SMS traffic accounts for approximately 1 percent of revenues in the United States-inconsequential when compared to the 10 to 15 percent earned by European carriers, says Michael T. Houghton, spokesperson for the North American GSM Alliance. However, it's estimated that by 2003, revenues in the North American market will reach $1 billion, at which point the EU revenues will grow to approximately $3.6 billion.
For SMS to take off, intercarrier messaging and prepay capabilities must converge. The two have been inextricably tied in all other markets, and most agree it will be no different in the United States. Most major carriers are now dropping their walled-garden approach in favor of intercarrier messaging. Verizon Wireless, AT&T Wireless, VoiceStream and Cingular have all announced in the past few months that they are rolling out or preparing to launch intercarrier messaging-most by the second quarter (see "Getting Their Houses In Order").
At the core of intercarrier messaging's success will be SMS centers (SMSCs), as all short messages must pass through them without exception. SMSCs are network components that enable connectivity among CDMA, TDMA and GSM standards. Built on top of those components are inter-SMSC routers that enable communication among various operators' SMSCs. In addition to handling all messages that go over a carrier's network, the SMSC notifies users of successful delivery of messages when receipts are guaranteed. So far the dominant players are Logica, CMG, TCS, TSI and smaller companies like InphoMatch.
"SMSC suppliers are standardizing on SMPP [an SMSC access protocol that defines the external interface between external entities], protocols and network support for the three main network technologies," says Michael Pousti, CEO of SMS.ac, which claims to have procured 3 million users in 10 weeks with its MMSbox gateway, which enables sending text from a Web portal to mobile phones.
Some countries, such as Canada, have resolved the problem by having one ubiquitous SMSC (from CMG) throughout the country, but a single solution will not resolve the problem in the United States. "Here, there is more of a cloud of connectivity into which carriers connect through various gateways," notes Eric Deburger, vice president, North America at CMG, which handles 32 percent of the world's SMS traffic. The company is now working with VoiceStream to implement an SMSC.
In January SMSC provider Logica demonstrated intercarrier messaging at the SMS Forum with its newly launched Interconnect Network. Operators have two main physical ways to connect: via IP links or the SS7 network. Some even use email-type interfaces-the "method of last resort"-says Andrew Tobin, head of new ventures at Logica.
Logica has an SMSC that can link carriers to as many as 430 other operators worldwide. "They can get a single credit or debit every month, regardless of how many intercarrier connections it facilitates on their behalf," says Tobin. Unlike other networks, Logica pays fees for messages sent out to accommodate termination fees, which are emerging in Asia and Europe. "Now operators will start to charge each other for the processing of SMS messages that come over their networks," he says.
That type of gateway approach is the most popular since it is "least traumatic," according to Terry McCabe, VP of messaging R&D at SchlumbergerSema, which is setting up a messaging creation environment to build sites and content. "We see SMS as a model for the convergence of different messaging technologies, whether unified communications, multimedia messaging, short messaging and voice messaging. The opportunity in terms of revenue and growth is enormous." He thinks that in 2003 more carriers will be deploying IP network systems and migrating signaling traffic to IP networks.
Regardless of the method, the goal is to operate across all mobile technologies, including clearing and settlement facilities. For more on the steps carriers will likely take on their road to SMS, see "SMS Growth Milestones," p. 20.
The Second Half of the Equation: Prepay
In Europe and Asia, it's the youth market that has driven SMS proliferation in person-to-person messaging. As a less expensive medium than voice calls for prepay subscribers to send messages, SMS was a natural for youths, who make up most of the prepay market.
Although prepaid accounts trigger 60 percent of revenue across Europe, they are much less pervasive in the U.S. market. SMS may foster a new interest in prepaid, if parents begin receiving prodigious bills for voice and text over their teens' cell phones.
The United States has at least one advantage: being able to learn from foreign operators' mistakes. Originally SMS took off as a messaging service partly because of inadequacies in billing for SMS. "Because the prepaid infrastructure did not take care of SMS, operators lacked the ability to debit prepay customers for sent messages, and authorizations for payment occurred after messages were sent. As a result, prepay subscribers often could continue to send SMS messages even after their calling credit had run out," says Allison Webb, mobile telecommunications analyst at Frost & Sullivan.
