A2P SMS: The Economics of SMS

As many of us have noticed, SMS is not carried on the same channel as Voice. What this means is that we can send and receive SMS even as we are speaking. SMS is actually carried on the SS7 signalling channel which is otherwise used for call set-up. As we all know, a single SMS is limited to 160 characters. So, ordinarily, there isn’t much traffic on the SS7 channels.What this means is that the incremental cost of carrying an SMS for a mobile operator is very low.

Below, I have done some estimation of the cost of carrying an SMS after talking to a few people from the industry. A caveat: These are not well corroborated facts by operators and anyone can refute the same. [On a related point, just to reinforce what I am saying, one of the operators in India has also aggressively selling A2P SMS capacity to large banks at 1 paisa per SMS.]

It is possible that the cost to carry a P2P SMS may be 2 paise or slightly more. But for an A2P sms the cost will probably be significantly lower because there is no billing involved (SMS billing can take 1p or so), no authentication needed, no cash balance checks, etc. Also, no incoming SMS airtime is used since A2P SMS come over IP, and are sent directly to the destination operators.

There is a large capex for the SMS Centre (SMSC), which is the actual infrastructure at the operator used for sending and receiving SMS. An SMSC with a capacity of 200 transactions per second, which translates to about 8-9 million daily or 250 million SMS per month can cost about Rs 1-2 crore ($200-400K). With full usage, it should be possible to recover the entire cost within a matter of months.

In addition, signalling links costs work in step functions. Ordinarily, these links are quite empty because they are only used for call set-up and SMS carriage. With A2P SMS traffic, these links will need to be augmented, but their costs are not large. (One can do more detailed calculations based on the national long-distance costs and the fact that SMSes are only a max of 160 chars long – the result will be a price that is a small fraction of a paisa as the loading due to the signalling link costs.

Continued tomorrow.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.