Getting Your Slice Of The $70 Billion A2P Pie


It’s not that long ago since mobile network operators (MNOs) were generating massive amounts of income from SMS traffic. Vodafone founder, Sir Chris Gent, once described text messages as “the closest thing to pure profit ever invented”. But a lot has changed since then, and in developed markets the number of person to person text messages being sent each year is starting to decline.

The rise of Over the Top (OTT) messaging applications, such as WhatsApp, Facebook Messenger and Skype, have had the biggest impact on the P2P SMS ‘cash cow’ and operators can no longer bank on the revenue generated by text. WhatsApp alone has already dwarfed global SMS usage, reporting 30 billion messages a day, compared with the 19.5 billion messages of global P2P SMS traffic according to a 2013 estimate from Informa.

The growing presence of 4G in mature markets means that voice services potentially face the same threat as SMS, with an increasing number of messaging apps offering VOIP-like services. If these OTT voice services gain further popularity, it could be a further blow to networks’ traditional core revenue generators. If these revenues continue to be eroded, operators will increasingly looking to identify new income sources.

A2P Outlook

As person to person SMS moves into decline, another form of SMS is rapidly growing. The Application to Person (A2P) market has been on the rise for the past few years as both enterprise organisations and service providers turn to this form of messaging to enhance and maximise customer engagement and experience.

Ovum reported that A2P SMS traffic has roughly doubled in the past four years. Key drivers for this growth are the increasing number of mobile users opting for mobile payments, mobile banking, mobile marketing, as well as the rise of two-factor authentication.

Some estimates project that the global A2P market is expected to grow to $70 billion by 2020. The universality of SMS on all devices, and its ability to be accessed by all of the 3.75 billion mobile subscribers globally is a key driver for this. Furthermore, SMS messages can always be delivered due to being part of the underlying network signalling protocol, SS7.

By contrast, the internet connection needed for OTT apps will not necessarily be always available on mobile networks, or can be switched off at device level, especially whilst roaming. There is also no guarantee that a user will have a particular messaging app installed on their device. For these reasons OTT apps will never rival SMS for universality or reachability, making the latter the perfect delivery mechanism for A2P messages.

Getting A Slice Of The Pie

While MNOs can’t earn all of the potential $70 billion, they should work to ensure they receive the fair share they deserve. A2P message service providers will claim a large portion of this revenue, but MNOs can rightly claim termination fees, usually a few cents, for the message to be terminated to their own subscribers on their network.

Many A2P service providers seek to avoid paying these termination fees by sending messages through the least cost routing, in most cases avoiding payment to MNOs altogether. These have become known as grey routes, due to only being partly legal and taking advantage of connections intended for other legitimate purposes. While a few cent might not sound like a lot, at current rates of A2P traffic it soon becomes a significant amount of revenue.

So, what’s the answer? HAUD’s experience with analysing traffic for various operators to date suggests that up to 40 per cent of SMS traffic is being grey routed, meaning that the SMS aggregator benefits from a high quality service without paying the operator a fair cost for terminating traffic. But grey routes not only avoid the termination charges, they are also notoriously difficult to detect, without the right tools in place. Operators without these tools are unlikely to know how widespread the problem is on their network, and how much revenue they are missing out on.

Without a way to assess revenue leakage, MNOs remain vulnerable to their networks being exploited. There is, however, a way for each MNO to obtain a clear leakage estimate by undertaking deep traffic analysis and profiling. Once this profiling of traffic is complete, operators will have a clear understanding of where precisely they are losing revenue. Armed with this information, there are two steps to getting a slice of the A2P pie.

The first is through the deployment of an SMS firewall which identifies and filters external sources of inbound A2P traffic. This allows the operators to not only close and protect their networks and block spam and fraud, but to also analyse and validate legitimate A2P traffic that is coming from grey routes. There’s a belief that monitoring at an international level is sufficient but this is misleading – all entry points to the network need to be properly monitored and controlled.

Operators also need to be careful, that they are not blocking legitimate traffic that comes in large volumes, but is in fact content desired by end users. Also, businesses paying for the A2P messaging services may be unaware that their provider is using illegitimate routes, and if these are blocked outright without the attempt to re-route the opportunity to monetise may be lost.

The second step is to ensure that these intercepted A2P messages are redirected through official routes that allow the collection of termination fees. By partnering with an independent SMS gateway provider it can help ensure that aggregators have no choice but to send A2P SMS traffic through dedicated and monetised channels.

There’s a growing trend of aggregators offering firewall services, and, conversely, firewall vendors offering SMS gateway solutions. It is of the highest importance to keep these functions separate to ensure there is no conflict of interest between who is responsible for protecting your revenue versus who is responsible for collecting it.

Looking Ahead

As the A2P market continues to grow, the only way MNOs can guarantee they receive the payment they deserve is by beginning to analyse their traffic and identifying all external sources of illegitimate A2P messages. From there, operators can begin to put the tools in place to redirect the A2P traffic into the proper channels which ensure that providers pay their dues. If you don’t make sure that you get your proper slice of the pie now, you could find yourself with only the crumbs left on the tablecloth later.

Claire Cassar

Dr Claire Cassar is CEO of HAUD, the full service revenue assurance, fraud prevention and SS7 security partner for the telecommunications industry. She leads HAUD’s international expansion and oversees the ongoing commercial success of the company’s products and services. Claire joined HAUD in 2012 from its parent group FORTYTWO Group, where she provided counsel for its subsidiaries, advising on legal matters and corporate governance. Claire has more than 13 years of sector experience, working for one of the world’s leading telecommunications operator groups. She is well versed in the legal, regulatory and corporate aspects of the mobile and messaging industry, and is also an active contributor to the GSMA Fraud and Security Group. With a deep understanding of the commercial and customer challenges of operating across a volatile international market, Claire is committed to supporting MNOs with the best commercial and technical solutions.