Time for Icasa to act on SMS charges

By Pieter Streicher

Despite giant strides in the right direction in the past few years in opening up SA’s telecommunications market — making it more competitive and transparent — there are still pockets of monopolistic behaviour.

One of these is the application-to-person (A2P) SMS market in SA, which is worth more than R1bn/year in revenue for the mobile network operators.

A large portion of these messages are sent by the banking sector and the remaining traffic is carried by wireless application service providers (Wasps). Until now, the incumbent operators had a monopoly on the A2P SMS business. However, banks and Wasps are rapidly moving their A2P business to new entrants licensed by the Independent Communications Authority of SA (Icasa). This is evident from the large number of A2P SMS messages now originating from 087, 081 and 011 numbers.

A significant concern arises for incumbent operators because, thanks to an oversight by the incumbent operators and Icasa and due to the absence of billing systems for SMS sent via interconnect routes, new operators are sending SMSes for free via their interconnect links.

This is because there is no interworking fee between mobile operators and the originating network of SMS messages keeps all the revenue. So, if a Vodacom subscriber sends an SMS to an MTN subscriber, Vodacom charges the subscriber and keeps all the revenue and MTN has to deliver the message to the recipient for free. This is not a big problem in the person-to-person SMS world, where the recipient is likely to reply to the message, in which case MTN charges the subscriber and it’s Vodacom’s turn to deliver the message for free.

When it comes to A2P messaging (messages sent from a PC instead of a mobile phone), traffic is not symmetrical — the reply ratio of A2P messaging is typically 1:50 — so things don’t balance out from a revenue point of view. Now, it becomes problematic for the destination network to deliver the messages for free, especially if the originating network was paid for the message, because the message traffic is not symmetrical with very few replies taking place.

To date, the networks have dealt with this issue by excluding A2P traffic from their SMS interconnect agreements with other local operators. Despite being somewhat anticompetitive, this gentlemen’s agreement worked while there were only three network operators, and each could be trusted to stick to this agreement.

Trust is required because in many cases there is no way for the destination network to distinguish between a message that originated from a PC and a message that originated from a phone. Take, for example, the message: “Dear John, please remember your appointment at 2pm tomorrow. Regards, Dr Strangelove.” Was this message sent from a PC or from a phone? Is this a business message, or is this a personal message, and would you want your network to determine this?

Rather than tackling interworking fees commercially, the networks instead set up the Wasp model. Messaging companies that specialise in A2P SMS messaging have to sign a Wasp contract with each operator and pay the destination network for each message delivered.

So far, sort of so good. But fast forward a few years and under the new Electronic Communications Act it became possible for more parties to obtain the new network licences. The licences were designed to make it easier for new entrants to conclude interconnect agreements with incumbent operators. Several licence holders have already obtained SMS interconnect agreements and many are entering the A2P SMS messaging space, technically — under the previous gentlemen’s agreement — not honouring the conditions of their SMS interconnect agreements.

The destination network gets the short end of the stick, but it is impossible for them to enforce the “no A2P messaging” requirement. This would be inconsistent as well, as each of the big operators are shipping their 3G modem Sim cards with SMS messaging software in any event, so technically no one is sticking to the “no A2P messaging” rule.

The problem now is that the incumbent operators are trying to fix the situation by pressuring Wasps and new operators to refrain from cross-network A2P SMS messaging even though there are no practical and justifiable ways of enforcing this.

The solution?

The only way to resolve this issue is for Icasa to introduce a standard SMS internetworking fee so that the destination network that delivers the messages shares in some of the revenue paid to the originating network.

Any concerns that this would result in an increase of the already exorbitant price of SMS are unfounded. In fact, introducing interworking fees is likely to result in the opposite. Once everyone, including Icasa, knows that the cost to a network of delivering a message is only 5c (my estimate), it would be difficult to justify charging consumers 50-80c/SMS. At the moment, it is impossible to pin down the operators on their actual costs, which is why this gentlemen’s agreement has suited them so well in the past.

In countries where SMS internetworking fees have been introduced, the increased competition has resulted in not only improved quality of service, but SMS charges to Wasps reduced to below the SMS internetworking costs thanks to the various operators vying for business in an open market.

