Iphone 5 - SMS not working when imessage not available

I have an iphone 5 (ios 7.0.4).  I have imessage set up with "Send as SMS" switched on.  However, when I try to send a text to my sister who has an iphone 4s but always has imessage switched off it will not revert to green to send it as an SMS. It will just send it as an imessage and then come up with the message that it is undeliverable.  I am also having the same problem sending messages to other iphone users who may not be in a wifi area or who don't have their data on.  Every iphone user in my contacts comes up with the blue send button when I type messages whether or not they use imessage!  Any ideas as to why this is happening. 

There are millions and millions iPhone and I'm one of them that don't have any problem with my Wi-Fi.
Did you check for firmware updates as mentioned earlier?

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