It's interesting to note that this legislation was prompted because the incumbent telco (KPN) overplayed its hand. They publicly suggested that they would price traffic from WhatsApp higher to offset their loss in SMS revenue. A public outcry ensued, law makers got involved and this is the result.
Democracy doesn't always work, but when it does it's a beautiful thing.
Not sure how long telcos thought they could get away with charging so much for SMS (http://www.nickloper.com/2011/02/how-much-does-a-text-messag...) but now that things have changed it looks as though they thought they had other ways of making incredible profits from message transmission. Ha!
The problem is, the money still has to come from somewhere. When income drops in one area (SMS), and costs do not go down, they'll likely have to increase pricing in another area.
True, these are only my individual observations, but after the legislation the prices for mobile subscriptions seem to have increased. Now almost every subscription has 'unlimited SMS' but the internet bundles are priced higher for what you get than before the regulations.
However, this increase of course would also have been the case without the new laws (as you say, as people move from SMS to Whatsapp, they have to compensate). The only difference is that they now can't differentiate between different uses of the internet, but only on the amount of data you get.
I don't think the net neutrality isn't such a bad thing price/economic wise. I'd rather have this clear system which might mean slightly higher prices for the average consumer than a system in which different prices for different uses of internet make calculating your actual costs more difficult. In my opinion, that would only give more opportunities to telecom providers to screw you over with little details, rules and clauses in their contracts -- something which history has shown they don't shy away from (rounding up every call duration to a full minute etc.).
The issue is that demand to SMS is pretty inflexible, whereas demand for wherever the cost is really coming from probably is not.
The Telcos are using SMS money to subsidize more expensive parts of the business that people will probably opt out of if they were charged the full amount.
I don't know enough to say what those are, but you're right, the SMS money probably isn't all profit. Right-pricing SMS will probably mean that some other part of the business would be cut back (unfortunately R&D is often a victim).
When the current shareholders are pitted against the future shareholders, the future shareholders often lose.
Although KPN saw profits drop by 11% they are still a very profitable business (€368M in 2011). It may just be that the telecoms industry may eventually have to settle for lower margins like other established industries.
Lack of money is generally not an issue for telecoms providers and SMS is an area that is so ridiculously overpriced that you could cut it by a factor of ten and still make money.
Democracy doesn't always work, but when it does it's a beautiful thing.