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Here's what will happen:

Your iPhone will attempt to send an iMessage. After 5 minutes of being unable to deliver the iMessage (since your friend has no data/wifi), it will automatically send your message as an SMS text.

It is all done in the background.

What happens if the other person is using an iPod? That SMS isn't much use then?
 
this was once mentioned on another thread, what is supposed to happen is if the iMessage fails it should notify you and ask if you want to send it as an SMS message, at which point if it would cost you money you could say no.

where what was happening was it was sending the message as an SMS without asking the user first, therefore I strongly hope the automatic sending of an SMS is a bug, what if you are iMessaging someone abroad, if it fails to deliver it has just cost you like £3 for something that you expected was free.

If the send as SMS/MMS* option is enabled it may send automatically. To be honest I have only seen it send automatically as an SMS/MMS* once. I have not been able to replicate.

*I use SMS/MMS because if you are having a group conversation or are trying to send a pic/movie it will try sending as MMS. Which requires data, so it will most likely fail if an iMessage couldn't be sent.
 
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