not covered separately in detail in this report.

Figure 7: Mobile Services Revenue – Break Out (In Percent, 2012)


65.0% 19.8%

8.8%6.4%

Voice Mobile Messaging Data Other Services

OTT Services

MMS

Mobile E-mail

SMS



The following figure compares the mobile messaging services – SMS, OTT messaging services, MMS and Mobile E-mail – on the basis of four parameters (simplicity, ease of use, cost and handset compatibility) that take both the demand and supply sides into account.

Mobile Messaging Revenue The worldwide mobile messaging market was worth USD 218 billion in 2012. This number is forecast to rise to USD 230 billion in 2013, registering a year-on-year growth of 5.5 percent. Among the four mobile messaging services covered in this report, SMS yielded the highest revenue for operators in 2012.The figure below depicts worldwide mobile messaging revenue over the period 2010 to 2017.

Figure 9: Mobile Messaging Revenue – Worldwide (In USD Billion, 2010 – 2017F)


F – Forecasted

172.8201.4

218.1 230.0 236.8 239.7 236.7 227.1

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Figure 8: Comparison of Mobile Messaging Services


SMSOTT

Messaging Service

MMSMobile E-

mail

Simplicity Ease of Use Cost Handset Compatibility

SMS scores the highest on three (Simplicity, Ease of Use and Handset Compatibility) out of four parameters

OTT steals the deal on Cost parameter



As shown in the figure above, our forecasts indicate that revenue from mobile messaging services will peak in 2015, and thereafter start declining. Different regions will enter the decline phase at different times, starting with North America, as shown in the following table.

Table 1: Mobile Messaging Revenue Growth Trend – Regional and Worldwide

Region Mobile Messaging Revenue – Growth Trend

2011 2012 2013 2014 2015 2016 2017

Europe

Asia Pacific

North America

Latin America

Middle East& Africa

Total

Source: Portio Research Ltd. As depicted in the figure above, the first region to enter the decline phase will be North America in 2015, followed by Europe in 2016, and then all the major regional markets in 2017.

Table 2: Mobile Messaging Revenue – Regional and Worldwide (In USD Billion, 2010-2017F)

Region Mobile Messaging Revenue (In USD Billion)

2010 2011 2012 2013F 2014F 2015F 2016F 2017F

Europe 51.1 59.9 64.4 67.4 68.9 68.9 67.1 63.7

Asia Pacific 66.2 74.4 79.9 83.3 85.4 87.5 87.7 86.3

North America 40.2 47.4 50.5 53.4 54.8 54.5 52.9 49.3

Latin America 6.1 7.8 9.2 10.2 10.8 11.2 11.2 10.6

Middle East& Africa 9.2 11.8 14.0 15.8 16.9 17.6 17.8 17.1

Total 172.8 201.4 218.1 230.0 236.8 239.7 236.7 227.1




Supported by the largest subscriber base, Asia Pacific is the biggest market for mobile messaging. While Asia Pacific countries like the Philippines, China, India and Indonesia lead the worldwide SMS and MMS markets, the most advanced markets of the region – Japan, South Korea, Australia and Hong Kong – lead the world as advanced mobile e-mail markets. In 2012, the region generated the highest mobile messaging revenue worldwide among all regions, with USD 79.9 billion. Regional mobile messaging revenue is forecast to increase to USD 87.7 billion by the end of 2016, which is forecast as the market peak. After 2016, the value of this vast market will decline marginally, totaling USD 86.3 billion in full-year 2017. Europe is the second biggest mobile messaging market worldwide in terms of revenue, followed by North America. The ranks of regions in 2017, in terms of contributions to worldwide mobile messaging revenue, are expected to be the same as in 2012. Asia Pacific will continue to be the dominant market, followed by Europe and North America (even though both Europe and North America’s share of worldwide mobile messaging revenue will marginally decline).



The figure below shows regional contribution to the worldwide messaging revenue in the years 2012, 2013 and 2017.

Figure 10: Messaging Revenue – Regional Contribution (In Percent, End-2012, End-2013F & End-2017F)


F – Forecasted

SMS still rules the mobile messaging market in terms of both traffic and revenue. SMS generated the highest revenue in 2012, and SMS revenue is forecast to dominate worldwide mobile messaging over the next five years through to the end of 2017, and beyond. In revenue terms, MMS lost its 2nd place position to mobile e-mail in 2011. Mobile E-mail will continue to enjoy the second position over the next four years through to 2016, at which point OTT messaging will take the second spot.

29.3%

36.2%

23.2%

4.4%6.9%

Latin America Middle East & Africa

2013F

29.5%

36.7%

23.2%

4.2%6.4%

Europe Asia Pacific North America

2012

28.1%

38.0%

21.7%

4.7%7.6%

2017F



The table below highlights the revenue for all mobile messaging services during 2010-2017.

