SMS Interconnect Charges – A blow to A2P Service Providers
India enjoys the cheapest call rates on mobile phone available in the world. It has helped India enter the mobile revolution skipping the internet revolution (in one sense). This huge penetration of mobile phones in Indian market prompted a lot of companies to mushroom providing services around mobile phones. One such segment were services around bulk sms’es. But soon this segment is going to be hit badly.
SMS are sent either from a person’s mobile phone (P2P) or through an Application (A2P). While SMS sent by a person costs 1 Rupee, SMS sent by an application costs way less. Once you get access to these SMS gateways (which is not trivial), you can send out the sms’es at virtually 0 paise. Huge upfront charges though introduces a barrier to smaller players. But that opens up gates for resellers, who buy SMS credits in bulk from these providers and sell it to more smaller players. Thus evolved an ecosystem of advertisers reaching out to people at low cost, political parties running their campaign on sms, A2P providers, resellers and even smart applications around sms’es.
This was possible because the cost of transferring a SMS from an application to end user was close to 0 paise. There was no interconnect charges between telecos to handle sms originating from one teleco and terminating on another one. Recently though Airtel signed a deal with Tata Teleservices and other telecos wherin telecos will pay 15 paise per sms terminating on Airtel’s network. Today Tata Teleservices is market leader in providing bulk smses and Airtel is well leader in number of mobile connections (more that 30%). This virtually means that the 0 paise/sms which was possible till now has suddenly become 15p.
Yes, this move by Airtel (and soon to be followed by other telcos) is going to affect the A2P service market quite adversely. Interconnect charges are required so that the terminating teleco also make some money in handling the sms. This is the same reason why interconnect charges were introduced in voice calls when GSM service providers stopped handling calls from CDMA networks. Moreover it provides a cost barrier for players to enter this field. ‘Free SMS to India‘ will no longer be possible now.
But Ideally TRAI should have regularized this charge after carefully studying the volumes in this market and evaluating the effect of such a charge on end consumer. This move by Airtel is clearly aimed at increasing its revenue in short term and getting back its lost share of A2P market in the longer term. Only Airtel will not be able to provide sms delivery to Airtel mobile phone at close to 0 paise. Airtel being a leader in number of connections will soon attract A2P players from other telecos.
Consumers also will be affected by this move albeit indirectly. Banks, airlines and other institutions are already crying foul on this move. They were able to send real time free alerts to its vast user base because the charges were quite low. But now with the interconnect charges it is going to severely increase their expenses. Other companies such as mobee.in and m3m.in which provide email delivery to your mobile phone over sms are also going to be hit badly.
I hope TRAI realizes the gravity of this situation and intervenes immediately before it affects this whole industry in general.
What’s your opinion?
[Guest article by Mayank Sharma. Article reproduced from his blog]
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About the author - The article has been contributed by guest author. If you would like to share your opinion/insights/write a guest post, please get in touch [ashish at pluggd.in]
Good one, Mayank.
If we look at data-vs-cost SMS should cost only 1/100th of the voice cost… but alas our operators don’t want people to use SMS … they want them to hook on to the voice.
If SMS is charged at their real prices we would not have invented the missed-call concept
I suppose the telcos did a very good marketing of SMS. In the US SMS is not used as much in India. Specially the youth is now hooked on to SMS. P2P SMSes were free when Reliance was launched and then in 2006-07 it was almost 1p/sms thorgh SMS Value packs.
Once the consumer got hooked the telcos increased the price and the cheapest P2P SMS now is 10p/SMS.
Same strategy for A2P as well. they started with 40p to make it look premium. And then gradually reduced it to 2-3p to let the user and applications taste the service. Now that there is a sizable mass they are increasing it to 15p. This happens with every business. One shouldn’t be surprised if voice call rates are increased after 2-3 years when people cant do without it.
Given that the bandwidth/infrastructure usage – at least for the recieving telcos -for SMS originating at a mobile phone, or at bulk provider is the same, the cost should also be the same….; moreover, in contrast to Mobile SMSs, more often than not the bulk SMSs originate at some advertisers, who can- and -should pay for this advertising. Though such a move would understandably hit the bulk SMS providers in the short/medium term, the part revenue lost can still be recovered by charging the advertisers…
I completely agree with you that TRAI should regularize the charges, but I doubt if TRai would/should agree to a ” 0″ charge..
