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Why SMS Spam Has Increased In India: Business Model Changes

On September 11th 2010, I’ll complete three years on the Do-Not-Call registry, and even now, I get a few calls a month (the last one today from +91-11-45197100), and a few SMS’ every day, mostly from service providers TM (Tata Teleservices, Mumbai; for example TM-11111111) and LM (Loop, Mumbai; for example, from LM-L_N_P).

The move to curtail the sending of SMS Spam in India has been gathering momentum over past few months: The TRAI Chairman has said yesterday, reports the Hindu, that a regulation for addressing the SMS Spam problem should be out by the end of this month.

Even with the institution of a ‘Do Call Directory’, I don’t think spam SMS can be curtailed, unless enforcement and punitive damages against telemarketers are strict. The problem today with Bulk SMS is that the trade has scaled, and as it has grown, competition, new entrants and resellers have driven down prices. This has been compounded in particular, by a business model innovation which took place two years ago. By itself, the Bulk SMS trade is not at fault – it was meant to be used for alerts (flights, banks etc), but the lure of scale meant that the business crossed over to the dark side, with SMS Spam and marketing.

Business Model Changes: From Dialup To Broadband

Earlier, Bulk SMS of between 1-5 crore in number were being bought from Telecom Operators on a per SMS basis, between Rs. 0.05-0.10 per SMS, and these were sold to marketers. Two years ago, one Bulk SMS company convinced a telecom operator circle – according to multiple VAS executives we spoke with, Airtel Karnataka – to allow them to purchase Bulk SMS on the basis of a new metric – bandwidth.

Instead of buying 1 crore SMS for Rs. 0.05 each, they bought SMS capacity on a monthly rate, on the basis of transactions per second (TPS). It was like moving from dialup to broadband. Today, Bulk SMS providers can buy 100 TPS (with 100 messages being sent per second) for anything between Rs. 45 lakh per month, and Tata Teleservices has taken the lead with this model. One VAS company executive sent us the following rates that they’re paying

15 TPS at around Rs. 6 Lakhs* + Taxes
20 TPS at around Rs. 8 Lakhs* + Taxes

(note: we’ve modified the rates marginally, in order to protect the identity of VAS company)

This works out to around Rs. 0.02-Rs. 0.04 per SMS, given a 12 hour window, since most service providers don’t allow SMS’ to be sent late night. For 100 TPS, it can be Rs. 45-50 Lakhs, but it brings down the rates significantly for a buyer. There are companies who are paying, from what we were told, as low as Rs. 0.0085 per SMS. Those who set up gateways for delivering SMS’ then employ resellers. An example I found on the web, at SMSAchariya:

As you can see, the cost of sending Bulk SMS has become incredibly low in India, and with sellers and resellers, the business has really scaled. The Economic Times reported that Bharti Airtel had stopped selling bulk SMS (from July 23rd onwards), except for specific clients like for banking alerts, but according to VAS companies we spoke with – many of them buyers, it was easy for Airtel since it was hardly a player in the Bulk SMS business, because they charged premium rates.

Some examples of Bulk SMS service sites (not necessarily spam): here and here.

Tomorrow: How To Solve The SMS Spam Problem In India (and why the Do Call Registry will not work)

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