Table 3: Break-out of Mobile Messaging Revenue by Service – Worldwide (In USD Billion, 2010– 2017F)2

Service Mobile Messaging Revenue (In USD Billion)

2010 2011 2012 2013F 2014F 2015F 2016F 2017F

SMS 116.1 128.7 132.3 133.9 132.1 129.5 124.6 117.2

OTT 5.2 10.0 16.0 22.7 29.8 36.0 41.1 45.2

MMS 26.6 28.6 30.4 31.3 31.7 31.5 29.9 26.4

Mobile E-mail 24.9 34.1 39.3 42.2 43.1 42.8 41.2 38.3

Total 172.8 201.4 218.1 230.0 236.8 239.7 236.7 227.1

Source: Portio Research Ltd. As noted above, SMS made the highest contribution to worldwide mobile messaging revenues in 2012, with a whopping 60.7 percent share, and mobile e-mail followed with 18 percent. MMS revenue made up 14 percent during the same year. This is shown in the figure below.

Figure 11: Worldwide Mobile Messaging Revenue Break-out (In Percent, 2012, 2013F & 2017F)


F – Forecasted

The revenue generated by OTT messaging apps, mostly generated as data revenue for MNOs, will overtake Mobile E-mail in 2017 and will become the second largest stream in terms of revenue after SMS. As shown in our forecasts, OTT services will contribute almost one-fifth of the total messaging revenue during the full year 2017.

2Note: Sum of individual messaging services may not equal total due to rounding off errors.

60.7% 58.2%51.6%

7.3% 9.9%

19.9%14.0% 13.6% 11.6%

18.0% 18.3% 16.9%

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SMS OTT Messaging Service MMS Mobile E-mail



Over the next few pages, we present a brief overview of the mobile messaging services, along with a comparison with last year’s forecasts. History and Future Outlook of SMS The first SMS was sent on the Vodafone UK network from a PC to a mobile handset in December 1992, but the first P2P (Peer-To-Peer) SMS, from one mobile handset to another, was sent by a Nokia engineer in Finland in 1993. SMS has witnessed phenomenal growth, leaving behind all other non-voice services. From just 146.4 billion SMS in 2000, annual traffic volumes have risen to over 7.9 trillion SMS messages sent in 2012. The table below shows the astronomical growth of SMS from 2000 to 2017.

Table 4: Growth of SMS – Worldwide (In Billion, 2000 – 2017F)

Year SMS Traffic (In Billion) Year

SMS Traffic (In Billion)

2000 146.4 2009 5,225.6

2001 218.0 2010 6734.8

2002 366.0 2011 7719.2

2003 450.0 2012 7945.1

2004 760.6 2013F 8161.0

2005 1,056.4 2014F 8262.1

2006 1,662.4 2015F 8293.8

2007 2,778.0 2016F 8197.8

2008 3,972.9 2017F 7891.4

Source: Portio Research Ltd. SMS Uptake Analysis – Key Markets3 After analyzing the change in SMS usage over the period 2010-2012, key markets worldwide can be broadly classified into following four categories:

i. Growth Markets – Includes countries that saw a continuous rise in usage over the period 2010-2012

ii. Decline Markets – Includes those markets where traffic eroded continuously over the period 2010-2012

iii. Positive Shifters – Includes markets that saw an upside in traffic in 2012 after registering decline in 2011

iv. Negative Shifters – Includes markets that entered a decline phase in 2012 after registering growth in 2011

3 Note: Based on the in-depth analysis of major markets that constitute nearly 84 percent of the total worldwide subscriber base as of the year 2012.



The figure below depicts the contribution of each of the four categories described before:

As shown in the figure above, 62 percent of the markets (comprising 56 percent of the worldwide subscriber base) saw a rise in traffic in 2012 over traffic volumes in 2011. However, these combined markets saw a decline in that traffic growth rate, from 13.7 percent during 2011, to 7.4 percent in 2012, which suggests that growth is slowing and may stagnate in these markets in the next couple of years. This decline in the growth rate is faster than we envisioned while forecasting the figures during the last edition of this report, almost 18 months ago, leading to the change between our old and new forecasts. Some of the major SMS markets in this category are: China, Indonesia, Pakistan and Russia. Almost a quarter of SMS markets, 22.5 percent to be precise, saw a decline in traffic from 2010 to 2011, and again from 2011 to 2012. Some of the key markets in this category are: the Philippines, Malaysia, Australia and Denmark. Again, the drop in usage in these markets was a little higher than we anticipated at the end of 2011. These markets lost almost a quarter of their SMS traffic in 2012, after registering a decline of 17 percent from year-end 2010 to year-end 2011. Nearly 11 percent of worldwide markets, including key geographies such as India, the UK and the US, saw a decline in SMS traffic in 2012. The markets in this group registered an increase of 15 percent in terms of SMS traffic over the course of 2011, but then saw a drop in usage of around 2 percent during 2012. A few markets (4.2 percent) saw a rise in traffic in 2012 after registering a decline during 2011. However, this cluster includes relatively small markets such as Norway, Croatia and Malta, with an almost negligible influence on total worldwide subscriber figures.

