The joy of text: big two deny profiteering

By IRENE CHAPPLE

'Yeah, that was a text-bomber," says Ed Linklater, 17-year-old student, businessman and conduit for angry teens throughout the nation.

His website, Urban culture, is rarking up the kids to lobby Telecom to restore its bargain text message offer - all you can send for $10 a month.

The text-bomber in question was someone who sent 27,000 texts in a month, all for just $10, courtesy of the Telecom deal. Almost two messages a minute, over an eight-hour day.

Telecom, surprised at the enthusiasm with which its offer was exploited, this week announced that the $10 deal would be capped at 500 texts a month.

Linklater reacted by using his website to start a petition. In stroppy capitals, he's asking Telecom to "STOP LEECHING PROFIT FROM YOUTH". He's probably out of luck.

While Telecom and Vodafone won't say how much profit texting makes, the signs are that between them it provides annual revenue of well over $100 million and rising.

Text-bombs, says Linklater, are what happens "when a person is continually texting again and again. You can send 150 texts in a couple of seconds ... You just type in the number and press send, send, send."

Beep-beep, beep-beep. It's done to irritate someone you don't like, he says. "Just to be annoying."

Rocom Wireless managing director Richard Guy reckons the texter hooked the phone up to a computer and used it as an advertising tool. Telecom mobile general manager Kevin Kenrick: "He was spamming the entire address book, highlighting everyone in the address book and saying, 'Hi, how are you'."

Telecom says it can check if the messages were sent out by computer - banned under the $10 deal - and is "99 per cent" sure they were sent by thumb, over a phone.

Telecom rang the teenager and asked him to quit texting so much. No luck. Beep-beep, beep-beep. "At that point we were unable to change the excessive behaviour without putting a cap in place," said Kenrick.

While 27,000 messages a month may be a little excessive, it's a sign of an extraordinary technological success that has influenced everyday language and been a winner for New Zealand's mobile duopoly - Telecom and Vodafone.

The phone companies' figures show that New Zealanders have this year sent an average of nine million text messages a day.

Vodafone has traditionally dominated the traffic, but now Telecom claims the upper hand. Vodafone says its network has averaged 3.8 million texts a day this year; Telecom says it is sitting at 5.5 million average for the year on the back of the $10 deal.

Those figures are an increase from, respectively, 2.4 million and 1.5 million messages a day last year.

Telecom's figures have surprised others in the industry. They show that Telecom's aggressive pricing has effectively annihilated Vodafone's long-held dominance in the sector. Beep-beep, beep- beep. And for the telcos the money goes: Ching-ching, ching-ching.

Phone companies never imagined that such a fiddly way of communicating would take off with such speed, but the arrival of texting has revealed a previously untapped verbal-averse side of human nature.

Back in the early days - that's just a few years ago - there were glitches. At one point Telecom was losing tens of thousands of dollars a day as customers exploited a loophole that allowed them to send free texts.

And there was frustration when Telecom customers could not text Vodafone phones. Compatibility between the networks was finally achieved in mid-2001 and New Zealanders embraced the revolution.

Texting avoids the time-consuming pleasantries of verbal communication. It can be used for surreptitious gossip sessions. To flirt, to engage, like David Beckham and his alleged lover, in Loos behaviour.

The "small world" cliche is charmingly real when a text is sent to someone 24 hours away by plane, and a reply comes back in seconds: "Gr8 to hear!"

Texting spikes over New Year, Christmas and Valentines, when the messages are presumably dominated by sentiments of good will and love. Increasing numbers of teen lovers are also breaking up via text. "I h8 u!".

Business is increasingly using texting as a marketing tool, and a way of saving and making money. Think NZ Idol, which had audiences willing to spend hundreds of dollars, at 99c a text, pushing their favourite homegrown croon-meister.

Air New Zealand now texts customers who inquire if a plane is on time and bus timetables can be reached over text.

For the telcos, the text revolution has produced a youth marketing dream. But while the rapid growth of texting is reflected in their revenue streams, they won't talk profit.

Kenrick dismisses comments from people in the industry that Telecom is using the $10 offer, introduced last year, as loss-leader to appeal to the youth audience traditionally aligned with Vodafone. He agrees that text-bombing customers may be uneconomic, but says texting is making money for Telecom.

And Vodafone figures certainly look healthy. In its 2003 financial year, Vodafone UK, the listed parent of the New Zealand arm, reported that "data services" provided almost 15 per cent of its revenue. Perhaps three-quarters of "data services" income comes from text messages. Hamish Wilkie, general manager consumer marketing, says that percentage is reflected in New Zealand.

So, a back-of-the-envelope calculation indicates that Vodafone New Zealand, which last year made a $90 million profit on revenue of $841 million, is flirting with around $100 million in revenue from texting.

Telecom's revenue from texts in the 2003 financial year - keeping in mind that its year ended just after the $10 deal was introduced - is sitting around $15 million, about half the "mobile data" component in its annual report.

Yesterday's third-quarter result showed that revenue from mobile data leaped 71 per cent to $36 million for the nine months to the end of March, still a drop in the company's total earnings.

But how much does it cost the telcos to provide a text message? Well below 1c, according to Sydney-based telecoms commentator Paul Budde.

While there are marketing, infrastructure and running costs associated with the technology, texting "provides very handsome profits for the company", says Budde. "The price deals show the basic product is becoming a commodity, but the basic service doesn't require a lot of marketing so the margins remain healthy."

There are interconnect payments made between the telcos when a text is sent between the two networks, but that cost - believed to be a few cents - is balancing out as Telecom increases its market presence.

In Southeast Asia, texts can be sent for just a few cents, while costs in Europe are similar to those in New Zealand. The ability to send texts through a computer can also be bought for a few cents online.

Budde thinks Vodafone will inevitably lower its price, while Wilkie says it's under constant review. But he bristles when it is suggested that the company is sitting back and enjoying fat profits from its texting business.

Wilkie rejects the idea that a text costs his company less than 1c.

"I don't believe that's taking into account the investment that allows a network to happen in the first place. That doesn't sound indicative of the real cost." The network, says Wilkie, has cost "literally billions of dollars ... building it and maintaining a very high standard of customer service".

Kenrick: "We have got $4 billion tied up in investment and each of the services we provide has to provide a return on that investment."

The telcos also have to pay service providers such as The Hyperfactory, which develops competitions and programmes using the technology.

A businessman who deals with both telcos says: "I think both of them are winning out of it, just in different ways. Telecom is getting customers so their percentage of the market is holding ... it's not a huge revenue earner for them but they are trying to convince young players it's a cool place to be. Vodafone would be making truckloads ... that's why they don't say anything."

Meanwhile, Kenrick is under pressure from 15,000 teenagers lobbying for the right to text till their thumbs hurt.

But, "as a percentage of two and half million users that's not very big", he says. "For that particular group it's an issue, but [ending the cap] is not an option right now."

Urban culture NZ