Analyst: AT&T, Verizon Face Uncertain Future – As the SMS Cash Cow Heads Out to Pasture

A few years ago, you might recall that Sanford Bernstein analyst Craig Moffett declared that despite the SMS cash cow and soaring voice and data profits, the wireless industry was supposedly “collapsing,” and that the whole industry was “grinding to a halt.” Three years later and Moffett is still apparently trying to send incumbent wireless company stocks tumbling, telling Business Week that despite their soon domination of close to 80% of the retail market (not to mention their dominance of special access), both Verizon and AT&T are in trouble. Why? Upgrade phobic Moffettdoesn’t like the fact they’re pouring money into networks since that slows investor returns, and he worries about the death of SMS:

Problem is, that redoubt of profitability is now subject to what Moffett calls the threat of “bandwidth arbitrage.” Put simply, with smartphone apps users can now easily send and receive text messages without paying the telcos for the privilege. These apps, including ones by Facebook and GroupMe, use phones data capabilities for texting, reducing the need for subscribers to buy a traditional texting plan. A new messaging feature from Apple (AAPL), expected to be released in the company s next software update, will bake similar functionality directly into the iPhone. It s “a very real threat to Verizon and AT&T,” says Moffett.

While the death of the voice minute and SMS is a very real revenue issue in the face of smartphones, push IM clients, and open networks — both AT&T and Verizon have responded by raising rates on mobile broadband and eliminating unlimited mobile data plans, something Moffett has championed for years. There’s also never a shortage of new fees to impose, from per byte penalties to additional levies for tethering. Business Week also leaves unmentioned that particularly with AT&T’s acquisition of T-Mobile, both AT&T and Verizon enjoy regulatory capture and dwindling competition, which will help diminish the impact of (r)evolutionary threats.
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