I would argue that since the originating network is charging a bulk price of 17,54c/SMS, the SMS interworking rate should be at least 9c so that the destination network, which actually delivers the messages, receives a fair share of the revenue. The interworking fee should be a function of the standard bulk charge, and Icasa, which issues the licences, should set both prices.

In addition, it should be mandatory that all A2P SMS traffic originates from registered Icasa numbers which work across all networks. Ideally for business communications, each business should have its own registered Icasa number so that the recipient of an A2P SMS message can always identify the sender of the message.

Let’s use this opportunity to resolve legacy anticompetitive issues once and for all, ensuring visibility, a level playing field and an open market for both operators and their customers.

  • Pieter Streicher, MD of BulkSMS.com

Share this article

  • http://twitter.com/toni_gon Toni G

    Consider it costs the network about 1.2 cents to send an SMS, they surely dont want kill this golden goose?

  • http://twitter.com/Arfness Andrew Fraser

    The destination networks are getting the short end of the stick? Um.. that would be mainly MTN and Vodacom, right? The same networks that have consistently ripped of the consumer for SMS charges of up to 90c per message?  Karma is a bitch.

  • David H

    A standard Vodacom sms is 160 characters, EXCEPT if you send a grammatically correct Afrikaans sms with your é, ô etc correctly applied. Suddenly you have 70 characters, bringing revenue of R2.40 for a 167 character into Vodacoms revenue base. I have tried for two years to get Vodacom to address this issue; response? It’s your device not the network. Amazingly MTN subscribers have verified this financial abuse, being previously unaware. I pity the Polish, Greek & other foreign subscribers using the local networks. Golden goose indeed!

  • http://twitter.com/bigric Eric Stokes

    The networks should charge less and make it harder for the new guys to take their business. It’s a basic rule of competition.
    17c is a rip-off. Especially if it’s cheaper to plug a phone into your PC and send for a few cents.
    It’s just the WASPS and the customers who suffer. The networks can complain all they want about the new guys, but they out priced themselves at the end of the day.
    People would rather use a robust and trusted network like Vodacom or MTN but they don’t want to get screwed doing it.

  • Anonymous

    Whatsapp and BBM and iMessage are what people use for personal text messaging, pretty much every SMS I receive is automated. I don’t see how this is an issue at all, or why BulkSMS would even care… Sounds like they didn’t think of setting up in the same way and are irritated that competitors are able to undercut them. Well sir that’s called competition, deal with it. Adding an interconnect fee to something so trivial will just make SMSes more expensive – and billing them end to end is probably going to cost more than the things are worth in the end.  

  • http://twitter.com/PieterdVilliers Pieter de Villiers

    Time for the industry to take a look at itself and decide if it is going to be regulated (self or government sanctioned) or un regulated, this ‘in between’ status is causing confusion and rogue behavior. This probably starts by all providers having to join WASPA and signing a code of conduct rather than pushing for more fees. 

Why TechCentral?

We know that as a prospective advertiser, you are spoilt for choice. Our job is to demonstrate why TechCentral delivers the best return for your advertising spend.

TechCentral is South Africa’s online technology news leader. We don’t say that lightly. We believe we produce the country’s best and most insightful online tech news aimed at industry professionals and those interested in the fast-changing world of technology.

We provide news, reviews and comment, without fear or favour, that is of direct relevance to our fast-expanding audience. Proportionately, we provide the largest local audience of all technology-focused online publishers.

We do not constantly regurgitate press releases to draw in search engine traffic — we believe websites that do so are doing their readers and advertisers a disservice. Nor do we sell “editorial features”, offer advertising “press offices” or rely on online bulletin-board forums of questionable value to advertisers to bolster our traffic.

TechCentral, which is edited and written by award-winning South African journalists, cares about delivering top-quality content to draw in the business and consumer readers that are of most interest to technology advertisers.

We’d like the opportunity to demonstrate the value of directing a portion of your advertising budget to TechCentral, whether your company is in the technology field or not. Numerous opportunities exist for companies interested in reaching our audience of key decision-makers in South Africa’s dynamic information and communications technology sector. We offer packages that will deliver among the best returns on investment available in the online technology news space.

For more information about advertising opportunities, and how your organisation can benefit by publicising itself on TechCentral, please call us on 011-792-0449 during office hours. Or send us an e-mail and ask for our latest rate card and brochure.