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Will SMS Foil The Blackberry's International Expansion?

The commercial success of Research In Motion's Blackberry in North America has demonstrated the lucrative opportunity for wireless messaging devices. A new product from Nokia launched last night however, suggests SMS could thwart the Blueberry's international expansion plans.

Last night Nokia unveiled a curious product that significantly departs from the traditional concept of a mobile phone, and moves closer to a messaging/phone hybrid. The launch could prove to be quite profound with wireless messaging a mobile phone carrier's most profitable service.

In terms of economics and usage, SMS is very much the hidden jewel of mobile phone carriers. According to Telstra's most recent annual report, 70 million messages are sent each month by its subscriber base through SMS. Two-thirds of the conversations are one off messages, however the remaining third of SMS conversations last for an average of four messages.

Perhaps more importantly these usage figures represent a 1000% increase over the previous year. Inspection of Optus' annual report reveals an identical increase, with subscribers sending around 65 million messages in the month of March 2001.

This figure is compounded by the fact that SMS pricing levels have remained static at 22 cents per message since inception. This is especially intriguing given the growth rate associated with the service and the harsh price competition in the voice call sector of the mobile phone market.

It's not surprising then that the new Nokia 5510 positions itself toward this market. Due for release in the Asia Pacific region in the fourth quarter of this year (i.e. anytime now), the 5510 seemingly incorporates the awkward yet extremely effective design of the Blackberry device.

Research In Motion's (RIM) Blackberry products have enjoyed strong uptake in the corporate market in the United States. Furthermore, a complimentary product that is sold to corporations that integrates their email servers with the wireless messaging devices continues to drive additional sales. Thus far RIM has sold over 200,000 devices.

However, its success comes with the caveat that SMS usage in the United States is poor. Thus, the absence in some ways creates an artificial market.

Over the coming year we will see if the strong usage of SMS worldwide (estimated to be around 10 billion messages per month) will destroy RIM's quest for international expansion.

A curious wildcard that may see RIM expand into Australia is the under-utilised two-way paging network owned by Hutchinson. The earlier versions of the Blackberry device run on this same infrastructure, and Hutchinson is keen to increase usage of the network. As well as standard paging services, Hutchinson also offers professional, proprietary information services like financial derivative prices - however all of the offerings have yet to contribute any meaningful revenue.

The launch of the Nokia 5510 phone and the inevitable launch of similar products will certainly discourage this scenario, however the economics and lucrativeness of the wireless messaging market are tempting.