Figure 12: Key Markets Break-Out - SMS (In Percent)


62.0% 22.5%

4.2%11.3%

Growth Markets Decline Markets Positive Shifters Negative Shifters

Worldwide Subscriber Base Contribution:55.9%

Worldwide Subscriber Base Contribution: 6.3%

Worldwide Subscriber Base Contribution: 0.2%

Worldwide Subscriber Base Contribution:21.2%



Chapter 3 SMS Traffic & Revenue Worldwide



SMS Traffic & Revenue – Worldwide Short Messaging Service, simply known as SMS or text messaging, has established itself as the world’s simplest and easiest means of personalised, written, one-to-one communication – with SMS volume growth statistics attesting to its popularity. In the past few years, the 160 character long text message has found its utility in almost every sphere of life – including banking, making payments, charity donations, ticketing, discounts and offers, bill payments, elections campaigns and voting, reality TV shows voting, dating, marketing, news and information, opinion sharing, activating a mobile phone service, authentication, and so on. With its widespread reach to virtually all mobile subscribers, SMS has long been the most popular messaging service and has helped MNOs significantly offset the effects of falling voice revenue. However, in recent years, Over-the-Top (OTT) messaging services have gained momentum among mobile users owing to an upsurge in smartphone penetration, their availability for free, the adoption of advanced networks providing high-speed Internet access, and discounted and unlimited data plans. The growing popularity of OTT messaging services is now finally starting to slow SMS use, especially in the developed markets of North America and Western Europe. SMS traffic worldwide will continue to rise in the coming few years (till 2015), purely because of a growing subscriber base. SMS, which was once considered the most economical means of messaging, is now being viewed by some consumers as one of the most expensive data services. With the arrival of OTT messaging services, consumers have begun seriously questioning the pricing and value proposition of SMS. SMS – characterised by 160 characters – contains approximately 140 bytes of data. Considering SMS is being charged at USD 0.02 per SMS (worldwide average), users would have to pay more than USD 150,000 for texting 1 GB (gigabyte) of data. This is clearly far more expensive than an equivalent amount of data charged under any data plan, and this very high margin is one of the major reasons why SMS has proved to be a highly profitable service for operators. Mobile users are now being offered a bucket load of OTT services, most of which are completely free and seem to offer unlimited free messaging and other benefits. OTT services deliver numerous features such as one-on-one chat, group chats, thread-view conversations, custom status message, and the sharing of multimedia content – including photos, video and voice messages – in real time. Of course, OTT messaging services have their own limitations, such as they only offer free texting between users using handsets with the same operating system (OS) or that are running the same application. For example, BlackBerry Messenger (BBM) only allows BlackBerry owners to chat among themselves; free messaging using Apple iMessage is limited to iOS5 [and above] users; ChatON supports Android, bada and Samsung feature phones; and WhatsApp only works between users who have downloaded the WhatsApp Messenger application on their smartphones. However, with the growing popularity of smartphones and innovative OTT messaging services being unveiled daily, it won’t be long before some of these closed user groups subscribe to services that can interact with each other and reap the benefits of further free texting. Moreover, players have already announced plans to extend the support and scope of their respective messaging services; for example, BlackBerry BBM will soon be made available on other operating systems including Apple iOS and Android.



Growth of SMS

• SMS traffic reached 100 billion from 0.5 billion in just 3 years (1996-1999). • Over the next four years (1999-2003) SMS traffic increased to 450 billion • In another two years (2003-2005) traffic breached the one trillion mark • SMS traffic crossed the 5 trillion mark in 2009. • SMS traffic to peak in 2015 – 8.3 trillion messages

Figure 13: SMS Traffic Growth (In Billion, 1992-2017F)


F – Forecasted

As shown in our forecasts, more than eight trillion messages will be sent in 2013. The number of text messages will increase to around 8.3 trillion in full-year 2014. Worldwide SMS traffic will continue to increase until reaching peak traffic in 2015, after which it will start declining. The key drivers maintaining growth from 2011 through 2015 is the continuing growth of the global mobile subscriber base, primarily driven by developing economies in Asia, Africa, Latin America and The Middle East. The key driver behind the decline from 2015 through 2017 is the shift away from SMS in mature markets (North America, Europe, parts of Asia Pacific) as smartphone penetration increase and more users shift their communications to OTT messaging apps and popular social networks.

0

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Traffic reached0.5 billion

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Traffic reached450 billion

Traffic passes 1 trillion

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Maximum annualtraffic 8.3 trillion

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The figure below depicts year-on-year SMS traffic for the period 2010-2017.

Figure 14: SMS Traffic – Worldwide (In Billion, 2010 – 2017F)


F – Forecasted

The table below shows the SMS traffic growth trend at regional and worldwide level

Table 5: SMS Traffic Growth Trend – Regional and Worldwide

Region SMS Traffic – Growth Trend

2011 2012 2013 2014 2015 2016 2017

Europe

Asia Pacific

North America

Latin America

Middle East& Africa

Total


6,735

7,7197,945

8,161 8,262 8,294 8,1987,891

6000

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Table 6: SMS Traffic – Regional and Worldwide (In Billion, 2010-2017F)

Region SMS Traffic (In Billion)

2010 2011 2012 2013F 2014F 2015F 2016F 2017F

Europe 848 964 1,024 1,064 1,074 1,071 1,049 1,009

Asia Pacific 3,293 3,772 3,866 3,981 4,075 4,133 4,129 4,054

North America 2,108 2,385 2,375 2,367 2,325 2,276 2,198 2,050

Latin America 322 401 458 496 514 527 531 498

Middle East& Africa 163 197 222 253 273 286 291 279

Total 6,735 7,719 7,945 8,161 8,262 8,294 8,198 7,891




As shown in the table above, Asia Pacific – obviously the major contributor – will shift to its decline phase at some point in 2016, leading to a decline in the worldwide figures as well. In addition, before the end of 2017 all the regions will have achieved peak traffic. The figure below compares the regional contribution for the years 2012, 2013 and 2017.

