Wireless carriers, particularly AT&T (NYSE:T) and Verizon (NYSE:VZ), could see another hit to their bottom line in the coming quarters by the onslaught of new iPhone users. This time it will be because of Apple’s (NASDAQ:APPL) iMessage and free text and chat services.
Both AT&T and Verizon reported losses during the most recent quarter, partly because of subsidy costs for iPhone sales. And now iPhone may cause more disruption as customers discover that they don’t need to send nearly as many traditional text messages as they once did, especially since Apple added the iMessage feature, which was released in October and allows owners of any of its mobile devices to send free text messages to one another.
iMessage is part of Apple’s iOS 5 operating system and so doesn’t require iPhone owners to do anything special to deploy it. It integrates into carrier software for sending and receiving regular SMS (short messaging service) texts and MMS (multimedia message service, for photos or video) messages. iMessage texting is free when the iPhone is connected to a Wi-Fi signal and uses next to zero data on carriers’ data subscription plans. Apple also has designed the iOS 5 operating system to identify other iOS devices (including iPads) and convert text messages to iMessages.
If it weren’t for the “free” part, this would be good news for wireless carriers because the $5 to $10 the companies charge users for a basic plan has essentially amounted to pure profit for them. But the launch of iMessage, along with free services from GroupMe, which lets users chat and text for free on nearly every cell phone available, has many customers considering dropping their text plans all together. One AT&T customer who posted a comment to a recent New York Times item on the subject noted: “I currently have a $10 a month texting plan with AT&T and am seriously considering dropping it, given that the majority of texts that I’ve received since October are AT&T billing confirmations.”
Voice plans, which tie customers to two-year contracts, also are vulnerable to erosion by these free services. Sure, many families may keep their text plans intact if their budget allows so they can accommodate their text-addicted kids. Others may consider keeping their text plan for backup (the iMessage system has, at least once in my experience, shut down).
We’re probably not that far away from free text messages, if not more all-inclusive plans similar to Sprint’s (NYSE:S) Simply Everything Plan and Straight Talk.
So how will wireless carriers compensate? Possibly through data-guzzling applications such as Spotify, a digital music service that gives users access to millions of songs; Beejive, an app that allows smartphone users to keep up with instant messages; and photo-sharing app Instagram, for customers who want to post pictures while they are out and about.
Data plans certainly aren’t going away. Verizon said its data revenue grew 22.2% year over year during 2011. AT&T’s data revenue also grew and will account for even more of its revenue after it raised the price of data plans this month by $5 for new customers. The company said the increase was necessary to reflect higher average data usage.
Still, with the growing availability of free Wi-Fi services at restaurants, coffeehouses, office buildings, and other gathering spots, data-service growth trends for individual plans also could slow. How soon that might happen, and what it will mean to the carriers’ bottom lines, are the burning questions.
