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Push SMS Caught In Interconnect Charges Flux; Impact On Costs, Marketing

letter5India’s push SMS industry is facing a challenge with operators Airtel and Tata Indicom increasing the interconnect charges applicable on application to person (A2P)  SMSs on each other’s network. A2P SMSs include marketing information text messages relayed by enterprises such as banks, airlines, theatres, or by content aggregators.

These push SMSs, when sent via telecom networks are being charged an ‘interconnect’ fee by the receiving operator. With the change, the cost of SMS is expected to increase from around 4 to 5 paise per SMS, to as high as 10-15 paise. Tata Indicom’s increase in interconnect fees to Airtel network has been effective since November 1, 2009. Harsh Janeja, Head of Bulk Business, Tata Indicom, confirmed to Medianama that the hike was instituted 5 days ago and that a mail was circulated to all aggregators informing them of the new pricing: 15 paise per A2P (application to person) SMS delivered to an Airtel number via the Tata Indicom network.

Implications: Positive Or Negative?

This stepping up of prices, the matter of intense discussions amongst telecom industry executives, will hit off-deck mobile marketing companies and enterprises, which may not absorb it and choose to pass on the cost to the consumer or advertiser. Prabhat Kumar, Director at ACL Wireless, said that “In terms of pricing, this will affect our contracts with customers and the fixed prices some had established. Also, alerts for customers will be impacted. It is a tough time and now, aggregators with most operator partnerships will be the ones who will gain.” ACL Wireless will be passing on  40-50% of the costs to customers and will be looking at new avenues such as IVR or enterprise solutions to keep margins balanced.

“Obviously I cant pay from my pocket and advertisers will have to pay more. I will have no option but to pass it onto advertisers. Or I would have to work with each operator separately and that would depend on how open they are,” said Ajay Vaishnavi, Director Telecom for Times Internet (Indiatimes). On being asked if there were any interactions with operators regarding the issue, he said he has not spoken directly to operators as they would ask for volume and “one cant commit to all operators separately.”

Beerud Sheth, Co-founder of SMS GupShup said the dynamic situation is worrisome but that SMS GupShup can “negotiate with operators” as it has volumes with each carrier. “If someone raises the price across the board, it will affect us. It is bad for customers,” he conceded. He did not reveal his costs for delivering messages quoting confidentiality of contracts.

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“The current prices were unsustainable,” Vijay Shekhar Sharma, MD of One97 Communications, opining that costs of marketing had been too low till date, and it will now be a bigger market. “It’s better to play in a large market than a zero price one,” he said. On if the price hike would affect the end-user, he said those who sign up for alerts at banks and airlines, etc, are high-value customers and generally receive voice alerts, which are not affected. What about One97’s enterprise clients? “Customers will pay,” he said, giving the analogy of the courier industry which hiked prices from Rs. 25 to Rs. 45 due to increases in petrol and transportation costs, where consumers had to absorb the costs.

Previously, the price of an SMS was 2 paise, and now for an SMS that terminates on an Airtel subscriber’s inbox, the price will be 17 paise (15 paise + 2 paise). But of 100 SMSs sent, by market share, 25-27 SMSs will be go to an Airtel number, so the average cost is significantly less than 17 paise. The weighted average would be around 10 paise.

Advertisors May Reconsider Mobile Marketing

The push SMS market which used to be only 500 million messages has grown into a 3 billion messages industry. “The market is getting hotter but stagnating,” is how Kumar puts it. Smaller companies, Kumar felt, that have been using it for marketing promotion to reach large number of users will be impacted the most and might have to reconsider their mobile advertising strategy and compare it with other advertising channels such as the Internet and radio now.

“After all, what cost Rs. 30 lakhs to reach 10 million customers, after interconnect prices, would shoot up to Rs. 80 lakhs,” he explains. He believes that companies with A2P such as Netcore and Way2sms will be affected most.

Vaishnavi said, “Advertisers will get highly impacted and we have to see if they are willing to pay the premium.”

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Industry Calls Out To TRAI

The industry body of internet and mobile value added services companies in India, IAMAI, has meanwhile written a letter to the Indian telecom regulator TRAI to intervene and effect a compromise. The letter reads, “IAMAI and the member companies are of the view that should be no SMS IUC at all and if there is, then the tariff proposed is commensurate with the costs involved in the termination of cross network SMSs.”

Download the letter here; excerpts:

  • SMS is a part of business processes of companies and is also being mandated by RBI and SEBI for specific types of transactions. SMS IUC will impact this usage and adoption of RBI/SEBI guidelines.
  • SMS IUC introduced at this point will stunt the growth of the A2P SMS industry and may also impact Peer2Peer SMS usage negatively.
  • Given that there are several new operator entrants, the SMS traffic imbalance is bound to happen, which was not the case at the time of earlier assessment conducted by the Authority.

TRAI’s Role

TRAI has till date kept out of the game and allowed market forces to govern themselves. In 2006, it had opined that “the level of SMS termination charges makes little difference, as there is little or no interconnect payment between the mobile operators. Until there is significant demand for third party usage of SMS with the help of aggregator, probably through fixed mobile convergence services, from content providers or internet to mobile messaging, there cannot be misbalance in SMS flow among different service providers. There is an apprehension that defining interconnect charges for SMS could lead to a hike in SMS tariff.”

The regulator, if it chooses to intercede, can impose a regulatory framework similar to voice calls: an obligation to provide SMS access and termination, non-discrimination, transparency and a price cap on SMS termination charges. If it decides to do so, we may see a re-enactment of last year’s TRAI open house discussion where VAS providers and operators were at loggerheads while discussing licensing, short code services, VAS infrastructure setups, access and transparency?

Medianama has previously written about the burn rate of Push SMS services (here ) and responses by our readers on it are available for light reading here.

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#MCS09: Interconnect Charge Worries Plague VAS Companies
Netcores Comments On TRAIs Draft Recommendations On Mobile VAS
Your Take – On The Cost Issues Of Push SMS Services In India
TRAI Open House Discussion On Mobile VAS – Off-Deck vs On Deck, Licensing, Interconnection , Dispute Resolution and Revenue Share Threshholds

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