Consequently carriers lost some revenue, as people with low credit often exceeded pre-pay throw-out and continued using SMS until they were found out. "Despite the fact operators can implement solutions that enabled immediate debits on prepay accounts, there still doesn't exist sophisticated enough billing systems that enable operators to charge prepay subscribers for different services and premium applications," observes Webb.
Location-based Services
SMS mobile positioning capabilities may see success in the U.S. market. "It could be like having a LoJack for your kid," says Rich Vile, director for messaging in Verizon Wireless' data group. Even though some believe location-based services will be used mostly to find friends on busy streets or in crowded environments, a debate over privacy versus safety and free enterprise is burgeoning in more mature markets. The controversy has been sparked by push SMS, which has opened the door for spamming based on user location. While most of the services are harmless, many users don't want to be tracked. Most experts expect U.S. providers to include an option to turn location-based services on or off, according to user preference.
Two-way Messaging
In Europe penetration of GSM has enabled two-thirds of the world's phones to be equipped with two-way messaging. The ping-pong effect of messaging back and forth is a major contributor to SMS volumes abroad. U.S. providers don't have significant penetrations of two-way handsets, but are working diligently to upgrade their existing subscribers' devices.
"For example, Cingular has approximately 22 million subscribers, yet only 8 million have two-way messaging. That's approximately one-third of their customers who can send responses to text messages," notes Michael Woolfrey, senior research analyst at EMC. Similarly Verizon Wireless, the largest CDMA network operator in America, has approximately 10 million two-way Nokia handsets, but still 8 million analog users. "I expect that SMS will be a good medium for attracting customers and reselling into their existing customer base," Woolfrey says.
Simple To Use, Difficult
to Roll Out
Messaging is seen as something simple, yet there are nuances in terms of character sets, messages, capabilities of the networks, length of messages, binary messages for ringing tones and hand messaging services.
More than one VP of operations is dealing with different handsets, and multiple infrastructures, each at different levels of compliance, not to mention myriad standards for roaming and different coverage areas.
There are multiple elements to manage in delivering data services, according to Purnima Kochikar, product marketing manager for Watercove, which integrates service and transport intelligence to make transport nodes "highly intelligent."
According to Kochikar, providers must be able to handle three key elements: transport, which includes moving packets from one location to the next (currently based on routing tables); service enablement, which includes provisioning, profiles, billing and mediation interfaces with the transport layer-usually the SS7 network where subscriber information resides; and third, provisioning and network/subscriber management, where operators not only move packets from A to B, but interact with packets for applications like reverse charging, third-party charges or differentiating between a video message and a text message. According to Kochikar, these elements have to integrate if operators are to capture data in the transport node and bill for value, rather than just time or volume. The network management component will enable carriers to offer changes in service for subscribers wanting to expand or reduce services.
Reverse Billing
Reverse billing is not yet on the horizon in the United States, as SMS is still in its infancy, so subscribers are not yet requesting information be pushed to them and then being billed accordingly. Operators across Europe are slowly rolling out reverse billing, which enables them to bill subscribers that receive pushed SMS messages, thus allowing operators to offer premium content and information services-whether games, entertainment or alerts-and to bill the recipients. "This provides a much needed incentive for content developers to develop premium content, because being able to bill subscribers for receiving messages creates a new revenue source for operators," says Rasmus Holst, product marketing manager for mobile at Digiquant, which offers micropayment and event-based IP billing.
Digiquant is working with Danish carrier Sonofon to migrate from person-to-person billing to value-based content billing. The carrier currently has approximately 45 content providers, offering picture messaging, news, jokes, games and gossip. In turn, revenues are shared with content developers. Revenue-sharing between network operators and content developers in Europe still tends to favor the operator, but more flexible relationships are being forged.
In the United Kingdom all four major providers are committed to providing reverse-billed SMS, although as of press time Vodafone is the only operator actually offering reverse billing across its entire subscriber base. BTCellnet provides it to its post-pay or contract customers, but industry experts believe that it will offer reverse billing to the rest of its consumer base in April. Some say it's none too soon, as the delay in rolling out reverse billing has begun to seriously hurt SMS revenues in the United Kingdom, according to Frost & Sullivan's Webb. She points out that the remaining two networks, Orange and One2One, intend to launch their own reverse-billed capabilities very soon after.
