Carriers have already found the enterprise segment a trusted ally in the fight against the OTT players, most notably with the cloud.
Increasing carrier interaction with enterprises could again drive revenues for both parties in a new service area - application-to-person (A2P) SMS.
Enterprises' own attempts to engage customers and increasingly link up with carriers through the SMS channel give the latter the chance to secure new revenue streams from termination on their networks in a wide variety of verticals, such as banking and nance, transport, health, retail and delivery services.
Last year, Ovum estimated that there was robust 16% year-on-year growth in A2P messaging tra ffic in 2013 and that the market will experience a compound annual growth rate of 6% between 2013 and 2017. At the same time, the research company predicts that overall SMS revenues will see relatively flat growth year-on-year over the same period and then start to decline in 2017.
"The next four years will see an explosive growth in the number of A2P SMS-based services and mobile operators should be well prepared to leverage the A2P SMS opportunity," says Neha Dharia, an analyst at the company. "A2P revenues show a potential for growth in an otherwise declining SMS trajectory and A2P messaging has become the new 'sweet spot' for SMS revenues."
Portio Research predicted that overall global SMS revenues will fall slightly from $133.9 billion in 2013 to $132.1 billion this year, but that combined A2P and P2A revenues will actually grow from $48.2 billion to $50.4 billion over the same period. Meanwhile Juniper Research anticipates that A2P SMS revenues will total almost $60 billion by 2018.
Silvio Kutic, CEO of A2P messaging company Infobip, points to industry forecasts that about 25% of SMS tra ffic generated globally will be either A2P or P2A by the end of 2017. He says Infobip's platform is currently processing 1.5 billion transactions per month worldwide and seeing 45-55% growth year-on-year.
SMS everywhere
One of the main reasons for the continued prevalence of SMS despite the P2P slowdown is the sheer ubiquity of the service, making it the messaging channel that can reach by far the most consumers worldwide, and therefore a natural fit for brands seeking to target the broadest possible cross-section of users.
"The scattered OTT market gives operators a unique opportunity to market SMS for A2P, as this channel is the only one ensuring a message may be delivered immediately and reliably to the mobile number of any subscriber in the world," says Daniel Mavrakis, VP of core network and roaming services at digital-security company Gemalto.
This is a sentiment underlined by Andrew McGrath, SVP of commercial at Vodafone Carrier Services. "A2P is increasingly important," he says. "It's a hugely convenient service for companies and hugely liked by consumers. And whilst there are a plethora of alternatives available in the P2P space, in the A2P market SMS is the single most compelling solution; it simply works everywhere."
Rob Malcolm, GM for the EMEA region at A2P messaging company mBlox, says that "for a long time, A2P SMS was very di fficult to get on the radar of mobile operators", but that carriers have sought to take advantage as the potential of P2P wanes. At the same time, he says, the market is fragmented, with a large variety of players and aggregators, and A2P connections being pursued through many different tra ffic routes.
Malcolm says that the work of mBlox with carriers in this area has grown, with the company helping to monetise A2P through its direct
connections with many operators worldwide. A further appeal of using SMS to deliver A2P communications is that the ease and convenience of accessing such messages means that they are more often read than many other forms of delivery, with mBlox nding that 95% of SMS messages are opened, in comparison with just 11% of emails.
And it is precisely this type of trend that has caught the attention of Matt Ward, head of wholesale partnership management at Three UK. "People read text messages more than emails," he says. "As businesses realise the value of A2P SMS over other methods of customer communication, demand will increase. Three has invested in its wholesale platform and a dedicated team to support A2P SMS partners, as it is a key growth area."
Ward also reflects on how the general characteristics of the market have changed: "There has been a shift from using A2P as a marketing tool to support customer service and to improve customer loyalty. Businesses are now using A2P SMS to confirm delivery times and appointments, as well as to gather feedback on a customer's experience in-store or over the phone."
