Unlimited Text Applications Could Change Business Model for Wireless Carriers

After mobile entertainment company JAMDAT Mobile was sold to Electronic Arts in 2006, co-founders Scott Lahman, Zack Norman and Austin Murray wanted to build a company with an eye towards the future of the wireless industry.

It quickly dawned on them that as people began to carry cell phones suited as much to typing as dialing, text messaging would gradually replace voice calling as the norm for live communication - much like the way email has made snail mail nearly obsolete.

We said, 'Wow, here is a booming medium...and yet there has been no innovation in 15 or 20 years,' Lahman, the CEO, told International Business Times in reference to text messaging.

Seeing an opportunity, the trio founded GOGII, which was rebranded as textPlus in 2007. The Los Angeles-based company allows mobile customers to download a free text messaging service that can be used across different operating platforms such as Android, BlackBerry and Apple's iOS.

Once a customers download the application, they receive their own telephone number to text. In addition, chats can be set up between multiple users. Revenue is generated through both advertising and fees on some of the application's features.

In fact, people don't even need a cell phone to use textPlus. The service was launched to the public in 2009 and was initially geared toward middle-school aged youths, who had iPods but didn't have cell phones, as a way to connect with friends. But textPlus is now available on both iPods and a wide range of smartphones.

The application has grown tremendously. By the end of 2010, more than 5 billion text messages had been sent on the service. By June 2011, there were twice that many messages sent, and that number doubled once again at year's end; more than 2.5 billion messages were sent in the month of December alone.

A THREAT TO TRADITIONAL TEXT MESSAGING?

Applications like textPlus could pose a challenge to wireless carriers with their own text messaging services. As IBTimes reported in October, Verizon Wireless brings in as much as $7 billion annually from text messaging -- about12 percent of its total revenue. The company, a joint venture between Verizon Communications and Vodafone of the U.K., charges up to 20 cents for both incoming and outgoing messages unless a customer purchases an unlimited text plan, which costs $20 a month.

Text messaging through wireless carriers is still widespread. According to a September survey conducted by the Pew Research Center, text messaging users over 18 send and receive an average of 41.5 messages per day. Those between ages 18 and 24 send or receive an average of 109.5 daily text messages.

However, there have been some challenges to text messaging. For example, Research in Motion's BlackBerry customers have BlackBerry Messenger, or BBM, which allows users to message each other in a mobile chat room without using a wireless carrier text plan but the carrier's data plan instead. Apple in October released its iMessage application, providing similar features for iPhone users.

Programs such as BlackBerry Messenger and iMessage don't work across operating platforms, which means a BlackBerry user can't instant-message an iPhone user. Therefore, it won't make a lot of sense for avid text messengers to drop that text message service.

However, eventually consumers will want the features of BBM and iMessage to work across different platforms. TextPlus can do just that.

This has been happening for...several years, independent telecommunications analyst Jeff Kagan told IBTimes, referring to the challenges to traditional text messaging.

Kagan said when wireless providers started introducing unlimited data plans, they didn't really expect people to use applications that would challenge the wireless industry. For instance, Microsoft-owned Skype, which provides voice calling and instant messaging through a data plan rather than traditional text and voice plans, is now available on a variety of different smartphone platforms.

Skype's impact on voice calling is limited since wireless carriers require customers to subscribe to a voice plan. But Skype's instant messaging service could rob text messaging revenue from wireless carriers; people aren't required to buy text messaging from carriers.

HOW WILL WIRELESS CARRIERS RESPOND?

Once instant messaging programs gain more traction, cellular providers won't necessarily have their text messaging revenue source drained. Rather, the charges on wireless customers' phone bills will change.

Frost & Sullivan analyst Todd Day said he predicts that over time, carriers will begin to offer more carte blanche services.

Some people might want unlimited Tweets, some might want unlimited Facebook, some might want unlimited iMessage, Day said in a previous interview with IBTimes on the subject. Like voice calling, eventually people will choose what data they want in their phone plan.

He also believes that all text messaging plans will eventually be incorporated into a carrier's data plan.

Carriers like AT&T and Verizon Wireless already have tiered pricing. Heavy data users are charged more than light users. Day believes that eventually, there will be five or more tiers of data pricing in order to facilitate more customization.

IBTimes contacted AT&T, Sprint and Verizon Wireless to ask how they plan to deal with programs such as textPlus. AT&T declined to comment, while Verizon didn't respond to requests. Sprint said in a statement it collected revenue through the application, since the provider allows customers to use data through its plan offering unlimited data and text messaging.

These apps provide choice in the marketplace, which is good for the customer, the statement said.

Like textPlus, Kik was founded approximately three years ago to improve upon traditional text messaging by providing an instant messaging service that works across different operating platforms. The company, based in Waterloo, Ontario, has built an application that signals when people have read a message, and allows users to see when someone is typing a message to them. The service also provides a mobile chat room for up to 10 people, according to CEO Ted Livingston.

We wanted to offer [text messaging] process but make it even better, Livingston told IBTimes. It is really meant to feel like a face-to-face conversation.

Livingston said carriers haven't expressed much opposition to Kik.

[Wireless carriers] look at these types of programs as sort of inevitable, Livingston said. I think that carriers are going to drive more money out on the data.

Lahman said carriers initially were wary about textPlus, fearing it would mean a lot of lost revenue. However, he said carriers soon realized they could capitalize on the heavy data use required for the service.

Last month, textPlus launched voice calling. Again, because customers can't opt out of wireless carriers' voice calling plans the impact that companies such as textPlus will have on a carrier's revenue is limited.

Yet Kagan points out that people were previously required to purchase landline phone service in order to receive Internet service. Telecommunications companies dropped that requirement in conjunction with reduced demand for landlines.

Could the same thing happen to voice calling on a mobile phone?

I don't see it happening today, Kagan said. But innovation in this industry is changing so rapidly. We don't really know what it's going to be in the future.

This story has been updated to provide comment from Sprint.