New messaging technologies give users lower-price alternatives to expensive SMS, EMS, and MMS and will force operators to retool the value proposition of premium-priced messaging, according to a new report by Forrester Research B.V. (Nasdaq: FORR). Messaging revenue will drop for the first time ever in 2004 as SMS traffic stabilizes at decreasing price points; through 2007, the effective price per message of any type will face continued downward pressure, dropping 16 percent over five years.

“The entry of instant messaging (IM) and email introduces the economics of the Web to the premiums of SMS, yielding a loss of pricing control for operators,” said Forrester Analyst Michelle de Lussanet. “For fast person-to-person messages, consumers don’t need the richness of enhanced messaging service (EMS) or multimedia messaging (MMS). They will stick with SMS for its ease-of-use, lower price, and fast speed. Further, operators will not abandon the proven SMS cash cow because the technology serves as an enabler for other services like voice mail and MMS. With the availability of the new messaging choices, 10 percent of SMS traffic will be cannibalized over those five years — but 6 billion messages of incremental traffic will raise messaging revenue to €25 billion in 2007, a 42 percent increase on 2002.”

Contrary to operator belief that IM has no market, one in six European mobile users use IM on PCs today. As phone-based IM clients and always-on GPRS networks make mobile IM compelling, users will turn to it as a cheaper SMS alternative and as the best tool for dialogues and group messaging. But Forrester believes that Europeans will flock to email on phones — simple email alerts are the single most used mobile service today, and email is the No. 1 mobile service that users are willing to pay for.

“Going forward, SMS will continue to serve the messaging needs of mainstream consumers, claiming two-thirds of messages sent in 2007,” de Lussanet added. “However, an average effective price of €0.07 per SMS that year will limit revenue to €12 billion ¿ 47 percent of the total, and 34 percent less than in 2002. EMS will simply go unnoticed, and only one in five mobile users will use EMS regularly — yielding a meager 2 percent of total messaging traffic and 3 percent of total revenue. In 2007, one in four users will send IM messages regularly. IM users will drive massive traffic, sending 50 messages per month on average in 2002 and 40 in 2007, and IM will contribute 19 percent of all traffic and 10 percent of revenues.

“Rich messaging traffic will split evenly between MMS and email in 2007, with more than a billion messages each per month — although more consumers will regularly use MMS, email users will send more messages. MMS will yield €8 billion euros in revenue in 2007 at an average effective price per message of €0.80, while email will draw one-fourth as much revenue at €0.02 per message. However, this picture masks the profound displacement of MMS’ potential by email — if all mobile emails sent were MMSs instead, MMS would generate an additional €27 billion in revenue over the five years.”

For the report “Mobile Messaging’s Next Generation,” Forrester interviewed executives at 20 mobile operators across Europe.