Compensating P2P
But optimism differs on the extent to which an upsurge in A2P SMS will be able to offset the predicted falls in tra ffic and revenues among operators from P2P messaging. Jeff Bak, VP of mobility solutions at carrier Tata Communications, says that there is most potential for covering losses in the developing world, in countries with a low penetration of smartphones and mobile data, and
therefore limited opportunities for using OTT alternatives.
"There are some use cases that work well in the developing world because mobile data and mobile broadband are not ubiquitous," he says. Use cases for A2P are nevertheless growing in Europe and North America.
Bart Vandekerckhove, head of mobile messaging at Belgacom's wholesale division BICS, says that Europe is seeing particularly big uptake in markets where A2P customers are seeking stable routes for SMS tra ffic and points out that A2P does not require big investments or capex.
Coupled with the predicted huge potential in markets such as Africa, Vandekerckhove believes that revenues could go a long way towards making up for P2P declines. But whether A2P can ever fully replace P2P revenues could come down to pricing strategies.
Many argue that carriers' interconnection charges are sometimes too high to drive widespread adoption. Some observers also think that A2P growth will simply fall short of o ffetting P2P falls. "The potential varies significantly by region, but I don't see any opportunity for MNOs to use it to make up for the shortfall in P2P revenues," says Windsor Holden, head of consultancy and forecasting at Juniper Research.
He anticipates steady erosion from OTT rather than traffc and revenues "going off a cli ff". "Indeed, we envisage that in terms of revenue, many developed markets will also see A2P revenues peak by the end of this decade," he adds.
As an illustration of changing usage patterns in di erent regions, Vodafone saw its European messaging volumes fall from 34.7 billion to 26.8 billion year-on-year in the first three months of 2014, while the overall level across its markets in Africa, the Middle East and Asia-Pacific stayed almost the same, growing slightly from 52.1 billion to 52.8 billion. Despite falls in some regions, the volumes are still huge.
Christian Boucher, head of roaming and messaging services at Orange, says that consumers are still using P2P - even if it is not at the level of growth of previous years and that it remains a stable market for Orange. Although he concedes that the market could start declining in the next few years, he points out that "end users are still exchanging messages. Even if there are other kinds of messaging possibilities, tra ffic will be there in the coming years".
Furthermore, it can be argued that A2P and P2P tra ffic cannot even be directly compared. Falling P2P revenues do not necessarily need to be recovered directly through SMS; carriers could make revenues from new sources as their models evolve and they grow their relationships with enterprises and OTT players, potentially alongside changing A2P models.
Other services could also make up for some of these losses. "Lost SMS revenues are considerable, but the growth in mobile broadband revenues is bringing in a lot more than the money lost to social messaging," says Ovum's Dharia. Operators also could be more proactive in developing revenue streams in other areas, such as carrier billing.
A2P across the globe
Volumes in the A2P market for the time being remain highest in North America and Europe. Big growth potential, however, is expected in markets with lower mobile-data penetration, such as some countries in Asia, Africa and Latin America. "Social networking applies across a lot of verticals," says Bak. "If mobile data is not there, SMS is a good means for that."
Some markets - sub-Saharan Africa, for instance - could even see revenues in A2P SMS double over the next five years, according to Juniper.
Ultimately, the almost universal nature of SMS means that carriers and enterprises would do well to seek maximum value from the A2P opportunity. Rob Hammond, senior director for enterprise mobility services at solutions provider Syniverse, points out that only a handful of apps are used by more than 50,000 users, which signi ficantly limits their reach for enterprises that choose to rely only on
them to get their messages across.
"There are lots of messages that are better as SMS," says Hammond. "As enterprises are starting into business optimisation, they need to address all of their customers. They can't count on you having downloaded an app." As a result of this need for a higher level of interaction, Hammond believes the market could be entering a new golden age for SMS: "Mobile is so critical for brands," he adds.
Stephan Schirrecker, VP of marketing at cloud-communication company Nexmo, believes that the A2P opportunity for SMS is in fact being underestimated, pointing out that he sees a new market report coming out every six months that predicts ever higher growth than the last one.
"To push a message right now, it's the most reliable way from a security perspective," he says. "Every telco, country and phone supports SMS."
