UK: Deloitte TMT Predictions 2014 Telecommunications - Short Messaging Services Versus Instant Messaging: Value Versus Volume (Video Content)

1. Short Messaging Services Versus Instant Messaging: Value Versus Volume

Deloitte predicts that in 2014 Instant Messaging (IM) services on mobile phones will carry more than twice the volume (50 billion versus 21 billion per day) of messages sent via SMS globally. In UK, approximately 300 billion IMs are expected to be sent in 2014, more than double than the volume of SMSs expected to be sent (140 billion). It might be supposed that the growth in IM is at the expense of SMS. However despite the burgeoning volumes of messages carried over IM platforms, we expect SMS to generate more than £60 billion in 2014 globally, approximately 50 times all revenues from mobile IM services.

Text messaging's global heyday is approaching, but in 2014 it should still generate significant margin for the mobile industry, and its importance should not be underestimated.

MIM services may win the battle for volume in 2014, but SMS should be victorious in revenue terms, even in the UK, where SMS volumes peaked in 2012. We note that MIM services on mobile phones are not just a substitute for SMS, but also for other forms of communication, from e-mail to phone calls to face-to-face person conversations.

Text messaging's superior revenue-generating ability should endure, for three main reasons: ubiquity, infrequency and price.

SMS is the one messaging standard common to almost every mobile phone. There are 3.2 billion unique mobile subscribers globally that can send and receive SMS. MIM is popular, but it requires a smartphone, tablet or MP4 player. It also needs a mobile data plan, or a connection to a Wi-Fi network.

Further, many over-the-top (OTT) providers are incompatible with each other. Communication via an OTT service requires all parties to have the same app. Some MIM services only work with a single brand of phone. When sending a message to someone using a different manufacturer's phone, SMS is the choice by default.

Operators, rather than competing head on with MIM services, should encourage their adoption, so as to bolster the take-up and usage of mobile data.

For example, operators may consider exposing network and data assets to OTT players via APIs (Application Programming Interfaces): these allow third parties to integrate their applications and services more closely with the mobile device, the SIM card and elements of the network.

A final option for carriers would be to encourage the usage of SMS as a bearer for application to person messages (A2P), which are used to send personalized messages to individuals, from advice of bank balance, to warning of a delay to a flight, to a reminder for a medical appointment.

2. Rugged devices at £200: reinventing the business case for mobile field force

The entry price for a ruggedised, connected data device that can be used by field force workers to undertake tasks such as car rental check-in inspections, delivering packages or inspecting motorways, should fall to under £200. The main driver will be a shift in approach, from sourcing data devices that are built to be rugged, to purchasing a standard consumer smartphone or tablet with a sufficiently toughened screen, and further protecting it by adding a rugged case.

Connected data devices – smartphones, and more recently tablets – have for many years been ubiquitous among the hundreds of millions of office users, but have had relatively low use among field force workers.

Connected devices in offices have had a fairly benign environment, protected in pockets and purses, and rarely exposed to harsher, outdoor, dusty settings: the majority of smartphones launched over the past decade would not have survived intact in harsh environments. And this is why for many years field force workers have been issued with highly rugged devices, be they walkie-talkies or PDAs used for data entry. In the latter case, resilient devices could cost over £500 per unit, and software a few hundred pounds per year.

But not all field force deployments require the same level of ruggedness: for millions of existing rugged device applications and tens of millions of potential users, ultra-rugged devices may be overkill. And standard consumer smartphones and tablets are becoming increasingly resilient.

There are three key trends at play which enable the price of devices suitable for field force usage to fall to £200 including the case.

First, Moore's Law and exceptional economies of scale deliver a markedly improving specification for devices at each price point over time.

Second, consumer devices over the years have become increasingly robust, to cope with increasingly intensive usage patterns, and also to act as a differentiator. This has led to the incorporation of scratch-resistant screens and casings – and even cases that 'heal' minor scratches.

Screen resilience should continue improving, and in 2014 devices with synthetic sapphire screens, sufficient to withstand repeated knocks against concrete, are likely to reach mainstream consumer devices. A growing range of consumer smartphones and tablets are water-resistant, and able to cope with pool-side and bathroom usage. This feature, which also provides dust-proofing, makes them much more suitable for use in the field.

Third, rather than depend on physical protection for devices, enterprises are focusing more on behavioural change and identifying how workers could be encouraged to look after their devices. a device that is set up to provide both business functions and personal applications, such as consumer instant messaging, or simply taking good quality photos of family, may be more likely to get careful treatment.

3. The smartphone generation gap: Over 55? There's no app for that

The over-55s will experience the fastest year-on-year rises in smartphone penetration. Smartphone ownership should increase to about 50% by year-end, a 25% increase from 2013, but trailing 70% penetration among 18-54s. The difference in smartphone penetration by age will disappear, but differences in usage of smartphones remain substantial. Many over 55s use smartphones like feature phones.

Over a quarter of adults in the UK will be 55 or older in 2014. The attractiveness of the 55+ group has long been recognized: with longer life expectancy, older consumers are likely to continue working, accumulate an ever-greater share of global wealth and be increasingly interested in technology.

This age group – which is likely to continue growing in absolute numbers and share of adults over the medium term – is likely to control a large proportion of disposable income in their countries. They are not just an untapped market; they are a lucrative untapped market.

Yet in 2014, in the UK, downloading apps, instant messaging and social networking usage on smartphones among the over 55s is likely to be markedly lower than among 18-54s (see table below for a comparison of smartphone usage for the UK average consumer and the over-55 as of May-June 2013).

For mobile operators, targeting the over-55s could be particularly effective. Carriers should ensure that all aspects of service -- from the structure and explanation of tariff plans, to customer service -- are appropriate for this group.

Discoverability remains a key inhibitor to app downloads for the over-55s. App store providers may need to consider adding filtering options based on demographic relevance. Moreover, as some consumers in this age group may delegate the app discovery and download process to friends or family, app developers may need to consider adding a functionality that allows approved users to take control of devices remotely.

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