14 Oct The rise of dynamic A2P pricing for voice and SMS

a2p pricing

One of the patterns I noticed during my customer world tour this fall was the temptation of Tier 1 MNOs to increase application to person (A2P) pricing. App developers keep coming up with new use cases that drive volumes up for voice and SMS. A2P SMS traffic has grown 80 times in 2 years and voice is ballooning as well – we all get 10-15 robocalls every day. Organizations like the FCC are looking at ways to regulate spam. MNOs are investing in firewall equipment that blocks excessive traffic from suspicious sources. CTIA issued guidelines how to distinguish A2P from P2P traffic (3:1 rule). In the meanwhile the A2P volumes keeps rising and no surefire solutions exist.

One time tested method of regulating usage of a shared resource is to impose monetary constraints. For example tollways are a common solution to manage urban traffic. In some extreme cases like Singapore the privilege of owning and driving your own car on the streets can cost 8-10 times the amount for driving the exact same car in the US. While visiting customers in Japan, it was eyeopening to learn that the cost of A2P voice and SMS directly from Tier 1 operators is around 10 USD cents. An order of magnitude higher than the prices in the US. In the Middle Eastern markets prices are also in the 10s, while in South Asian markets prices are generally 2-3 cents. In the EU they range approximately from 1 to 3 cents. While these prices vary wildly from market to market, all operators are asking what’s the right price they should be charging next year for maximum revenue?

As the appetite for A2P use cases increases and new CPaaS entrants drive higher volumes through their app ecosystems, the problem of controlling spam and maximizing profits becomes more prominent. Wholesale aggregators with low margins are becoming more creative at running grey traffic via p2p designated binds, SIM boxes and other not-so-clean routes. Respectively MNOs are getting hurt by that and they keep investing in firewalls to block such grey traffic on one side, while looking for ways to increase profits by raising A2P prices.

In the meanwhile CPaaS users have no way of knowing which of their SMS will make it through and how many of their calls will be answered. That is because all SMS and calls are mixed up in a big pot that doesn’t distinguish good from bad and high priority from spam.

This situation will keep getting worse. It is projected that CPaaS traffic will keep doubling each year for the next 5 years. As a mobile subscriber I can only handle so many robocalls from numbers that appear to be in my area code. With SMS its a little better, because SMS doesn’t interrupt my regular business and personal calls that are actually valuable to me. But even so, junk SMS is annoying. I don’t really want to buy discount luxury bags today or anytime in the foreseeable future.

One of the reasons why CPaaS traffic is growing so fast is because of the amazing user response rates. SMS still commands over 90% open rate, while email is around 0.4%. Yes, email is practically free, but who cares if nobody reads email messages – most end up in the spam filter.

In order for SMS and voice to maintain their value as reliable user engagement media channels, the industry needs to ensure that subscribers aren’t annoyed to the levels of email. This is a challenge but also a great opportunity for mobile operators to monetize their most valuable asset – control over the last mile subscriber access.

MNOs have lost the war for p2p traffic to IP based OTT apps such as WhatsApp, WeChat and Viber, they are now forced to charge close to nothing or p2p. My T-Mobile One plan includes free data and unlimited SMS worldwide with global roaming. The days of 10 cents per SMS between mobile subscribers are gone forever.

However CPaaS has ushered the dawn of A2P monetization. And now is a good time window for progressive MNOs to seize the moment and work with CPaaS providers to devise dynamic pricing that resembles the success of web search advertising. Google AdWords monetizes in a big way brand’s willingness to pay premium for user clicks. User clicks correlate to precious moments of user attention, which convert to sales.

MNOs can monetize these micro-windows of user attention by auctioning them out in an ethical and thoughtful way that benefits users and businesses. Users dislike a flurry of unknown calls every minute. But they may be more receptive to business calls once an hour, during business hours that are informative, relevant and beneficial.

An auction of subscriber time windows, could be along the lines of – “place a bid of at least X for guaranteed SMS delivery to subscriber Y within 10 minutes”,  “place a bid of at least  2X to guarantee delivery in 5 minutes”, “bid 3X to get a signal when subscriber Y’s line is not busy and an unsolicited call can go through”, “bid for air access to subscribers in the area of shopping mall Z”. An extended version could reward businesses for good quality of customer service by not charging them a fee if they respond to consumer messages within 15 seconds.

As I talk to customers and partners in the communications industry, the notion of modern dynamic pricing is starting to gain momentum. I am encouraged that there are a lot of progressive folks now who are thinking of ways to make this work. When its implemented, it will benefit operators, CPaaS providers, businesses and consumers. This is an exciting area of research with practical application. It can change the way we think about real time communications for business.

Happy to hear your thoughts and have an open discussion in the comments section below or via private channel.

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