17th - Dec - 2018
Plugging Revenue Leakage
Mobile operators are central to unlocking the revenue potential of A2P SMS messaging, but the issue of revenue leakage from use of grey routes still blights much of the industry. There are two main reasons. Gavin Patterson, Chief Data Analyst at Mobilesquared explains.
Firstly, SMS that is delivered over grey routes exploit loopholes in the GSM mobile framework so that termination charges for SMS (where the mobile operator picks up revenue) are side-stepped. This means that enterprise A2P SMS can be offered at a below market value by denying mobile operators and tier one messaging aggregators vital revenues.
Secondly, the quality of the message delivery is very poor since the SMS is routed across often unregulated and poorly constructed mobile operator networks in far-flung corners of the globe. So for example, whilst an enterprise might be enticed by the low prices offered, it is likely that some of the messages they are buying arrive late, if at all. For notifications, marketing or customer service functions which increasingly rely on enterprise SMS, this is a major fault line.
Research conducted by Mobilesquared revealed that revenue leakage and fraud prevention has now become the key driver for mobile operators deploying SMS firewalls.
At the end of 2017, 48% of mobile operators had effectively “locked down” their network having invested in a next-generation SMS firewall capable of identifying white route traffic and blocking grey route traffic. We believe that by 2022, 82% of mobile operators will have invested in a next-generation SMS firewall.
White route A2P SMS traffic accounted for 52.3% of total A2P messaging traffic in 2017 and is projected to increase to 85% of total traffic by 2022 as mobile operators invest in next-generation SMS revenue assurance platforms to capitalize on the A2P SMS messaging opportunity.
Nevertheless, this still means that a lot of un-monetized grey route traffic is getting through and, in the short term, grey route traffic is clearly having a negative impact on potential A2P SMS revenues. We estimate that if all grey route messages were to be instantaneously converted into white route traffic starting in 2017 this would potentially generate extra cumulative global A2P SMS revenues of US$36.52 billion by end-2022.
Although the impact of lost revenues on the A2P SMS messaging industry diminishes over the forecast period, the sooner mobile operators implement a next-generation SMS firewall, the sooner grey route traffic can be converted into white route revenue.
However, the impact grey to white revenue conversion would have on the overall value chain is immense. Mobile operators control the lion’s share of messaging income and their grip would only tighten as more and more networks are locked down – placing increasing pressure on aggregators active in the grey market.
Not only would aggregator market share shrink, but actual income would decrease as well – driving further consolidation in the marketplace. This is due to the fact that although grey route messages are charged at a fraction of the cost of white route, there is significant volume in grey which is wholly attributable to the aggregators.
With the move from grey to white route, the aggregators would only be able to trade on the margins between authorized wholesale and termination rates charged by the mobile operators – adding pressure to their side of the supply chain.
Preventing Fraud, Growing Trust
Although the focus on revenue leakage is obviously central to mobile operators, fraud prevention and the tacit trust this builds in the network is of equal, if not greater, importance.
As an increasing number of mobile operator networks become locked down, and the number of grey routes is reduced, so companies looking to exploit commercial loopholes will continue to probe networks with a view to uncovering new grey route opportunities.
In the meantime, other companies will explore more fraudulent activity, such as SMS intercept, which attacks the SS7 signalling network and exposes mobile customers to phishing activities while making security messages vulnerable to interception.
Mobilesquared estimates that two-factor authentication SMS traffic accounted for 18% of total annual traffic in 2017.
That’s nearly 300 billion messages that could have been potentially intercepted and exploited by a rogue company.
Although mobile operators risk their brand reputation, the loss of customer trust, increased churn and reduced revenues from such attacks, an SS7 firewall which inspects signalling traffic in real time is a difficult internal sell.
While SMS firewalls prevent fraudulent network activity and deliver a direct return on investment from A2P SMS termination revenue, an SS7 firewall only safeguards the A2P SMS revenue by protecting the existing traffic.
Based on our research, Mobilesquared estimates that just 6% of mobile operators had invested in an SS7 firewall as of the end of 2017, but accelerated rollouts this year and next should see the number rise to 27% – and double again to 54% by end 2022.
Find out more about how operators are unlocking the revenue potential of A2P SMS in our latest eBook: A2P Messaging – The Business of Communication