A2P SMS: The Economics of SMS (Part 2)

In short, while a P2P SMS could cost 2p or so, an A2P SMS costs much lower (probably under 1 paisa) for the mobile operator.

As an aside, P2P SMS pricing varies dramatically – we could pay as little as 5p as part of an SMS pack or as high as Re 1 or more. A premium P2A SMS sent to a shortcode costs us Rs 3 (the cost to the operator is no different for this SMS).  It would be fair to say that there is perhaps nothing more lucrative in the mobile services than SMS!

In a market served by different operators, there is an interconnect charge for voice calls: the operator on whose network the call originates pays the operator where the call terminates. This interconnect charge is 20 paise per minute. In India, retail voice tariffs have been brought down significantly thanks to active intervention by TRAI at the wholesale level.

The principle that has been followed in the SMS business between operators so far has been Bill and Keep. This has worked well, offering such interested operator the ability to get into the A2P SMS business if it so desired.

Now, some operators are trying to introduce this charge in an effort to rachet up SMS pricing even further. While the impact on the P2P SMS is likely to be marginal since the P2P SMS traffic is relatively balanced and linked to the operator’s subscriber numbers, the impact on the A2P SMS business is likely to be substantially negative. And in going ahead with an irrational SMS interconnect charge, at least one operator is crossing the boundary of what is fair.

Continued on Monday.