Navigating the minefield of SMS interconnect agreements

The issue of SMS interconnect rates has been a hot-button topic of late among mobile service providers and other industry players in South Africa.

March 11, 2014

By Dr Pieter Streicher, BulkSMS.com

The issue of SMS interconnect rates has been a hot-button topic of late among mobile service providers and other industry players in South Africa, and is undoubtedly one that will not be solved in the short term. It is also a complex issue, and one that requires understanding on both a technical and conceptual level. So first off, some background is needed.

Several SMS interconnect agreements have been negotiated and signed between the various mobile operators in South Africa. Most, but not all, of these agreements have been approved by ICASA, the industry regulator.

Essentially, these agreements all split A2P (Application-to-Person) traffic from P2P (Person-to-Person) traffic, and applies an SMS interconnect fee of approximately 11c – only to A2P traffic.
P2P messaging is handled on an SKA (sender keeps all) basis between operators (as before).

The aim of this structure is to ensure that most business messaging/communications carried between operators are billed as A2P, while messages sent by consumers between operators are not billed.

It is important to note that businesses typically send very large volumes of traffic via high capacity application interfaces (SMPP, SS7 etc.).

On the other hand, individual consumers typically send low volumes from the native SMS application on their mobile phones.

According to the incumbent MNOs (mobile network operators), business messaging carries a high risk of spam, and therefore requires additional costs to manage this traffic – using measures such as SMS firewalls, load balancing, etc – and additional indirect costs to manage the associated complaints.

To address these issues, ICASA recently held an industry workshop dealing with SMS interconnect rates. Valid concerns were raised by the various industry players.

Incumbent operators and WASPs argued that the current situation where ICASA has approved some SMS interconnect agreements, but not all, creates a situation where some ECA licensees are paying for A2P SMS messages – while others are refusing to pay.

As a result, they contend, there is price discrimination in the market.

On the other hand, the new ECA licensees stated that A2P and P2P messaging should not be split, as the cost to deliver both types of messages are the same. The licensees argued that price cannot be based on the “entity” that is sending the message,eg. business or consumer, or the “content” of the message,eg. personal conversation vs. marketing message.

In addition, they stated that incumbent operators have a monopoly on messaging to their own subscribers, so new ECA licensees have no choice but to accept the price set by incumbent operators. They proposed that because the agreed interconnect fee is ‘inflated’, the fee should rather be set by ICASA –and based on a thorough market analysis of the actual costs of delivery of SMS messages.

These are all critical and rather complex decisions that ICASA has to make. In the short term and in the interim, ICASA has to create a level playing field. In my opinion, the only way to achieve this is to approve all the existing SMS interconnect agreements as is. In the long term ICASA has to consider whether A2P and P2P SMS messaging should be treated separately or not. Lastly ICASA has to set an appropriate SMS interconnect fee based on a thorough market analysis.

Should the regulator decide that A2P SMS messaging should not be split from P2P SMS messaging, the SMS interconnect fee is likely to be very low.

This is because an ‘inflated’ SMS interconnect fee on P2P messaging could inflate SMS prices for consumers. However, a very low SMS interconnect rate on A2P SMS traffic could result in a serious spam problem.

Ultimately, the regulator will have to find a middle ground, where the rights of all players ie. new entrants, incumbent operators, consumers and businesses are honoured and protected, and whereby the various industry players share in the costs and profits fairly.