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Short and sweet, but elusive in the U.S.

by sue marek
March/April 2001

Swapping messages via wireless phones is a surpassingly popular diversion in Europe. In December alone, 756 million messages buzzed across GSM networks in the United Kingdom, and in Germany 1.8 billion GSM subscribers exchanged SMS messages. London’s GSM Association predicts the service will grow to more than 25 billion messages per month by year-end, up from the 15 billion messages sent via GSM networks worldwide in December 2000.

The staggering success of SMS in Europe has U.S. carriers salivating. A number of carriers launched SMS offerings in late 2000 with hopes of attracting new subscribers and beefing up their average revenue per user. But SMS response in the United States has been mixed so far. According to Yankee Group analyst Don Longueuil, early SMS usage figures are much lower than carriers anticipated.

Not everyone agrees how to read the U.S. numbers. Cynthia Hswe, senior analyst with the Strategis Group, says that response has been strong so far in the United States, considering that most carriers have done little to promote the service. And AT&T Wireless Services spokesperson Danielle Perry says that AWS, which at year-end 2000 reported an average of 1 million messages per day, is happy with its initial SMS uptake rates.

But a unique set of circumstances hinders SMS’ prospects for success in the United States. Because of differing network standards, most U.S. SMS offerings only work between subscribers on the same service. In contrast, most European countries use GSM technology so subscribers can message each other regardless of the wireless carrier.

“Network interoperability is a major issue,” Longueuil says. “It is technically feasible to send messages across networks, but [carriers] don’t offer that now because they don’t know how to price cross-network messages.”

That may be changing. In January Cingular Wireless integrated two formerly disparate networks–SBC Communications and BellSouth Wireless–letting customers on either network message each other. In addition, the company has a roaming agreement with VoiceStream Wireless that includes SMS access. “We are working aggressively to get similar arrangements in place,” says Steve Krom, vice president of data and Internet services at Cingular Wireless. “If we are going to get messaging to reach its potential,

we have to have connectivity across networks.”

Cingular also is one of the first carriers to shift its SMS pricing away from “bucket” deals, which Longueuil believes is another barrier to mass SMS adoption. Unlike European carriers that charge customers on a “pay-per-use” model, U.S. carriers tend to offer bucket plans where they charge between $2.99 and $7.99 per month for anywhere from 100 to 600 messages.

Hoping to mimic Europe’s SMS success, Cingular Wireless has revised its pricing. New subscribers who sign up for a $29.99 per month or higher rate plan receive free mobile-to-mobile text messaging between Cingular customers. “The U.S. model needs to shift,” Krom says. “We are changing that model and we hope others will follow.”