"The question is how much you enable third parties to push before you anger subscribers. If subscribers see charges on their bills for pushed content, how do you as a carrier adjust that and regain their trust?" asks Mitch Mitchell, vice president and practice leader for communications in the Americas with A.T. Kearney, the management consulting subsidiary of EDS. He predicts some carriers might eventually handle this type of application through a toll-free type call. "But complications arise when voice and text are sent, as they have to be distinguished and billed separately. Carriers just don't want the headache right now."
Operators in Europe have been able to bill for mobile-originated (MO) SMS, which has encouraged the growth of person-to-person messaging; however, it has also been blamed for the slow roll-out of premium SMS content services and applications. Some say the focus on mobile-to-mobile SMS is hindering the growth of really powerful and profitable value-added services that come with enhanced messaging services (EMS). Others look at it as a methodical approach that will enable the market to mature as a slow burn, rather than a wildfire.
"While standardized pricing and billing has been key to the growth of SMS traffic for simple person-to-person messaging, more sophisticated billing systems are needed to differentiate pricing and billing for more sophisticated content services," says Mati Broudo, CEO and co-founder of m-Wise. That company has partnered with Telefonicas Moviles, Airtel and Amena to provide billing for MO or MT (mobile-terminated) messages. He notes that having MO messages, where subscribers are billed, is considered safer, as the user is billed only for what he wanted once the content comes back.
"The only problem is that carriers usually have no clue about what third-party content is provided, or if the phone was shut down for a few hours, making something like a real-time stock quote useless to a subscriber," Broudo explains. To resolve that issue, m-Wise usually establishes a series of ports-each with different values. "Real-time stock quotes may go through a 50-cent port, whereas quotes with a 15-minute delay may go through a 20-cent port," he says. "At the end of the month, we see how much money went through each port, and we share revenue according to contracts and agreements."
What's in a Price?
Many believe that carriers will need to bill for granularities when SMS sessions are created. People are willing to pay 5 to 10 times the amount of a normal SMS message for pushed content in countries like England and Belgium, notes Kochikar at Watercove. "Whether stock alerts or notification every time a favorite soccer player scores a goal, carriers need to have the network intelligence to assign every message with an associated service and subscriber profile, so they know how and who to charge as soon as a CDR is generated," Kochikar says. As a result, she and others believe American all-you-can-eat buffet-style charging for content will not work with SMS, EMS or multimedia message service (MMS). "American carriers have to rebuild the market for profitable growth with value-based propositions," she says. "Otherwise they are going to affect the health of the industry for years."
Operators must define clear price points for subscribers. Customers need predictability in their bills, otherwise churn will increase, says Mitchell at A.T. Kearney. "To give buckets of minutes at fixed prices will be no good for carriers," he says, "because they will have to ramp up usage to generate more revenue, which will increase the need for infrastructure." Mitchell says carriers are stuck as they try to transition users who want stable choices around pricing. "Carriers feel a false sense of comfort with these bucket plans, as it eliminates the hassle for now of worrying about detail, billing and settlement headaches," he says. "They just aren't ready to wrestle with the number of packets, bytes or value to customers, which is why we are stuck here in 2G."
The Ultimate: MMS
Once operators figure out how to charge for premium content, MMS will emerge. "We think MMS will be the killer app, but first we have to figure out EMS features for animation, ring tones and things like that before streaming multimedia is a possibility," concedes Mitchell, who believes carriers will have to have SMS networks operating as a standalone infrastructure before they can look at MMS."
According to a November Morgan Stanley/EMC survey of 41 wireless operators in 25 countries, approximately 81 percent of carriers are researching MMS right now; only 10 percent are in negotiation or have purchased [a multimedia message service center]. Fifty-three percent of all operators say they will wait until 2003 to purchase an MMSC.
The enthusiasm for EMS among operators is far less than expected, according to EMC's Woolfrey, who notes that 25 percent of the survey's respondents have no plans to offer MMS to any of their subscribers in 2002, and 45 percent said they would offer it to fewer than 10 percent of their subscribers. Ten percent, however, plan to offer it to more than half their subscribers.
