Sending Messages to America

Competition in the worldwide messaging space is rapidly heating up on numerous levels and in a variety of areas, and in the resulting turmoil some unique solutions are being introduced and some unexpected deals are being formed.

Two main dynamics seem to be at play. First, the wireless messaging industry is slowly preparing itself for the rollout of faster network technologies like GPRS and CDMA 1xRTT and the subsequent launch of multimedia messaging services, which are expected to play a major role in the future of messaging. Second, the market for short message services is slowly dwindling in Europe, the birthplace of the SMS market, and providers are looking for other markets to expand into in order to recoup declining revenues. As these dynamics exert greater force on the industry, messaging companies and wireless carriers are casting about in an attempt to gain some traction in one or more areas.

Dario Betti, an analyst with research firm Ovum, said SMS providers like Logica and CMG Wireless Data Solutions are adjusting their revenue targets to account for the slowdown in the SMS market in Europe. She said the European market has, for the past several years, been riding a huge growth curve as more and more people started using text messaging services, and carriers were working overtime in order to keep up. Some carriers were forced to double their SMS message capacity from one month to the next. Now, however, European wireless carriers finally have the capacity they need to handle the number of messages wireless users are sending. This-combined with the massive amounts paid for third-generation spectrum and the resulting decrease in capital spending-has led carriers to drastically reduce their investments in SMS infrastructure.

Drew Tobin, head of new ventures for SMS giant Logica, agreed that the market for person-to-person texting has reached a plateau in Europe. However, he said, there are still areas in the European SMS market where money can be made. For example, Tobin pointed to the European business market, which could make wireless text messaging the next major wireless business application. Another area for growth could be advertising campaigns, which would make great use of SMS messages in order to communicate with potential buyers, he said.

But regardless of what can be done in the European market, most SMS companies are working to expand into other areas, including China, South America and the United States. In fact, just last week two SMS providers launched interconnect products they hope will spur the U.S. SMS market.

Logica introduced its Global Interconnect Network product, while Illuminet Holdings Inc., a subsidiary of VeriSign Inc., and MobileSpring Inc. announced they will jointly offer MobileSpring's Metcalf Global Messaging product. Both products do basically the same thing-allow a user in one country to send a text message to almost anyone else in the world, provided the recipient's carrier is hooked up to the interconnect system.

''The key to success here is having the most carriers on the network as possible,'' Logica's Tobin said.

Both offerings are aimed at the U.S. messaging market, which many agree has been stifled by users' inability to send messages from one carrier to another. AT&T Wireless Services recently tried to spur the market by opening its network to SMS messages from other carriers. And, from most accounts, the carrier's strategy worked.

''We have had indications ... that SMS interconnecting is extremely high on the priority list'' for U.S. carriers, Tobin said. He said carriers showed great interest during the SMS Forum's ''Inter-carrier Messaging Workshop'' last week in San Francisco.

But as Logica, CMG and others are working to expand into new markets and sell SMS infrastructure services, they are at the same time trying to develop the multimedia messaging market. Most are involved in carrier MMS trials, and Comverse, CMG, Logica, L.M. Ericsson, Motorola Inc., Nokia Corp. and the Siemens Information and Communication Mobile Group even formed an alliance in June to explain and promote MMS services.

As the MMS market heats up, traditional SMS infrastructure providers now have to compete with the world's major vendors. Nokia, Ericsson, Motorola and others that missed out on the SMS market growth are now working to make sure they take advantage of multimedia messaging. And it seems they are.

Just last week Ericsson scored a major global agreement with wireless giant Vodafone Group plc to supply multimedia messaging software, which Vodafone plans to use to introduce its Multimedia Messaging Service later this year.

Vodafone said the service will allow customers to compose, send and receive messages using all forms of media including text, pictures, audio and video clips. The carrier plans to initially roll out MMS in Europe through its operating companies.

Traditional SMS infrastructure providers were noticeably left out of the deal, and Logica and CMG saw their stocks fall after the news.

''Rather than a simple upgrade, MMS represent a completely new piece of infrastructure ... and this is what they all aim at now,'' Ovum's Betti said.

November 18, 2004