An application released last week on Apple’s iPhone will be making our large phone companies a little bit nervous. The application, called Ping!, is devilishly simple, crating a parallel platform in which users can send SMSs to anyone who also has the Ping! application. In short, it is similar to Skype, only for messages. It joins Blackberry Messenger as another revenue killer for telecommunications companies. (Within a week, the application has become a global bestseller in Apple’s Appstore).

From a user’s perspective, Ping! works pretty much the same way as normal SMS (which stands for Short Message Service and was introduced when GSM networks became widely adopted). When one Ping! user sends a message to another Ping! user, the message appears in virtually the exact same manner as an SMS sent over the Telstra, Optus or Vodaphone networks.

The ability to circumvent the carriers to send SMSs may have a substantial effect on phone company revenues, with SMS being a significant (and growing) revenue source for phone companies. Telstra’s 2009 annual report noted that its users sent almost nine billion SMSs during the year — up 28.3% on the previous period. That equates to about $2 billion in revenue from SMS.

By comparison, Telstra users made 4.8 billion phone calls, meaning that users last year sent double the number of SMS as they made local calls.

The threat to carriers’ revenue from an application such as  Ping! is significant. While carriers have not been especially affected by the Skype iPhone Application (which allows users to make wireless calls from their mobile phone), that is because using Skype on an iPhone or other Smart Phone is troublesome. For example, Skype is ineffective when not on a wireless network, further, its use involves not only hassle, but cost, calling mobiles on Skype is a similar cost to calling over a traditional mobile network.

By contrast, products such as Ping! (and Blackberry Messenger) operates in virtually the exact same manner as a normal SMS service. The only difference is, instead of paying 25 cents per text, the user pays nothing, merely utilising a fraction of their monthly data allowance’.

In one sense, with the growing adoption of capped plans, the threat to mobile carrier revenue is largely mitigated. Further, Ping! and Messenger are only able to be used on iPhones or Blackberries. However, as internet capable phones become mainstream the looming threat of free SMS may lead to carriers being forced to reduce the cost of their capped plans (why would users bother with a cap when SMS is free anyway) and will put a rapid end to the honeypot of SMS charges that have until now provided a growing annuity stream to telecommunications carriers.

In January 2007 this column questioned, Is Telstra Overpriced? (at the time, Telstra shares were trading at $4.35). While issues regarding structural separation and the National Broadband Network seizing Telstra’s fixed-line monopoly have been the predominant reasons for Telstra’s collapsing shareholder return, the risk of invention, and widespread take-up of the likes of Ping! or VoiP applications have potential reap far greater damage unto companies such as  Telstra and Optus than government regulation.

Peter Fray

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