Capital investment in 4G and 5G has put a huge strain on resources at a time when average revenue per subscriber has been stagnant. Finding ways to monetize the more recent Gs and extract revenue from existing channels has become a key strategy for telecom companies.
The scale of the A2P market
For the telecoms industry revenue growth is an extremely challenging topic at the moment. In fact, it has been challenging for many years now.
Digicel CEO Dennis O’Brien spoke recently on Telecoms.com podcast and painted a bleak picture of the industry claiming it was in terminal decline and had made a huge mistake in not forcing the Big Tech firms to pay their fair share for network utilization in order to distribute all of their digital products to the marketplace. From his perspective the likes of Google, Meta, Netflix and others have been getting away with using the networks to distribute their services and advertising worldwide without contributing sufficiently to the cost of infrastructural and CAPEX overheads.
Of course, this position is well documented as part of the Fair Contribution lobbying that is being done by a number of large telcos and may come to resolution in the coming months. O’Brien’s contention is that it will have to result in Big Tech contributing hugely to support telcos or else the entire industry will become moribund. In the meantime telcos are using certain cash cows to support their ailing revenue streams and one of the most significant in recent times has been A2P SMS.
In 2022, more than 3 trillion A2P SMSs were sent, averaging over 8 billion SMSs per day—an astounding volume. The utilization of SMS for various applications keeps expanding, encompassing marketing, customer identification and validation, transaction validation, and an array of other functionalities, showcasing its growing simplicity and convenience. The revenue from A2P messaging has helped to shore up the shortfall from P2P messaging all going across to OTT providers like Whatsapp. This revenue has also helped to fund some of the expenditure required for 5G rollout. However, the news isn’t all positive and A2P growth and revenue is now under threat from a number of sources.
Pricing as an existential threat to SMS
A recent study by Juniper Research suggested that pricing is emerging as a point of friction between telecom service providers and enterprises. The report highlights a couple of concerns. First, that pricing strategies by global Mobile Network Operators remain opaque and inconsistent from region to region. This can be a major challenge for enterprises looking to adopt this technology in a widespread manner because it makes it hard to budget for.
The other complaint seems to be that prices are trending higher, making it more expensive for enterprises as the applicability surges. These are both valid concerns and one can see how they would inhibit enterprise adoption. Even worse, it could tempt enterprises to consider adopting unauthorized routes or solutions provided by unscrupulous elements such as Flash Calling.
A recent panel discussion at the WAS#18 event run by GSMA echoed these concerns. A presentation of data by Mobile Squared suggested that we are entering a period of uncertainty for A2P SMS as Enterprises consider their options in the face of price inflation. It seems clear that the growth of A2P messaging is likely to slow or even fall in 2024-2025. There is still no real apparatus for coordinating the range of network operators worldwide resulting in huge disparities in termination rates. Countries in the area of Russian influence, some in North Africa and in South East Asia also have very different termination rates to other parts of the world.
Fraud as an addition threat to A2P messaging
Fraud actions are also impacting Enterprise perception of SMS as an A2P channel. In particular Artificially Inflated Traffic and Message Thrashing are inflating the costs to Enterprise of using SMS for things like 2FA, marketing communications and customer support. With anything from 5% of total A2P traffic being AIT related [Michael Reading, Proofpoint] the impact on costs to Enterprises will certainly not be viewed positively by businesses.
We saw a good example of Enterprise perception of this issue earlier this year when Elon Musk lashed out at the telco industry for inflated 2FA bills coming in to Twitter. Additionally, things like Smishing attacks through the SMS channel have a negative brand impact on Enterprises that feeds into the idea that the networks are not secure or dependable infrastructure for them.
Costs of supporting A2P SMS
The reason why revenue challenges are so much to the fore of course is that telecommunications has been weighed down with huge expenditure to develop infrastructure. This is well documented and, to go back to Dennis O’Brien’s assessment of the industry, he contends that the business case for 5G rollout was always weak and put undue strain on the industry. The mythical use cases of driverless cars, remote surgery and massive robotics manufacturing simply have not come to pass quickly enough to generate ROI.
And all the way down to the level of SMS in particular telcos have to not only absorb the cost of the network and bandwidth and, as the usage grows, they also need to ramp up the capabilities of their tracking and monitoring, reporting, billing, and management systems. They have to keep improving the customer experience by making these solutions ever easier to use. Obviously, all that costs money which impacts their pricing.
How to sustain the market without losing revenue
Telecom providers will need to balance these two sides to ensure this exciting market keeps growing. Thinking both short and long term on how to maintain and grow the A2P business within telco network products is useful at this stage. There are a few points to remember in this.
1. Control Pricing
Ensuring some coordination between international telcos to stop price inflation is really important in the short term. What mechanism or organization might be in a position to push for this pricing control is the question. Could the likes of GSMA lobby for price controls in the majority of markets and hope that outlier markets can be ring fenced in some way to protect Enterprises and restore confidence?
2. Continue to Innovate and Find New Use Cases for A2P
The recent Apple announcement that it will support interoperability in RCS [on the P2P side of the house] suggests that RCS and its business equivalent RBM might become larger players in the A2P market in the medium term.
Telcos need to be innovating A2P messaging all the time. Thinking about things like better 2FA experiences for end users using SMS would show the industry is keen to respond to customer needs.
Equally, it is important to integrate RCS and OTT messaging into the Enterprise offering so SMS isn’t the only option.
Finally, it is clear Enterprises want to have control over messaging campaigns so providing high-quality campaign management platforms directly to them will give A2P managers within Enterprises the cockpits to drive their performance.
3. Sell the Existing Infrastructure to Enterprises
The most recent example cited of an Enterprise defection from A2P SMS was AMEX who are moving to communicate with their customers over an app that they developed themselves specifically for that purpose. This level of investment is huge for any Enterprise and shouldn’t be needed if the A2P product meets their needs. Selling the existing infrastructure is the job of telco Enterprise team and part of that is selling a vision of the future and roadmap that includes network security, price integrity and innovation. Enterprises will be tempted into expensive alternatives if they cannot see that vision.
To learn more about the topics covered in this article, or to discuss how Openmind Networks can protect your core messaging network, please get in touch at sales@openmindnetworks.com or contact our team of experts online here.