Figure 15: SMS Traffic–Regional Contribution (In Percent, 2012, 2013F & 2017F)


F – Forecasted

The dominance of the Asia Pacific region will increase over the period from 2012 to 2017. The share of the region in the overall pie will increase from 48.7 percent during 2012 to 48.8 percent in 2013 and thereafter 51.4 percent by end-2017. With the exception of North America, all the other regions will be able to hold their share over this time period.

13.0%

48.8%

29.0%

6.1% 3.1%

Latin America Middle East & Africa

2013F

12.9%

48.7%29.9%

5.8%2.8%

Europe Asia Pacific North America

2012

12.8%

51.4%

26.0%

6.3% 3.5%

2017F



Chapter 4 A2Pand P2A Text Messaging



A2P & P2A Text Messaging Application-to-Peer and Person-to-Application SMS markets At the end of 2012, 83 percent of worldwide SMS traffic was P2P messaging, and A2P/P2A traffic made up the remaining 17 percent. Although P2P still dominates global SMS markets, it is a diminishing segment of the total market, whereas A2P SMS represents a strong growth market, in all regions worldwide.

Figure 16: P2P SMS Traffic – Worldwide (In Billion, 2010 – 2017F)


F – Forecasted

With the increasing focus on mobile banking, mobile payments and mobile health etc., we believe that the contribution of the A2P/P2A category will increase over the next five years. According to our forecasts, close to a quarter of total text messages will either originate from or terminate at an application server by the end of 2017.

5,812

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6,687 6,6546,522

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Figure 17: P2A and A2P SMS Traffic – Worldwide (In Billion, 2010 – 2017F)


F – Forecasted

Table 7: A2P and P2A SMS Traffic – Regional and Worldwide (In Billion, 2010-2017F)

Region A2P and P2A SMS Traffic (In Billion)

2010 2011 2012 2013F 2014F 2015F 2016F 2017F

Europe 119 154 184 213 236 257 273 283

Asia Pacific 395 490 541 597 652 744 826 892

North America 358 453 499 544 581 615 627 615

Latin America 32 52 69 84 98 111 117 115

Middle East & Africa 18 24 29 35 41 46 52 56

Total 922 1,174 1,322 1,474 1,608 1,772 1,894 1,960

Source: Portio Research Ltd. As you can see, A2P/P2A traffic forecasts show rising traffic in all markets, just levelling off in North American and Asia Pacific markets towards the end of the forecast period.

9221,174

1,3221,474

1,6081,772

1,894 1,960

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The table below highlights the top 40 A2P and P2A SMS markets worldwide.

Table 8: A2P and P2A Top Markets (2012)

S.No Country A2P & P2A SMS Traffic S.No Country A2P & P2A

SMS Traffic

1 The US 479.1 21 Russia 6.5

2 China 156.1 22 Belgium 6.3

3 India 95.7 23 Portugal 5.1

4 Indonesia 45.5 24 Iran 5.1

5 Japan 35.6 25 Australia 4.1

6 France 32.9 26 Egypt 4.0

7 The UK 26.6 27 South Africa 3.6

8 The Philippines 21.4 28 Sweden 3.4

9 Canada 20.4 29 Ukraine 3.2

10 Italy 17.4 30 Nigeria 3.0

11 South Korea 16.1 31 Romania 2.7

12 Mexico 16.0 32 Colombia 2.7

13 Argentina 15.8 33 Singapore 2.4

14 Brazil 14.4 34 Ireland 2.2

15 Pakistan 11.7 35 The Netherlands 2.2

16 Germany 11.5 36 Saudi Arabia 2.1

17 Malaysia 11.4 37 Denmark 2.1

18 Turkey 10.5 38 Spain 2.1

19 Poland 9.7 39 Hong Kong 2.0

20 Venezuela 9.6 40 Serbia 1.8




Chapter 5 SMS Revenues



SMS Revenues In 2012, worldwide SMS revenue stood at USD 132.3 billion and is forecast to reach USD 133.9 billion in full-year 2013. Due to declining SMS tariffs, unlimited SMS bundle packs and the growing popularity of OTT messaging services, SMS revenue will see a downward trend after 2013. As shown in our forecasts below, SMS revenue will decline gradually, and will still achieve USD 117 billion in 2017, meaning that worldwide SMS revenue remains above 2010 levels for the entire forecast period. This is shown in the figure below.

Figure 18: SMS Revenue – Worldwide (In USD Billion, 2010 – 2017F)


F – Forecasted

The table below shows the SMS revenue growth trend at regional and worldwide level.

