Do Text Messages Compete with OTT Messaging Apps?

The Situation

The Australian Competition and Consumer Commission (ACCC) investigated whether to continue regulating mobile voice and short message service (SMS) termination services (the price one network charges another when calls or texts are made between networks). Regarding the question of whether SMS termination should continue to be regulated, a key question was whether over-the-top (OTT) messaging apps like Facebook Messenger and WhatsApp are economic substitutes for SMS messages.

NERA's Role

NERA was retained by Norton Rose Fulbright, counsel for Vodafone Hutchinson Australia (VHA), to write an expert report examining the competitive constraints faced by SMS providers. A key aspect of the analysis was whether competitive conditions differed between “person-to-person” (P2P) and “business-to-consumer” (B2C) messaging.

NERA Managing Director James Mellsop and Associate Director Dr. Will Taylor found that competition from OTT applications and evolving consumer preferences meant that it was unlikely to be in the long-term interests of end-users to continue regulation of SMS.

The Result

The ACCC recommended that regulation be removed for SMS termination on the basis that OTT messaging services are an effective substitute for SMS services.