At the beginning of the 00s, instant text communication was both exciting in
its ubiquity and for its profitability. Web companies like AOL (NYSE: AOL )
still were convincing people to spend money on instant messenger and email
services while telecoms were making big money on mobile phone text messages that
were only just coming into vogue. Today, text messages (or SMS services)
represent $20 billion in annual revenue for the U.S. telecom industry. But now,
text, email and chat technology thanks to the proliferation of web-connected
handhelds have merged into one single service that consumers arent interested
in paying for . So if users continue to flock to an increasing number of free
alternatives, what will Verizon (NYSE: VZ ), AT&T (NYSE: T ), and Sprint (NYSE:
S ) do when that money disappears? Well, the loss of SMS revenue wont exactly
cripple AT&T or Verizon. Sure, Verizon pulls in $7 billion from text messages by
itself nearly half of the total take in the U.S. but that represents just the
smallest portion of the companys $107 billion in total annual revenue . AT&T
pulls in $125 billion in annual revenue . Who cares, then, if free services on
smartphones like Apple s (NASDAQ: AAPL ) iMessage, Research In Motion s (NASDAQ:
RIMM ) BlackBerry Messenger, and the Microsoft -owned (NASDAQ: MSFT ) Skype
start offering free-to-use text, picture messaging and even video services? No,
the greater threat is that these services merging email, texts and instant
messaging into seamless, free services might also start to incorporate voice, as
well. Google (NASDAQ: GOOG ) also is preparing a service for Android phones like
those already mentioned, and that company has made no bones about its interest
in taking on the VoIP industry , too. What happens to Verizon and AT&T when
their collective 215 million subscribers feel they shouldnt have to pay as much
as $90 for a voice-and-text plan when $100 for the best data plan alone can give
them all the service they want? If users demand to not pay for voice packages,
that could mean another potential $120 billion to $240 billion in revenues
(based on varying voice packages) vanishing from the mobile market. Thats
clearly a much larger hunk of the pie. That lost revenue ultimately would have
to be replaced by raised data plan pricing. AT&T and Verizon already have done
away with unlimited data plan offerings in favor of tiered usage contracts that
limit how much data mobile users can upload to or download from the Web. Sprint
is the only major telecom left that offers unlimited data plans, and even that
might not last . Presumably, if smartphone users try to use only iMessenger or a
comparable service to communicate with people rather than texts, theyll use up
their data limits quicker and have to upgrade to a new package, thus benefiting
Verizon, AT&T or whomever else. The question is: Will people pay it? If AT&T and
Verizon start charging $200 for packages that just provide data, forcing
customers to rely purely on secondary services like Skype and iMessenger, its
possible that smaller telecoms like MetroPCS (NYSE: PCS ) and Leap Wireless
(NASDAQ: LEAP ) could get a second lease on life if they could provide low-cost,
big-data packages for users. Now that popular handsets like the iPhone arent
restricted to a single provider anymore, smaller telecoms potentially could find
their business in data-only plans. Verizon, AT&T and Sprint arent under pressure
to meet these changes head-on in 2011. But in a few years, how these companies
charge for their services is going to have to change dramatically. As of this
writing, Anthony John Agnello did not own a position in any of the stocks named
here. Follow him on Twitter at
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