The SMS renaissance

The SMS renaissance

Traditional SMS revenues declined for the first time last year, but that has not stopped carriers exploring new ways to revive the messaging service.

WhatsApp, BBM and iMessage – alongside a number of other over-the-top (OTT) messaging services – have left traditional SMS services in the dust.

Traditional SMS revenues have been declining rapidly over the last half-decade, thanks to the onslaught of “free” messaging services over Wifi. One analyst firm suggests that operators will be hit by a further 20% decline in messaging revenue by 2017. The situation is even starker in North America and Western Europe, where spend on SMS and MMS services is expected to decline by 38% and 28% respectively by 2017.

Yet this sharp and alarming drop is mainly impacting the person-to-person (P2P) SMS market. “We have seen quite a drop across the board in P2P SMS because OTT services have made sending SMS-like messages effectively free, so of course consumers are going to migrate,” says Alex Kinch, CEO of next-generation telecoms operator Ziron.

But operators have reason to feel optimistic about the development of application-to-person (A2P) SMS services, which can provide automated messaging services across a number of industry verticals.

“SMS remains a cheap and easy way to communicate between all mobile end-users worldwide,” says Christian Boucher, head of roaming and messaging services at Orange.

The arrival of A2P
A2P SMS messages could be anything from a consumer’s bank reminding them of an outgoing payment, an airline reminding them to check in or a hair salon reminding them of an appointment they have the next day.

Previously associated with spam, the adoption of A2P SMS services has to date been tentative. Before the arrival of OTT messaging services, SMS services were part of roaming agreements between operators.

“SMS services used to be added almost as a small afterthought on a roaming agreement, so it wasn’t really policed or looked after, it was just sitting in the background as an appendix to a bigger agreement,” he says. “Because of that, loopholes existed whereby you could effectively send messages to mobile subscribers for next to nothing, which gave rise to a huge tide of spam from less-protected operators.”

Customer complaints led to loss of revenue, and many operators decided to shut down A2P SMS messaging entirely. However, with the recent decline of P2P SMS, A2P SMS is again being examined as a potential revenue source. Importantly, Kinch says there is consumer demand for such services.

“Consumers want these alerts from their bank saying there’s a suspicious transaction on their card, they want a reminder from a supermarket that their shopping is being delivered,” he says. “Consumers are asking their operators for these sorts of messages and we are seeing a renaissance in A2P messaging.”

Although it has taken a while for operators to embrace this type of SMS revenue, adoption is growing, according to George Fraser, VP of EMEA at CSG International. At the end of last year, the company partnered with SMS aggregator Nexmo to target growth in automated SMS services. The move will strengthen its CSG Assure service, which is designed to monitor and verify the delivery and content of SMS services.

“Wholesale aggregators are repositioning SMS and encouraging marketers to make more use of the service,” Fraser says. “Operators are happy to work with aggregators because they are effectively offering a value-add to what SMS is.”

Other operators are also taking note. RTX – formally Routetrader – is an exchange for pre and post-paid voice traffic, as well as secure banking. In January, it launched an SMS exchange platform in response to the increased interest in SMS from telcos.

“I think SMS is very much an opportunity in the wholesale space,” says Neil Kitcher, managing director at RTX. “P2P SMS is under threat because of OTT services, but A2P is definitely a growth area.”

Industry initiation

With A2P SMS looking an increasingly lucrative opportunity for carriers, which industries are embracing these types of services the most? From pizza deliveries to appointment reminders, the potential for SMS services is vast. And some industries are advancing much faster than others.

“Industries where there are high levels of interaction lend themselves naturally to SMS,” Fraser comments.

Missed appointments on the UK’s National Health Service (NHS) are a continual struggle for the facility and are costing the country billions each year, but automated SMS appointment reminders are helping to reduce these losses.

“The NHS has been slow to adopt appointment reminders, but they’re beginning to get on board with it now,” Kinch says. “Sending someone a text 24 hours before their doctor or dentist appointment, reminding them when and where it is and what to do if they want to cancel, is saving an awful lot of money.”

Another bugbear for consumers is home delivery services. Gone are the days where you are forced to sit at home from 8.30am to 6.30pm in case your sofa delivery decides to turn up. Online commerce firm Amazon, for example, is starting to implement SMS services more heavily to minimise customer waiting times, as well as reduce their own delivery costs. “They are starting to send SMS on the morning of delivery, telling the consumer ‘we’ll be with you between 10 and 11am’,” Kinch says.

But perhaps most important is the finance industry’s use of text messaging services: “Every time I make a financial transaction, I get an SMS from my bank telling me what transaction has been made,” says Fraser. “The idea of having a confirmation after every single transaction is very reassuring.”

And this is starting to become the norm for consumers worldwide. It is also helping the finance and telecoms sectors in their fight against fraud.

“In the US, we are working with a major bank for fraud prevention,” Fraser says. “With this, an SMS will go out to the customer to confirm whether they have completed a real transaction or not.” Fraser says that this type of SMS fraud prevention is being developed by a number of third parties and can help position SMS more favourably.

Global adoption

Although Fraser highlights opportunities in the US, A2P SMS is in fact being adopted more rapidly in Europe. Many consumers in the US are still charged not only to send, but also to receive SMS messages, and this could be a major deciding factor behind the slow uptake in the country.

“You don’t really want people to be constantly sending you a stream of messages if you’re paying every time,” Kinch says.

The potential for A2P SMS could be highest, however, in emerging economies: “Africa has had a late blossoming in terms of leveraging SMS,” says Fraser. “Because there are less, albeit a growing amount of smartphones in Africa, they seem to be more creative when using SMS.”

With limited network coverage in some African markets, SMS is often the most effective way of delivering information: “A significant amount of operators across Africa have different SMS services; it may be operated directly by them or it may be operated by different partners, but I certainly think that they [operators] see the opportunity,” Fraser adds.

Orange has long been utilising SMS services in Africa since forming a partnership with Google in 2011 for the company’s Gmail SMS chat. The service allows users to text Google with search items, and receive an answer via an SMS. “Africa is a very good example of a growth region for this type of service,” suggests Boucher.

In a market where every penny counts, operators are realising the potential of recycling a service they already have. According to Ziron, A2P messages are increasing at a 6% compound annual growth rate and Kinch expects 2.19 trillion A2P SMS messages by 2018.

“There is a global opportunity for SMS,” confirms Kitcher.