With the death of the traditional, monolithic SMSC looking likely, operators will need to react quickly in order to offer new services, says Patrick Flynn, sales and marketing director for OpenMIND Networks
SMS messaging is profitable for mobile operators and can contribute up to 15% of the total operator revenue. SMS Application-to-Person traffic is growing, but the vast majority of SMS is still Person-to-Person traffic — up to 90% of SMS revenue falls into this category and it will continue to be an important part of mobile operators’ P&L for years to come. Traditionally there is very little value added by the operator to this important and key business mainly because, technically, SMS traffic goes through a closed and monolithic SMSC. If we could “open up” the SMSC and make it distributed, we can more easily introduce new services to Person-to-Person SMS messaging.
Pressures for change
The business as we know it will undergo a change in the next few years due to the pressures of price competition, increasing churn and the increasing age of the users. These market pressures for change are already apparent to operators:
l Competitive pressure has driven down the average revenue per SMS over the last few years from about
â‚-0.12 to about â‚-0.08, depending on the market.
l Churn is increasing, mainly due to young customers who are notoriously fickle and are not concerned by changing their mobile number in order to take advantage of competing deals from other mobile operators. The regulatory-driven development of Mobile Number Portability will further increase churn, but probably not as much as expected.
l The aging profile of SMS users gives an opportunity to develop new lifestyle services for older (30 plus) SMS savvy customers who are well aware of SMS but are less inclined to chat, as they become more drawn into a family driven lifestyle. However, it begs the question: can we not develop more family-centred services?
These pressures bring a new level of competition and change to this profitable business segment. Operators will need to react by anticipating the change and bringing new and exciting services to their customers. Infrastructure providers will no longer be able to supply the traditional SMSC product as this market segment is already in decline.
Specifically, what can we do to provide new and innovative services to the Person-to-Person segment?
Mobile operators need the ability to generate new services for Person-to-Person SMS services. This is not easily done, technically because of the standards driven and monolithic development of the SMSC.
SMS infrastructure providers would service the mobile operator market better by opening up the SMSC or offering a “distributed” open SMSC or SMS-D. This would allow the easy and quick development of new Person-to-Person SMS services at a lower cost than traditionally expected in the mobile messaging industry. If the industry, overall, takes a longer-term view of what it takes to maintain customer interest in SMS services, then both mobile operators and SMS infrastructure providers will benefit in time. Simply put, if we don’t react to the importance of Person-to-Person SMS messaging, we will witness, and we are witnessing, the decline of the traditional SMSC market.
In particular, the development of a PARLAY service development approach (that of open technology-independent application programming interfaces) to messaging (both SMS and MMS) would be timely and opportune. A PARLAY approach to messaging will allow mobile operators to stay aheadof the game by having a consistent way to bring services to market.
Indeed, mobile operators need to ensure that they maintain the “value added” within their networks or lose out to the handset vendors who are adding value at a much faster rate to their products. In particular, standards such as Session Initiation Protocol (SIP) might drive the commoditisation of the networks to pure transport systems with the intelligence at the edge of the network. This is a concern that faces many mobile operators. Clever development of the mobile networks will counteract these concerns.
So, where’s the beef? What sort of innovative new Person-to-Person services can be provided?
Some examples of these new services are:
SMS Person-to-Person Sponsored Messaging
lue Chip FMCG companies, such as Coca Cola and Nestle, are very interested in targeting segments of the mobile operators’ customer base. For example, suppose customers sign up for a Coca Cola summer promotion, which gives them 50 free SMS messages. Instead of giving them credit for 50 SMS messages in a lump sum, it would be much more effective if the customer experienced the campaign as follows:
l Every tenth message sent by the customer to their friends is delivered for free.
l Their friends see the message arrive in the normal manner and are not aware that it is sponsored.
l When the customer sends this tenth SMS message they receive a message back from the Mobile Operator that says “Your last message was sent free — sponsored by Coca Cola”.
l All the billing issues are automatically taken care of by the PEPS system for pre-paid or post-paid customers.
The advantage to the sponsor is that the benefit — free messaging — is closely associated with the use of the service. Also the benefit is spread out, in this case over a number of weeks or months and is re-enforced by usage.
Other campaigns or combinations are obviously also possible. The mobile operator themselves could sponsor a “free message day” over the Christmas period for example. In this case the first (and only the first) message sent on “free message day” will result in an SMS back from the network saying “All SMS messages free today — sponsored by your mobile operator”.
Other combinations and sponsorship strategies are possible and, obviously, the sponsorship of MMS Person-to-Person messaging is a natural development of this service.
SMS Loyalty and Lifestyle Services (LALS)
Another example of new Person-to-Person services involves customer segmentation and associated loyalty benefits. Most operators separate their base into lifestyle segments such as:
l “Teenage social user”
l “Business user”
l “Sports orientated user”
l and many other segments…
Each of these segments is normally marketed to in a different manner and they, themselves, have different expectations of what they want from their mobile service. It would be a very powerful marketing tool if we could identify, in real time, from the pattern of messaging usage (SMS and MMS) what type of customer they are — in other words, which lifestyle segment they belong to. We can then automatically market to these customers by SMS or MMS, suggesting particular services that will appeal to that type of customer.
Furthermore we can reward loyalty among these customers by, for example, providing them with bonus messages or credit when they send 50 messages in one month. This happens in real time with an SMS from the mobile operator saying: “Congratulations, you have sent 50 messages; your next five messages are free. This loyalty reward is provided by your Mobile Operator”.
This is a much more powerful customer experience than getting a loyalty bonus on their monthly bill or a credit in their pre-paid balance. Again, the benefit is closely associated with the action.
Increased ROI with reduced Capex and Opex
reduced Capex and Opex
Whereas two years ago service providers were looking for return on investment (ROI) in their operational systems within 12-18 months, today the typical expected payback time is around 9-12 months. In the late 1990s we saw capital expenditure rise from an historic norm of around 15% of revenue p.a. to a record 35% as operators convinced themselves that growth was unlimited and they needed to expand fixed and mobile capacity to cater for that growth.
Today, operators are being forced to examine ways in which they can protect and grow existing revenue in a much more challenging marketplace. Flexibility, agility and simplicity are critical. The ability to add value in-flight to Person-to-Person services enables operators to tap into a previously unexploited revenue stream by sweating existing capital assets.
By introducing new Person-to-Person services it is possible to unblock business intelligence — to unblock and access vital customer information buried in today’s fragmented systems.
Unless operators choose a platform that is flexible and open to expansion they are in jeopardy of missing out on market opportunities. There is no doubt that operators must provide varied value-added services to their subscribers or risk continuous erosion of loyalty, loss of new customer recruitment and diminished ARPU.
There are many other SMS and MMS Person-to-Person services that mobile operators might want to introduce into their own markets. Mobile operators have a much deeper understanding of what will or will not work with their own customers based on the cultural, economic and social forces in their market. Up until now services such as PEPS and LALS were difficult services to implement with traditional networks but new technology today enables such services to be launched.
The most important service that infrastructure providers need to supply operators is a paradigm shift in the service development environment. We need to be able to provide these flexible and innovative new services in a fast and value-added manner with an ultimate aim of maximising the lifetime value of mobile subscribers.