"There are significant concerns about obstacles to MMS rollout, which include the slow rollout of GPRS," says Woolfrey. According to the survey, 84 percent of the respondents cited GPRS as a concern. Another 72 percent said that interoperability with handsets was a key factor that could delay MMS. "Most carriers will buy their multimedia message service center by the end of this year, but implementations probably will not occur until next year," Woolfrey predicts.
Logica, TCS, Inphomatch, CMG, Nokia and Ericsson, and Sema are all preparing for MMS. "However, once carriers get far enough along in the evolution to cut the middleman out of the loop, some experts think SMSC giants like Logica or CMG will buy up the smaller companies that provide gateways for interoperability," Woolfrey says.
Whether MMS will compete with SMS volumes is yet to be seen. Those who think MMS will generate more SMS volumes cite early GPRS phases, which have no push services. The belief, according to survey respondents, is that SMS will be used for those services. "Yet others believe SMS will be prevalent as text-only messages prevail in email, so the same might be true for messaging," says Woolfrey. Either way, most agree that MMS is still a long time off.
| Getting Their Houses In Order Cingular Cingular Wireless believes a key differentiator with its messaging services will be simplicity in usage and pricing, so it started building a micropayments strategy in June to deliver content. Using microbilling and micropayments, customers make small transactions via mobile phones through Cingular’s DirectBill service. With the service, the company has been offering subscribers the chance to buy downloadable ring tones for 99 cents each and has added games and trivia to its arsenal of SMS offerings. Through the micropayments infrastructure, Cingular charges small amounts for á la carte digital applications or services. The maximum a customer can pay is $20 per month, which avoids unexpectedly high phone bills for customers. “Make sure it works, make sure they want to pay for it, and make sure you have the capacity to handle upswings in usage,” says Dahna Hull, director of consumer product development for Cingular Wireless, which has announced a 450 percent growth in uptake with its SMS offerings. Interactive messaging now is automatically included in most Cingular plans, and customers have the choice of paying 10 cents per message or purchasing packages in which messages cost as little as 2 cents per message. The Cingular network now handles tens of millions of messages every month, but Hull is confident capacity will not be an issue, as Cingular is bolstering its TDMA and GSM networks by working with several SMSC providers. As it prepares for intercarrier mobile-to-mobile messaging capabilities, the organization is working to simplify the messaging process. “Customers only have to type a message, address it with a 10-digit mobile number, and press send,” says Hull. Through a third party, a table will be kept on what messages come through, which carrier the subscriber uses, and whether the message was successfully delivered. This third party will track the different domain names each carrier uses, so customer won’t have to know them. Although the current implementation of intercarrier mobile-to-mobile messaging depends on a third party, Cingular will evaluate direct connections into other carriers’ networks in the future. In the meantime, it is in the throes of ensuring that all customers are automatically provisioned for interactive messaging and concentrating on the continued increase in mobile-originated and mobile-terminated handsets. Thus far Nokia—Cingular’s handset provider—has adopted both MO and MT capabilities. “Now we have to focus on consumer awareness and finding which applications are of interest to consumers via interactive messaging that are important to increasing volumes,” Hull says. Ring tone downloads have been gaining popularity. Looking far into the future, Cingular is evaluating MMS applications and content. Verizon Wireless Verizon Wireless is immersed in converting and enhancing billing, mediation and rating systems while simultaneously rolling out various data initiatives, including its new 3G Express Network service, wireless browsing platform MobileWeb, two-way text messaging platform MobileMessenger with vtext.com. The latter has been its launch pad for SMS applications, such as Info Alerts and future IM, ringtones and group chat offerings. “We believe that all new SMS applications, beyond simple mobile-to-mobile messaging, will be ‘sticky’ because people in America are used to messaging in the form of email and PC-based IM, and SMS is auto-provisioned on every new handset,” says Richard Vile, director for messaging in Verizon Wireless’ data group. However, figuring out what services will be “sticky” has been like “putting the cart before the horse with data services; no one knows what people will eat up here,” admits George Mehok, director of IT strategic development for Verizon Wireless. Although Verizon launched two-way messaging last year during the Super Bowl, it’s just now seeing a huge uptake every month, although specific numbers are