Table 9: SMS Revenue Growth Trend – Regional and Worldwide

Region SMS Traffic – Growth Trend

2011 2012 2013 2014 2015 2016 2017

Europe

Asia Pacific

North America

Latin America

Middle East& Africa

Total


116.1128.7 132.3 133.9 132.1 129.5 124.6

117.2

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While P2P SMS revenue has now peaked and faces a future in decline, over the forecast period, 2012-2017, worldwide P2A and A2P SMS revenue is expected to grow. We forecast A2P SMS revenue to grow at a CAGR of 3.9 percent whereas P2P SMS revenue is forecasted to decline at a CAGR of 6.3 percent. The P2A and A2P SMS segment has helped MNOs to stabilise SMS revenue in recent years, by offsetting the falling P2P SMS revenue, and this effect will continue for the next two or three years. With the launch of unlimited plans, P2P SMS has already become a commodity in almost all regions. MNOs are now banking on the P2A/A2P SMS segment to increase their messaging revenue and are thus aggressively promoting services such as mobile banking, social networking, voting, ticketing, coupons, quizzes, mobile payments and SMS marketing.

Figure 19: P2A and A2P SMS Revenue – Worldwide (In USD Billion, 2010 – 2017F)


F – Forecasted

33.639.8

44.348.2 50.4 52.7 53.7 53.5

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Chapter 6 SMS Traffic & Revenue: North America



SMS Traffic & Revenue: North America Total SMS traffic in North America declined in 2012. The total number of messages sent declined by 10 billion during 2012 to reach 2.37 trillion, from the market peak of 2.38 trillion in 2011. This represents a drop of one half of a percent (0.5 percent) in total traffic decline. This really is not at all the disastrous scenario of doom and gloom that many industry pundits were predicting two years ago. Canada is a very healthy market, growing fast every year and looking good, both organic growth and usage-per-month are up, showing very strong growth. In fact, Canada has just edged into 2nd place behind the US, as one of the world’s highest-usage (PPPM) SMS markets. Canadians now send roughly the same number of texts per month as mobile subscribers in The Philippines. The major difference is, usage in Canada is still trending up, while usage in The Philippines is trending down. The US has finally stopped growing, and 2011 represented the peak of the market. Total SMS traffic and average SMS use per-person-per-month both slightly declined in 2012, signaling the beginning of the decline in the US market. But so far, these drops are very small, with total 2012 traffic remaining comfortably higher than 2010 traffic, and with 2012 usage per-person remaining higher than 2010 usage per-person. The predicted 'drop off a cliff' scare stories did not come true, at least not yet. The attention seeking headlines in the media over the last two years, claiming that iMessage would destroy SMS - that didn't happen. When studying the US market, which remains the largest SMS market in the world by a very large margin, it is important to remember how inflated the market became. Even if the US market (total traffic) declined 30 percent from its 2011 peak, it would still remain above its own 2009 traffic figure, and it would still be the world’s largest SMS market by a factor of about 80 or 90 percent. If average SMS usage per-person declined the same 30 percent from its 2011 peak, the US would still remain by far the most intense, high-usage SMS market in the world and again still ahead of its own 2009 figure. So we must accept that over 2009-to-2011, the market became unsustainably inflated and this drop off was always going to happen. This is a market correction, not the end of the SMS world as we know it. The US contributes around 96 percent to the regional SMS traffic. We believe that the declining traffic trend will continue for the next few years and SMS traffic will gradually decline to 2.0 trillion by the end of 2017, still above 2009 levels. US SMS has not and will not ‘drop off a cliff’, but it is now ‘rolling down a hill’.



The figure below shows the historic and forecast SMS traffic in North America from 2010 to 2017.

Figure 20: SMS Traffic – North America (In Billion, 2010 – 2017F)


F – Forecasted

The figure below shows P2P SMS traffic for North America from 2010 to 2017.

Figure 21: P2P SMS Traffic – North America (In Billion, 2010 – 2017F)


F – Forecasted

2,108

2,385 2,375 2,3672,325

2,276

2,198

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1,7501,932 1,876 1,823 1,744 1,662 1,572

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During 2012, the drop in P2P SMS traffic overshadowed the continuing growth in the use of A2P and P2A text messaging. During 2012, P2P SMS declined by 56 billion while non-P2P traffic grew by 46 billion, not quite enough to offset the P2P decline. We believe that A2P/P2A SMS will continue to increase year-on-year until 2016, after which it will start to gradually decline. This is shown in the figure below.

Figure 22: P2A and A2P SMS Traffic – North America (In Billion, 2010 – 2017F)


F – Forecasted

The timeline below gives a snapshot of the anticipated growth trends in SMS traffic for the North America region.

Figure 23: SMS Traffic – North America: Growth Snapshot


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2011 2012 2013 2014 2015 2016 2017

P2P and Overall SMS traffic declined after 2011

A2P/P2A text messaging usage will decline after 2016

A2P & P2A SMS Traffic will increase continuously over the period 2012-2016



In addition to the increase in the usage of A2P text messages we believe that cross border A2P messages traffic will also increase steadily. As per our forecasts, 14.5 percent of the regional A2P traffic in 2017 will fall under this category. The corresponding number for the year 2012 was 12.5 percent. The revenue generated from SMS across the region is forecast to ultimately decline from USD 23.9 billion in 2012 to USD 18 billion in 2017, falling at a CAGR of 5.4 percent over 2012-2017. The figure below illustrates SMS revenue in North America from 2010 to 2017. SMS revenue in North America was USD 20.9 billion in 2009, and the figure below shows that the market will return to this level at the end of 2015. In hindsight, much of the period between 2009 and 2013 should be seen as a ‘bubble’ that was always going to be unsustainable.

