Yes, sending SMS messages to phone contacts via Google Chat is no longer supported.
Oh no! How come?
Closing products always involves tough choices, but by streamlining our services, we’re able to focus on creating the best possible products for our users. We previously announced this change in our Help Center and as of today, you should no longer see the option after refreshing your browser.
If you're outside of the US and Canada, you can opt into the new Hangouts to continue receiving SMS messages as follow-me (i.e. if you're offline and receive a Hangout message, you'll get an SMS message). Please visit the Hangout Help Forum here if you have specific Hangout questions: https://productforums.google.com/forum/#!forum/hangouts
Our teams here are committed to supporting SMS in Hangouts and we really do want to give you the best experience possible.