confidential. “To hook people into the content, we tried to cut out the hassles of making subscribers memorize 10-digit phone numbers and long emails,” says Mehok, noting that since its inception, the service has been open to anyone. Fees vary according to whether the messages originate or terminate on the Web site. “It’s a pay-as-you-go model,” Vile says, “which for us was the lowest-cost entry approach, with optional bundles for active users.” When subscribers buy handsets from Verizon, the vtext.com site automatically populates the phones. As soon as subscribers register on the vtext.com site, they instantly get a password on their handsets and the service is activated. According to Vile, there is a dashboard or matrix of more than 90 information alerts, including horoscopes, weather and “real-time” sports scores, such as inning-to-inning notifications of baseball scores or every change in score for football, hockey and soccer—with each alert tailored to the users favorite team. “You can also pre-set alert reminders and have dates pushed to your phone for special occasions or birthdays,” notes Vile. Some say Verizon’s approach is the smartest way to hook people into SMS: “Allow everyone to use the services. Start small to get people hooked, and then price smartly,” explains Tim Lorello, chief marketing officer at TeleCommunications Systems (TCS), which has been working closely with Verizon on the vtext.com project. “Pricing ‘smartly’ includes avoiding pricing models that discourage people to participate.” He cautions carriers against charging per byte or per kilobyte. In addition to its mobile-to-Web application, Verizon just launched what it considers to be the “killer app” for mobile, which is phone-to-phone messaging. “We know people won’t send messages to email if they can shoot it directly to a person’s hip. We’re banking on a conglomeration of factors to make phone-to-phone messaging a success: intercarrier SMS, the proliferation of two-way phones and word-of-mouth, along with our coverage advantage and network speed,” which Vile claims is the fastest in terms of latency when sending two-way, interactive messages. Verizon also sends messages with confirmed delivery. “While some carriers will drop messages after an hour or so when subscribers are roaming or out of pocket, we have a five-day store-and-forward approach. So if you are on an airplane, you will get the message when you land, and the sender will get a confirmation with a time and date stamp at that point,” Vile says. With two-way messaging columns, and multiple rows for tracking transmissions in group messaging applications, vtext.com time stamps messages. “You can coordinate and organize meetings and memos from the Web site to every person’s phone,” says Vile, who believes such applications will proliferate in field force automation in the near future. Capacity and Consolidation Verizon currently is preparing for capacity issues. “If everyone loves to get their horoscopes pushed to them at 8 a.m. and we get hit with the demand for 20 million messages, we have to be able to monitor networks every second for throughput capacity; we want to avoid bottlenecks,” says Mehok. The goal is to distribute messages by throughput among its multiple national networks. To do that, Verizon has to monitor how many messages it receives per second, and compare that to available servers and switches. To meet SMS demands, Verizon’s IT organization, which consists of several thousand employees distributed among four locations nationwide, has concentrated on consolidation of billing while rolling out new services, particularly challenging with the multiple systems and IT organizations it has acquired through mergers and acquisitions of Bell Atlantic Mobile, GTE Wireless, Airtouch Cellular and PrimeCo Communications. “One of our major challenges has been to create a national pricing model for SMS, despite having multiple regional billing and SMS systems—each possessing its own set of pricing capabilities,” says Mehok. As it converts systems, the IT organization is injecting new technology in the form of an IP biller into the IT infrastructure. “We have integrated an advanced rating engine with our network and various billing systems to provide pricing capabilities necessary to support advanced wireless data services,” Mehok says. “We deployed it in anticipation of 3G and enhanced text messaging. When we want to bill for premium type services, we want to ensure the rating engine will give us that capability.” Another key challenge was to develop pricing capabilities based on message types, something Mehok considers a key marketing differentiator. “We may charge a separate rate for MO-SMS and MT-SMS, as well as various allowance bundles as part of the SMS price plan for Mobile-Messenger,” he says. “Billing differentiates the type of message based on the content of the message generated from the SMSCs. Then, within each message’s content that comes from the mediation platform, we can see the origin and features of the message, which allows us to really build in flexible pricing schemes.” “Our mantra is to keep pricing simple,” says Mehok, “even though the price is based on numerous variables.” |