Figure 24: SMS Revenue – North America (In USD Billion, 2010 – 2017F)


F – Forecasted

After registering an increase of eight percent during 2011, revenue from P2P SMS decreased by five percent in 2012. Over the period 2012-2017, P2P SMS revenue will decline at a steeper rate (-7 percent) in relation to traffic (-5 percent) due to the declining effective price of SMS in bundle plans and bulk tariffs.

22.2

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The A2P/P2A messaging revenue trend for the period 2010 to 2017 is shown in the figure below.

Figure 25: P2A and A2P SMS Revenue – North America (In USD Billion, 2010 – 2017F)


F – Forecasted

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Canada

From 2010 to 2012, total SMS traffic in Canada soared skyward at a CAGR of 31.3 percent to reach 97.2 billion in full year 2012, up from 56.4 billion during the year 2010. In addition, monthly average SMS usage per subscriber also increased from 198 messages per month in 2010, to 307 messages per month during 2012. Although SMS use in Canada is only just over half as high as in the US, compared to broader worldwide markets, usage per average subscriber is high in Canada, much higher than in most European countries. As noted previously, Canada now claims the world #2 place for highest monthly usage per person, as use in Canada has climbed up while the previous contender, The Philippines, has come down. The figure below captures total SMS traffic and monthly SMS use per subscriber for Canada for the period 2010-2012.

P2A and A2P SMS traffic for Canada is depicted in the figure below.

Figure 27: P2A and A2P SMS Traffic – Canada (In Billion, 2010 – 2012)


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Figure 26: SMS Traffic and SMS Use per Subscriber per Month – Canada (2010 – 2012)


56.478.0

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The US

As discussed above, the US saw ‘peak year’ for SMS in 2011, when texting reached an unsustainable high. We have now seen that both The US and The Philippines, the only 2 markets in the world to ever reach such high levels of average monthly usage, have been unable to sustain that high use for the long haul. Average subscriber SMS use-per-month peaked in the US market in 2011, at over 600 messages per-person-per-month, and then declined marginally in 2012. Similarly, total SMS traffic declined by 1.5 percent to reach 2.27 trillion in 2012, down from 2.3 trillion during the full year 2011. This is shown in the figure below.

P2A and A2P SMS traffic for the US is depicted in the figure below.

Figure 29: P2A and A2P SMS Traffic – The US (In Billion, 2010 – 2012)


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Figure 28: SMS Traffic and SMS Use per Subscriber per Month – The US (2010 – 2012)


2,0522,304 2,270

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Chapter 7 Latin America SMS Market: Brief Overview



Latin America SMS Market: Brief Overview Happy days in Latin America, SMS is growing nicely in all the major markets that we track and only one market shows growth flattening out, that is El Salvador. Two markets, Chile and Uruguay, show overall market growth, but a decline in average usage. All other markets exhibit healthy growth in average use per-person-per-month, and in total market traffic. Argentina, Venezuela, Mexico, Brazil, Colombia and Peru all exhibit robust year-on-year growth and Venezuela continues to be 'the SMS capital of Latin America' showing excellent high usage per-person, higher than anywhere in Europe, and claiming 4th place in the world in terms of SMS usage PPPM. Average usage in Argentina is showing strong growth too. In 2012, SMS traffic increased in all nine of the key markets that we track in Latin America, and overall traffic for the region reached 458 billion by the end of the year, a rise of 14 percent over the corresponding year-total number for 2011 (401 billion). Our forecasts show that the growth trend will continue until 2016, after which SMS traffic will decline marginally to reach 498 billion in 2017. This is shown in the figure below.

Figure 30: SMS Traffic – Latin America (In Billion, 2010 – 2017F)


F – Forecasted

Latin American subscribers sent close to 389 billion P2P text messages in 2012. P2P SMS traffic will continue to increase year-on-year over the period 2012-2014 to reach 417 billion messages in 2014, after which the traffic will start declining.

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We forecast that close to 384 billion P2P text messages will be sent across the region in 2017. This is shown in the figure below.

Figure 31: P2P SMS Traffic – Latin America (In Billion, 2010 – 2017F)


F – Forecasted

P2A and A2P messages will continue to increase year-on-year to reach 117 billion messages in 2016, substantial growth from 69 billion in 2012. This non-P2P SMS traffic will decline marginally in 2017. The figure below depicts year-on-year P2A and A2P SMS traffic for the period 2010-2017.

Figure 32: P2A and A2P SMS Traffic – Latin America (In Billion, 2010 – 2017F)


F – Forecasted

290

348389

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The timeline below gives a snapshot of the anticipated growth trends in SMS traffic for Latin America.

Figure 33: SMS Traffic – Latin America: Growth Snapshot


Regional SMS revenue amounted to USD 6.6 billion in 2012 and is expected to reach USD 7.0 billion in 2013. It is expected to remain stable at USD 7.0 billion over the years 2014 and 2015, after which it will start declining. The figure below illustrates this SMS revenue trend for Latin America over the forecast period from 2010 to 2017.

