Will Free Messaging Apps Undermine Carrier’s Profitability?

March 8, 2011

Instead of upping the minutes on his cell phone plan when he ran low, “Chris” just switched to using his mobile Skype app. When his minutes are used up for the month he seamlessly switches to using Skype when calling, and when others call him he doesn’t answer, just calls them back on Skype.

Skype isn’t the only method of circumventing mobile carrier costs. New messaging applications GroupMe and Beluga (just bought by Facebook) are providing consumers’ ways to avoid text messaging fees by using mobile applications instead.

While these apps are only available to smartphone users, The comScore 2010 Mobile Year in Review report found that smartphones accounted for 27% of mobile subscribers in the U.S. in December 2010 – a 10% increase over 2009.

The ability to place apps on phones has given internet companies the chance to directly compete with the carriers. In a quote given for The Washington Post article Free messaging apps threaten wireless carriers’ cash cow Craig Moffett, an analyst at Sanford C. Bernstein research said “Facebook is, at its core, a communications company. The move to acquire Beluga makes this explicit. Beluga puts Facebook squarely into competition with carriers for the first time.”

This competition is giving users real choices in how they communicate, but analysts suspect that carriers will respond by forcing the combination text message plans with data packages to eliminate the cannibalization by competitors.

In the meantime, these apps represent real savings to cash strapped consumers.

Linda


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