How should mobile operators price A2P messaging traffic?

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GMS

For MNOs, pricing A2P messaging traffic can often be like an M. C. Escher print: recursive, complex, and a mix of art and science. There are several elements to consider, with operators subject to the whims and interests of markets (local and international), aggregators, and enterprises of all types and sizes.

Understanding the opportunity

The first step is, obviously, to get a good idea of the number of subscribers and, consequently, the number of people likely to be receiving messages on a regular basis. There are several ways of counting subscribers, but for the purposes of A2P pricing the best option is to use the number of monthly active users.

From here, we want to know how many of these MAUs are using smartphones – as these are the subscribers who will be most likely to use online services that require validation or notifications (2FA messages, confirmation messages, and the like). This gives us a general estimate of the number of people who regularly receive A2P SMS messages, and therefore the amount of traffic an operator should be seeing across their network. Monthly active subscriber base and smartphone penetration are key factors in approximating the quantity of international A2P SMS per user for a particular operator.

A more thorough understanding of the traffic potential can be made through analysis of CDRs, to see how much traffic is coming from typical A2P sources, such as WhatsApp, Apple, large retailers, and so on. A combination of Sender IDs, aggregated depersonalised text content, and incoming traffic routes – coupled with GMS’s market intelligence – help in determining traffic potential. This is a good counter check for the traffic estimation done through subscriber base and smartphone penetration.

In terms of a full managed services solution, this also allows us to gauge how much traffic the operator is monetising, versus the traffic potential the operator has. In other words, we can calculate the revenue loss for the operator.

This network analysis is run in tandem with GMS testing services which greatly helps understanding what proportion of service messages are being sent via grey routes or are subject to manipulation. It can improve the accuracy of our traffic estimation and the operator’s current network security (and eventually market pricing).

The basic principles of pricing

So how do we price and monetise this traffic? The answer depends on the market we are talking about, and is subject to several factors:

  • What is the market size and current market price?
  • What is the protection status of the MNO?
  • What is the protection status of other mobile operators (OMOs)? Are they all protected? Or only some?
  • What price will the enterprises be willing to pay?
  • What is the current monetisation regime implemented by MNO?
  • What is the current regulatory framework for this business segment and are there any restrictions on local aggregators?

Market price and protection status tend to go hand-in-hand. If an MNO is unprotected they are usually unable to charge much for their A2P messaging. It is simply too easy for aggregators and enterprises to find alternate routes into the network. Any rise in price without closing the network results in increasing grey traffic termination, especially through SIM farms and local aggregators.  

Meanwhile, if all MNOs in a market are protected (or unprotected) their prices will likely be quite similar. But if some operators are unprotected while others are protected, then this often encourages SIM farm use, since it will be cheaper for unscrupulous aggregators to terminate into unprotected networks and then pass A2P messages to their intended recipients via on-net/offnet local P2P links. Pricing strategies on protected networks will need to take this into consideration.

Looking at the rest of the market can also tell us more about appropriate pricing practices. Charging more than what aggregators and enterprises are willing to pay is likely to encourage them to find alternate routes. If the network is well protected, they may simply decide to stop using A2P altogether and opt for alternates like flash calls etc., which can be worse. After all: this leads to decreasing SMS traffic volumes and frustrated subscribers, who now find OTT  services unavailable because their network is asking the service provider to pay too much.

This aspect is critical. To ensure lasting messaging monetisation, operators and their partners must be careful to manage any price increases wisely. Too much, or too fast (or both), and enterprises will inevitably reduce their messaging, or find alternative solutions, to save costs.

Those enterprises still need to see value in the SMSs they send, or else messaging as a whole will collapse. Any pricing strategy must be aligned with market trends to make SMS monetisation a long lasting and sustainable revenue stream for the whole messaging ecosystem (that’s where GMS’ cross-market expertise comes in).

Lastly, we have to ask: what if hubs connected to the operator are charging less than the MNO? The innocent explanation might be that they have a preferential rate, as part of a partnership. But if, as the MNO, you know that this is not the case, then it is more likely that the aggregator is using grey routes to bypass your (we hope) otherwise well-protected network. You and your partner need to find and block these routes and connections.

Transparent pricing strategy

GMS’s commercial proposals are always operator-centric, in a sense they are focused on increasing the network security of the operator as well as increasing their revenues.

The solution, as GMS sees it, is to ensure that the operator and GMS work in close partnerships. Such cooperation is, in any case, a key component of a managed services portfolio, which includes the testing, analysis and reporting discussed previously, and also combines the insights of GMS and the MNO.

Typically GMS promotes the extension of cooperation to pricing and addressing the market, via a revenue share strategy. In this model, GMS helps the operator sell messaging by going directly to the market, with a mutually agreed price, and sharing a mutually agreed percentage from the revenue.

This arrangement creates a reciprocally supportive association. The provider has to be completely transparent about the market price and in return the operator has every reason to support the provider in the marketplace. When the network is fully secured and the market is stable, both parties can cooperate in implementing incremental price increases. Neither side undercuts the other, and pricing can be brought to a level that the market will bear, at a pace that works for all stakeholders.

Symbiosis

Indeed, rather than client and provider, the relationship becomes more of a symbiotic one. The parties have their own interests, certainly, but in a revenue share model their relationship is structured in such a way as to make these interests mutually reinforcing.

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