Figure 34: SMS Revenue – Latin America (In USD Billion, 2010 – 2017F)


F – Forecasted

P2P SMS revenue will increase marginally in 2013. A drop in tariffs coupled with a decline in usage after 2014 will result in a drop in revenue over the period 2014 to 2017. A2P and P2A SMS revenue will continue to increase over the period 2012-2016 and reach USD 2.8 billion in 2016 from USD 2.0 billion in 2012. After peaking in 2016, revenues will drop by seven percent during 2017 to reach USD 2.6 billion.

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P2P SMS traffic will start declining after 2014

Overall SMS traffic will start declining after 2016

A2P & P2A SMS Traffic will increase continuously over the period 2012-2016



Chapter 8 Mobile Messaging and SMS Conclusions



Mobile Messaging and SMS Conclusions SMS is still the major player, the king of the hill, the #1 non-voice revenue generating mobile service on the planet. SMS is still making over USD 130 billion in annual revenues. Mobile e-mail has grown to become a USD 40 billion segment and has now surpassed MMS to take second place. MMS holds third place, still making over USD 30 billion in annual revenues. OTT, the new kid on the block, has replaced traditional Mobile IM, ‘stolen’ a few bucks from SMS, and from MMS, and from social networks, and is already making more than USD 10 billion in annual revenues worldwide. Together, these services generate USD 230 billion in annual revenues. After voice, mobile messaging is THE major revenue generating activity across all mobile devices, all operating systems, all platforms, all countries and all form factors. Voice and messaging together still make up 85 percent of global mobile service revenues. Above all else, above all the games and video clips, the cameras and calendars, people still use their mobile phones to communicate with each other. SMS made the highest contribution to worldwide mobile messaging revenues in 2012, with a whopping 60.7 percent share, and mobile e-mail followed with 18 percent. MMS revenue still made up 14 percent during the same year. This is shown in the figure below.

Figure 35: Worldwide Mobile Messaging Revenue Break-out (In Percent, 2012, 2013F & 2017F)


F – Forecasted

60.7% 58.2%51.6%

7.3% 9.9%

19.9%14.0% 13.6% 11.6%

18.0% 18.3% 16.9%

0%

10%

20%

30%

40%

50%

60%

70%

2012 2013F 2017F

Con

tribu

tion

(In

Per

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)

Year

SMS OTT Messaging Service MMS Mobile E-mail



The table below depicts the indicators for the messaging services for the years 2013 and 2017.

Table 10: Mobile Messaging Services – Key Indicators (2013F & 2017F)

Service Mobile Messaging Services – Key Indicators

Year Users (In Million) Revenue (In USD Billion) Traffic (In Billion)

SMS 2013F 5,783 133.9 8,161

2017F 6,427 117.2 7,891

OTT 2013F 913 22.7 10,452

2017F 2,517 45.2 32,141

MMS 2013F 3,061 31.3 223

2017F 3,414 26.4 221

Mobile E-mail 2013F 1,321 42.2 NA

2017F 2,836 38.3 NA

Source: Portio Research Ltd. Together, mobile messaging services will generate USD 1.17 trillion in worldwide service revenues over the 5 year period 2013 to 2017 inclusive. Additionally, SMS will continue to hold its position as the top revenue stream after voice for the foreseeable future. As depicted in the figure below, MNOs will generate more revenue from text messaging over the period 2013-2017 than the combined sum of Mobile e-mail, MMS, OTT and app downloads. This highlights the importance of SMS for MNOs worldwide.

Figure 36: Revenue Potential – Key Services


SMS

Mobile E-mailOTT

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SMS has such a vast user base that it generates a huge amount of revenue worldwide. Annually, worldwide SMS revenue in 2012 was greater than the GDP of quite a number of countries. The table below shows a few countries whose GDP was smaller than total SMS revenue for the calendar year 2012.

Table 11: SMS Vs. Countries

Country GDP (In USD Billion) Country GDP (In USD Billion)

Vietnam 123.6 Slovak Republic 96.0

Iraq 115.4 Oman 71.8

Bangladesh 111.9 Ecuador 65.9

Angola 104.3 Sudan 64.1

Morocco 100.2 Azerbaijan 63.4

Source: World Bank & Portio Research Ltd. SMS versus OTT – what’s REALLY going on?

The BIG question: Is SMS over; is it about to drop off a cliff? Are OTT messaging apps killing and replacing SMS? Everyone in the mobile industry wants to know the answers to these questions. SMS has been a multi-billion dollar cash cow for the last decade and everyone wants to know ‘is the party over?’ Well, the answer is… No, the party is not over, but the coolest guests have moved on to a new party, the booze is running out, the BBQ has lost its heat and the DJ has played his best mix. It’s less a case of ‘dropping off a cliff’, and more a case of ‘slowly rolling down a hill’. Here’s why…

• SMS won’t crash and burn yet, because the installed base of users is just too vast • By the end of 2018, SMS will have enjoyed 20 years as the most popular form of written

communications on earth. More human beings will have regularly used SMS to communicate, than any other form of written communication in all history. Over those 20 years as king-of-the-hill, SMS will have generated over 89 trillion messages and more than $1.6 TRILLION USD in global revenues

• OTT isn’t killing SMS: SMS has simply peaked and now communication trends are evolving, and in time that evolution will move beyond the capabilities of simple-but-effective SMS

