6th - Apr - 2016

Don’t Go Grey, It Doesn’t Pay!

You don’t have to understand the mechanics of SMS to be able to send SMS, but having some basic understanding under your belt is valuable, it is much like car ownership, understanding the basics makes you an informed consumer. One of the must-know basics of SMS messaging is routing, and in telecom there are three types. In this article we will explore the grey route in detail and briefly explain the other two types of routes white and black.  

A white route is a legitimate route, fully sanctioned by the operator on which the subscriber you are sending to is served by. As an example, sending a message to a Sprint subscriber through a connection directly to Sprint would be regarded as a white route. Here, Sprint gets paid either by the subscriber or by the sender of the message (or both) and everyone is happy.

black route is the complete opposite; this is a route that attempts to defraud a 3rd party in its attempt to deliver a message. As the name suggests these routes should never be used, as they are usually operated by suppliers who cannot be trusted, are illegal and inferior in quality. An example here would be sending a message to a Sprint subscriber from a network in some remote and distant country but pretending to be Vodafone. Here, Sprint sends the bill to Vodafone who will most likely not pay it (because they have no record of sending it), so no one gets paid and everyone is unhappy.

The third type is the grey route. These routes take advantage of the fact that in the early days of mobile telephony (before SMS was a thing) there was a rule between operators, that the sender of the message would keep all of the revenue, i.e. the receiving operator does not get paid to deliver a message to its own subscriber. In the early days this worked well, but as the volume of A2P messages grew and operators became savvy to the fact that they could make money from SMS, they began trying to monetize it by signing agreements with other operators to get them to pay for delivering a message to one of their subscribers (for those who want to know more, lookup AA19 or AA60 agreements). A grey route is a legitimate route but where the sender keeps all the revenue and the subscriber operator gets none. Due to the desire for the subscriber operator to make some money from this message grey routes are liable to be blocked without notice, and can be filtered by operator firewalls. And as such it is not recommended to use grey routes.  An example here would be a message sent from a small operator in South Africa (e.g. Telkom) to Vodafone UK. Now Telkom does not have a AA19 or AA60 agreement with Vodafone UK, and so could deliver a message without paying until Vodafone notices at which point Vodafone will insist that an agreement is signed or traffic will be blocked.

Why are grey routes in use? Pure and simple: for perceived cost savings. Sanctioned routes have a higher cost associated with them as these are legally recognized between the operating partners and regulatory bodies and include an agreed upon financial arrangement, including fees and tariffs. Grey routes are legal but typically unsanctioned routes and though they may have upfront cost savings, they come with risks that can result in higher costs. First is the constant risk of being shut down without notice. The second is the high uncertainty of delivery; since the operator does not legitimately recognize the route, there is no guarantee of delivery or latency. And finally performance is affected, so as not to draw attention to the usage of the unsanctioned route, the message provider will significantly reduce the throughput or traffic flow through the route, so as not to raise the suspicion of the operator, ultimately resulting in slow delivery.

Though the mobile operators know grey routes are used, and up to now have accepted a revenue leakage from this activity between 5%-10%, recent studies have shown message providers who use grey routes to bypass paying fees are affecting revenue leakage in much higher percentages.  

So what’s being done to shut down the use of grey routes? Mobile operators are aggressively making changes to their networks to prevent as well as detect and shut down grey routes on their networks. More and more networks are being locked down, but there is another way to combat this and that is establishing fair upfront costs, to make it economical so message providers are not looking to circumvent the system but instead are agreeable participants in the marketplace. The consortium of mobile operators are aware that to be effective in removing grey routes, they need to work closely together and establish prices that are amenable to all parties to move traffic 100% to “on-net” delivery. This will result in better service overall including message delivery and reducing spam.

The Affordability Index for A2P SMS (referred to in this article simply as the Index) was developed in partnership with Ovum, Anam and Mblox and published in the Ovum report, “Sustaining A2P SMS Growth While Securing Mobile Networks” in 2015. The Index uses the theory of elasticity to calculate the price range, which helps an MNO (Mobile Network Operator) determine the optimum price to encourage customers to send A2P traffic while maximizing their own revenue. When demand is elastic, a price decrease will increase traffic thus increasing revenues; but when demand is inelastic a decrease in price will not change traffic resulting in declining revenue. This means that if demand is elastic, revenues will rise, but once demand is inelastic, revenues will fall.

The Index allows MNOs to calculate the impact on their revenues when they plug in values for increasing or decreasing their prices for A2P SMS, and to ultimately determine their “sweet spot” for A2P SMS pricing. The Index can be used to determine what price demand is elastic within a particular market so an MNO can model how increases or decreases to pricing will affect their revenue. Using the Index will enable operators to keep pricing in check and take the guesswork out of pricing to meet market needs. 

Mblox is the largest independent cloud based mobile messaging provider in the world, trusted by more companies to carry their mission critical traffic than any other service. To learn more, contact us at sales@mblox.com.

Sources:

Telecoms.com, “Carriers losing tens of millions of Euro to “grey routes”

Telecoms.com, “Operators told billions lost from grey routes messaging”

Ovum Report, Sustaining A2P SMS Growth While Securing Mobile Networks

Originally posted on mblox.com

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