There is no free lunch after all.
You are right Hitanshu. We cannot have a scenario in which the advertiser has a near free access to these services in which case they will only generate spam. And that is why TRAI should have stepped in earlier before things went out of control. But the problem is this scenario gave birth to real unique applications which will not survive if the cost were to increase drastically.
Mayank,
I completely understand your situation…and I also understand that changing market scenarios do impact companies – especially startups – adversely – especially in this fast changing internet/telecom domain; but just step out and consider this: When all those bulk SMS companies mushroomed, did they take the Telcos or TRAI into confidence about the sustenance of the charges? Probably not. They saw a price differential, they jumped into it…
I really dont know what a right or a wrong charge for such service is…may be the market is the correct determinant..
But I think any business plan – around such a service – should have had a contigency plan/safegaurd for such changing market scenario….
Or let us step back and try to answer a simple Question while drafting the plan: “The charges are Zero, are they sustainable when the market is flooded with such services?” Ans: Probably not…
Then taking the market dynamics into consideration you would automatically want to create a scenario for the telcos to sustain it…We probably cant cry foul…
I think the bulk SMS suppliers coming together to create a strong lobby to make the telcos offer them goodies – or at least a fixed term price- is a better proposition than to wait for TRAI to interfere, because TRAI would only interfere if some licensing condition has been voilated, which probably has not been; but ya, if some usage terms promised to the application companies – you know best – have been violated you have a case.
Further, given the dynamics of the industry, TRAI should at least now step in to provide some predictability such that these applications can evolve accordingly.
That is the least government can do to encourage entrepreneurs.
Just my personal opinion – while having a soft corner for anyone who is feeling the brunt of this.
I am totally with you in saying that the application providers should have had a contingency plan. I am not even saying that there should not be interconnect charges. But given the sizes of telecos, I don’t think A2P service providers will have enough muscle to negotiate with them. The current decision by Airtel is completely unilateral and serves its purpose only. That is why I am saying only a government intervention through TRAI can bring sanity in this market and will provide some guidance into the future.
Fully agree with you.
It’s unfortunate that Airtel chose this direction which now coerces the bulk SMS industry to alter its biz model. However, TRAI is not the solution. Regulation will – as it always has – will fail.
Let’s remember that the mobile operators themselves are facing pressures from newer entrants and prices will eventually fall. It’s not all doom and gloom.
yeah right… it’s not only gonna effect the providers in the market but also the companies which are using this as a marketing tool as it is so cheap in terms of marketing… Now companies will rethink to use this option however, it is still the cheapest marketing tool so we think they don’t have another choice…….. what do you say???
ya right…. We also think that companies will not have a better choice.
This is the age of information / information sharing and at the lowest cost . Smart people at Airtel should realize the recoil that can happen with this move of pricing the termination .
Airtel is barring the consumer , to a great extent , from all the information that is being provided to him/her without any search.
I sincerely believe , no other telecom company should do something as stupid as this and construct an opportunity for competition .
In any case , who really wants Airtel . I am waiting for number portability , just a matter of time . Ha !
Now TRAI will interfere and will fix the termination charges and similarly other regulations will come to reduce SMS charge to customers which is around 50p normally . The one who will lose with all this is small business who used it as marketing tool as bulk SMS will not be that cheap. Businesses around SMS application will also be affected.It may reduce spam SMS.
Lols Ashu. I think Airtel is trying to compensate for the declined costs of pay-per-second tariff from A2P users.
I am on idea postpaid. My call charges are lower than SMS chanrges. So, I prefer calls than SMS, but in some situations SMS is preferred rather than call. e.g. when the person from whom we need to collect money is not picking up the phone, we can send him SMS. I use senti SMS to send to my wife.
I think companies get us hooked on SMS and then earn out of it.
It’s time to move on to mobile internet and away from walled gardens.
Interconnction-Fees are really a problem, worldwide, also here in Germany. The Provider earn so much money with sms, and there is nearlly no challenge between the networks, caused by interconection fees.