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Application-to-person (A2P) SMS messaging has become a ubiquitous communication channel for businesses and organisations to connect with customers. However, there are concerns regarding rising wholesale termination rates—the charges providers levy when a call originating from one network terminates on another network—and the UK’s communications regulator, Ofcom has observed significant increases in wholesale A2P SMS termination rates charged by Mobile Network Operators (MNOs) since 2021, ranging from 15% to 75%, prompting an investigation into the competitive landscape of the A2P SMS termination market with new regulatory measures, including price caps on the cards.
Ofcom believes a price cap will promote competition in the A2P SMS market, but some stakeholders have expressed concerns. One argument is that price caps could disincentivise investment in network infrastructure and innovation by reducing the revenue generated from A2P SMS termination. Another concern is that price caps could lead to a decline in the quality of service, as MNOs may have less incentive to maintain high levels of network performance.
While SMS remains a primary channel for A2P messaging, it’s important to acknowledge the role of alternative messaging channels. OTT messaging channels like WhatsApp, Viber, and RCS are reshaping the A2P SMS market. These services offer businesses low-cost or free alternatives, forcing MNOs to confront mounting competition and re-evaluate their pricing strategies.
Hyperscalers, such as Apple, Google, Amazon, and Meta, are moving away from SMS-based authentication, contributing to significant revenue losses for MNOs. This shift away from SMS is further illustrated by the projected decline in global A2P SMS traffic, which is expected to fall from 1.9 trillion in 2023 to below 1.5 trillion by 2029.
The Mobile Ecosystem Forum (MEF) conducted a survey of its members across Europe, the US, South America, Africa, and globally. The survey revealed the following key insights:
Survey respondents emphasised the need to educate all market stakeholders (MNOs, aggregators, etc.) about the situation, review rates with MNOs, and develop a communication plan for migrating to RCS.
Price caps can lead to lower costs for businesses and organisations that rely on A2P SMS messaging, and can create a more level playing field for MSPs and aggregators, potentially leading to increased competition and innovation in the market.
But price caps could potentially disincentivise investment in network infrastructure and new technologies by reducing the revenue generated from A2P SMS termination. This could have long-term implications for the quality and reliability of A2P SMS services. If MNOs have less incentive to invest in their operations and technical solutions including services such as the protection against cyber-attacks on the bearer of SMS messaging the SS7 signalling system.
So far, there is no concrete evidence that other countries plan to implement similar price caps. However, Ofcom’s move could set a precedent, potentially influencing regulators in other regions to consider comparable measures, especially if they observe benefits such as market stabilisation and protection against excessive pricing.
There are alternative pricing models that could be considered for the A2P SMS termination market, including sharing the revenue generated from A2P SMS termination between MNOs, aggregators, and MSPs. By aligning the interests of different stakeholders, revenue sharing could promote a more balanced and sustainable ecosystem.
Tiered Pricing would involve setting different termination rates based on the type of A2P SMS message. For example, higher rates could be applied to messages that require high levels of security or deliverability, such as one-time passwords (OTPs) for financial transactions, while lower rates could be applied to marketing or promotional messages.
Usage-Based Pricing involves charging termination rates based on the volume of A2P SMS messages sent. This could encourage businesses to optimise their messaging campaigns and reduce unnecessary traffic.
However, the A2P market has built a resilient market with the simplicity of the wholesale of SMS termination fees. A complete rethink of the market would require a complex change across the long value chain of A2P services.
Regulators should carefully consider the potential impact of price caps on investment and innovation. Regulations should be flexible and adaptable to accommodate new technologies and services. Industry Players should invest in technologies to combat fraud and improve the security of A2P SMS, collaborate with other stakeholders to develop industry standards and best practices, and explore alternative pricing models that can ensure fair compensation and incentivise innovation.
ABOUT THE AUTHOR
Nicholas Rossman is a Programme Director at the Mobile Ecosystem Forum (MEF). MEF is a global trade body established in 2000 and headquartered in the UK with members across the world. As the voice of the mobile ecosystem, it focuses on cross-industry best practices, anti-fraud and monetisation. The Forum, which celebrates its 25th anniversary in 2025, provides its members with global and cross-sector platforms for networking, collaboration and advancing industry solutions.
Web: https://mobileecosystemforum.com/
Twitter: https://x.com/mef
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