Plugging revenue holes in mobile networks

30 Jun 2015

Mobile Network Operators (MNO's) are faced with the continuous challenge to generate new revenue, retain customers and, with new technologies and players regularly entering the market, compete in an ever-changing marketplace. One of the biggest areas of growth is the Application to Person (A2P) SMS messaging space. Ovum predicts that A2P messaging traffic will total 2.2 trillion events by 2018 with Juniper Research citing that the industry could be worth $60 billion by the same time. MNO's should be capitalising on this expansion.

Stuart Miles via freedigitalphotos.net

However, it seems many are unwittingly losing out on millions of dollars of easily securable revenue because of holes within their networks, which allow for illegitimate traffic to be terminated to customers without their knowledge. To increase revenue opportunities, there are a number of measures that operators can take advantage of to stop this traffic, secure the network and set an optimal pricing point for SMS termination.

Blocking illegitimate traffic

Illegitimate traffic terminates on an operator's network through what are known as 'grey routes'. These are paths into the MNO network which are used by third parties, such as aggregators and enterprises, to push A2P SMS messages to customers that avoid the MNO's termination charges but utilise the infrastructure. These holes could cost each MNO as much as €35 million every five years in revenue.

Operators need to block these fraudulent channels to regain control of their networks as they are missing out on valuable billable revenue and customers are unsatisfied with increased levels of spam. Some operators may already have SMS filtering technology and mechanisms in place, which they believe would stop this activity. However, these methods only work on known holes within the network. They don't detect the unknown routes e.g. SIM farms.

To combat this and ensure the network is impermeable to the unscrupulous who are profiting from free access to the infrastructure, operators should opt for a managed service offering. This route means you get the expertise of a supplier that knows what to look for and who can dedicate the time to finding the unseen entry points. Direct and interconnect binds must also be monitored in order to truly close the network and protect infrastructure investment. Operators must enter into agreements with aggregators to ensure approved routes and pricing.

Some operators have already put an end to grey routes onto their networks. Take, for example, Telenor. The Norwegian operator discovered its network was being used for activities they were not aware of and, more importantly, not billing for. So they deployed an SMS Firewall platform in 2007 and have since generated US$ 81 million in revenue. O2 Ireland is another example of where they witnessed revenue increases of €2.5 million per year just by locking down their network in 2009 and billing for all A2P SMS messages.

Avoiding 'bill shock'

Once the network is closed the next step is to set an optimal SMS termination charge price point. There is, as found in the research we conducted with Ovum, enough 'price elasticity' within the market for MNO's to not only charge for SMS message termination, but increase the price without losing customers. MNOs should carefully consider the extent to which they increase these rates as there is a fear that if the rates rise too high then it will put off enterprises from using that channel as they'll look for a cheaper alternative. Although if the price point is too low then it could lead to increased spam.

Getting that optimal price point is critical. Ovum's theory on price elasticity has been tested and an Affordability Index has been created to help MNO's calculate the impact on their revenues of increasing or decreasing their termination prices. The theory states that when demand is elastic, a fall in price will increase traffic volumes so revenues will increase. The opposite is true for if the market is seen as inelastic.

Taking the German market as an example, as most of the MNO's have closed their networks, the average A2P SMS price is €0.0411. If they were to reduce this by 25% to €0.0308, the MNO would see an 80.6% revenue increase and a 140.8% increase in A2P SMS traffic. If they reduced the price by 50% to €0.0206, it would see a higher growth in revenue and traffic at 92.5% and 285% respectively.

The A2P SMS market represents an immediate and significant opportunity for MNOs, but there is still a reluctance to acknowledge grey route traffic, how to block it and set termination price points to enable both revenue and traffic growth. Now is the time to take action and regain control on the network and within the market. This will lead to a fairer and more profitable space for all.