A 13-year-old pupil from Scotland hands in her essay written in text message shorthand explaining she had been so overwhelmed by her own SMS activity that she found it easier to type the assignment in text messaging mode rather than using standard English language. Some three hundred miles south, a passenger waiting at a bus stop in Leicestershire is about to send an SMS to Kinchbus, the local bus operator, quoting a unique 6-digit code corresponding to their bus stop. Thirty seconds later an alert SMS is delivered onto the passenger's mobile handset thanks to a satellite receiver installed on the bus informing them of the location of the awaited bus (source: BBC).

Text messaging has witnessed increased popularity over the last few years, as innovative SMS services enter the picture. Research evidence has shown that about 96 per cent of young people in the UK own a mobile phone, irrespective of social grade. Furthermore, text messaging trends show high usage levels amongst the young generation: according to research over 80 per cent of the under-25s are more likely to text someone than call, as opposed to just 14 per cent of those over 55 years (source: BBC). The Mobile Data Association (MDA) supports that a remarkable 2.7 billion SMS were sent in the month of July 2005 in the UK, which represents an increase of 23.5 per cent over the same month last year.

SMS is one of the most popular and frequently used value-added services offered by mobile operators. Even though SMS prices have seen a steady drop in recent years, mainly due to the fact that operators have introduced the so-called 'SMS bundles', still a significant proportion of operators' revenue is generated from messaging services, predominately SMS, which contribute to the rise of the data-generated ARPU.

Currently, the main rationale underpinning the SMS pricing policy of operators is based on the 'more for less' principle with SMS bundles providing a vivid example of this: The bigger the SMS bundle, hence the more SMS subscribers purchase altogether, the cheaper the rate per individual message. This way, operators aim at raising their profit levels through high SMS traffic. On the consumer side, subscribers also benefit from cheaper SMS tariffs, an offer applying extensively to young people, who engage in frequent text messaging. Tarifica has compared the prices of SMS available within and outside bundle offers across a number of European operators. As graph 1 illustrates, O2's (UK) standard SMS price is four times the tariff of an SMS available on the operator's bundle. For Proximus (Belgium) and Vodafone (Spain) the 'SMS within bundle : SMS outside bundle' ratio of per message charge is 1 : 1.50, while for SFR France it is 1 : 1.44. Amongst the operators that were researched Wind's (Italy) SMS charges showed the most significant discrepancy between the bundle and the standard SMS (1 : 5).

Despite the low SMS bundle rates supported by the comparison below, there can also be terms and conditions in the bundle offers that limit subscribers. Italian operator Wind, for example, offers its 'Noi Wind SMS' bundle for an initial fee of € 9 per month, which works out to offer an SMS tariff as low as € 0.025 per message. However, the bundle is in fact restrictive, as the inclusive SMS (300 messages) can only be used for other Wind phones. Moreover, TIM, the mobile arm of the Italian incumbent operator, offers SMS with different validity periods depending on the bundle: 'Extra Group SMS' bundle, which offers 950 SMS for a fee of € 100 (VAT incl.), also has a validity period of 60 days from activation of the offer (remaining bundle SMS will be lost if not used by that time). On the other hand, 'Mini Group SMS' bundle offering 40 SMS for € 5 (VAT incl.) has a validity period of 30 days.

The trend of mass text messaging is surely connected to more competitive prices being implemented by the operators in the form of bundle offerings. However, it is yet to be confirmed whether the demand on the user side has driven the pricing reforms or whether it is the attractive prices that have led to a huge growth of the SMS market.

 Graph 1 - 'SMS within bundle : SMS outside bundle' price ratio based on a per SMS tariff for O2 (UK), SFR (France), Proximus (Belgium), Wind (Italy) and Vodafone (Spain).

notes:
   1. In all ratios above the cheapest bundles, i.e. those offering the lowest per message SMS rate, have been used.
   2. In cases where standard SMS rates vary depending on the price plan, the cheapest rate has been used.

TARIFICA is the world's leading specialists in telecommunications pricing and analysis, is a division of Access Intelligence LLC, an international niche services consultancy in the telecommunications industry, with offices in London, New York and Washington DC.

The company, which was established in 1976 as the first consultancy to track telecommunications tariffs, offers a unique repertoire of tariff related products covering fixed and mobile services in Europe, the Middle East, Africa, Indian subcontinent, Asia-Pacific and Latin America. Our multilingual specialist team, which collects data, is constantly updating more than 1 million tariffs from over 200 operators in 120 countries by primary research among the operators themselves.