Operators' reaction to iMessage

(Cross-posted from Quora for reference)

iMessage is a new app from Apple for iOS - it layers an IP messaging system similar to BBM into the SMS client. Where both sender and receiver have iOS 5, it will use Apple’s system- otherwise it reverts to SMS, transparent to the user. How will operators react to this?

Well, first of all, iMessage is an irritating acceleration of the inevitable. BBM already does this, which has driven very strong adoption amongst teenaged girls in Europe, and others such as WhatsApp are doing it as well.

Second, outside the USA no-one pays to receive SMS and most contract customers don’t pay to send them either - they’re just rolled into a monthly subscription. I pay Vodafone UK £20/month for a plan that includes 3000 SMS messages. For customers like me iMessage is utterly irrelevant. The same applies to prepay users - it’s all about how clever or stupid the operator is with pricing. Vodafone UK gives data to prepay users as part of a bundle of SMS and data - £10 for 300 SMS and 500 meg of data. Again, that customer is unaffected by iMessage.

More broadly, this is a tariff rebalancing problem, just like the evolution of long-distance pricing a decade ago. It used to be that long-distance calls were expensive and local calls and line rental were cheap. Today all calls are much cheaper but line rental has gone up to match. This isn’t unreasonable - the actual cost base of the operators hasn’t changed. For historical reasons US operators have tended to break SMS out of the core bundle - now they’ll have to put it back in.

More concisely: this is a pricing arbitrage hack, not a change in the economics of the network, and so, after a brief period, and price advantage will be squeezed out of existence by adjusted tariffs.

Finally, the argument on the ‘price per bit’ of SMS. I want to be polite, but this is asinine. When I go to a BMW dealer to buy a new BMW, I don’t argue that the price of steel is $100/ton, and a 7-Series uses 2 tons of steel, and therefore the price of the car should be $200 or $250. Nor do I claim that the price of an Adsense spot should be calculated based on Google’s fully adjusted cost of electricity and server capex to serve that ad. Nor should your cable bill be a function of Comcast’s local power bill. Access to services provided using a hugely expensive global infrastructure system are not calculated on the basis of the marginal operating cost.