• Other, more engaging ways of communicating P2P are taking a share of consumer eyeballs and finger clicks. Social networks, OTT messaging apps, VoIP services, picture sharing apps and many more services. These are all competing for the same task that SMS serves – helping people communicate

• So in truth, while SMS lives on, it’s best days are over, it has peaked for sure



• The real tipping point is already happening in North America, and in Europe it is just starting now

• SMS has never been free, but it is cheap for the level of utility that it provides. Many of these new services lack a substantial revenue generating business model

Now, let’s try to understand the dynamic, let’s look at these points in more detail. Will SMS Crash and Burn? SMS won’t crash and burn yet, because the installed base of users is just too vast. If we look at the growth history of SMS, although the first message was sent in 1993, and commercial services soon followed, SMS did not become a mass market service until about 1998. In 1998, when there were 300 million mobile subscribers worldwide, 100 million GSM subscribers sent 25 billion SMS messages around the world, and SMS generated its first billion in revenues. At this point, SMS became a mass-market service. From the first SMS, it had taken 5 years to become a billion dollar business. Over the next 5 years, SMS became an 18 billion dollar business. By the time worldwide mobile subscribers crossed the first billion, SMS traffic had grown exponentially to reach 366 billion messages annually, generating USD 12 billion in revenues. This was in 2002. Coincidentally, a decade later, in 2012, USD 12 billion is the amount of money the global apps business generated worldwide, while SMS generated more than ten times that amount. Now, in mid-2013, there are 7.1 billion humans alive on Earth, and almost 6.5 billion active mobile SIM cards. With nearly as many phones as people, SMS is in the hands of ‘almost every person’ on the planet. It is probably fair to say, that more than 95 percent of the human population over the age of 10, under the age of 90, and living above the absolute poverty line, now has (or has access to) a mobile phone. While the types and capabilities of those mobile phones vary around the world, almost every single phone can send and receive SMS. We estimate that there are between 5.5 and 5.6 billion active SMS users worldwide in Q1 2013. The table below shows the growth of SMS from 1992 to 2017.



Table 12: Growth of SMS – Worldwide (In Billion, 2000 – 2017F)

Year SMS Traffic

(In Billion- else stated otherwise)

Year SMS Traffic (In Billion)

1992 0 2005 1,056

1993 200 thousand 2006 1,662

1994 3 million 2007 2,778

1995 48 million 2008 3,973

1996 500 million 2009 5,226

1997 5 2010 6,735

1998 25 2011 7,719

1999 100 2012 7,945

2000 146 2013F 8,161

2001 218 2014F 8,262

2002 366 2015F 8,294

2003 450 2016F 8,198

2004 761 2017F 7,891

Source: Portio Research Ltd. In some countries, it is true that SMS has peaked, and overall traffic volumes are in decline, and average use-per-subscriber-per-month is also in decline. However, there are MORE countries where SMS traffic overall, and SMS use-per-subscriber is still growing. Add to this, the organic growth in new mobile subscribers in Asia, Africa and Latin America, and there is no way to replace the dominance of SMS in the immediate future.

• SMS is used by more people than any other form of written communication ever • More people now have an SMS-capable mobile phone than a toothbrush • More people use SMS than a flushing toilet • Twice as many people use SMS as have access to the Internet or have an e-mail account • SMS will not go away yet. Fact. SMS will be a major communications tool worldwide for the

next decade Closing Summary

• SMS has peaked, but it remains strong, primarily for all the same reasons that have made it so successful, as we have written about in this report for the last 8 years – utility, ubiquity, ease of use, cheap, simple.

• SMS will remain a USD 100 billion plus business for the next 5 years • As P2P SMS declines, for a while, in many markets, A2P/P2A will buoy up SMS traffic and

revenues • In a rushed world that craves simplicity, SMS is a no-brainer



• Globally, P2P SMS is still growing. In the time it has taken you to read this report, two thousand people in China and India just went out and bought their first ever mobile phone. Organic growth is still driving voice and SMS growth

• In 2016, over 1 billion smartphones will ship, and so will over 1 billion non-smartphones, that is feature phones and basic ‘voice and text only’ handsets in some developing markets

• Worldwide, in mid-2013, almost 6 billion people can now use mobile voice and SMS. No other form of communication has ever been available to such a large segment of the human race, ever, in all history, period. More accessible than radio, TV, Internet access, printed books, bank accounts, newspapers, social networks. Everything.

• Basic mobile voice and SMS are the most scalable consumer technology services of all time. Expect mobile voice and SMS to remain global mega-business for the next two decades

• A2P SMS is a booming growth area, both traffic and revenues are growing. Everywhere. • A2P SMS is perfect, from taxi bookings to doctor’s appointment reminders. From e-receipts to

bank account notifications. From TV voting to customer service surveys. A2P SMS is perfect for delivery notes, booking confirmations, shipping notifications, competitions, marketing promotions, advertising and so much more. It’s cheap, simple and ubiquitous. Perfect.

• A2P SMS is accepted by the vast majority of people, as a medium for customer service, it is unparalleled in reach and even as a marketing channel it is widely accepted providing it is not abused

• As time-shifting trends increase so TV advertising continues to struggle, while A2P mobile just looks better and better

worldwide a2p sms markets 2014-2017 - xconnect · worldwide a2p sms markets 2014-2017 figure 2:...

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