Mobile operators are key to unlocking the revenue potential of A2P SMS messaging; but the problem of lost revenue from using gray routes continues to ruin much of the industry. There are two main reasons. Explains Gavin Patterson, Chief Data Analyst of Mobilesquared.
First, the SMS that are delivered on gray routes exploit the gaps in the GSM mobile framework so that the SMS termination charges; (where the mobile operator collects revenue) are incremented sideways. This means that business A2P SMS can be offered at a lower market value; denying mobile operators and tier one earnings of tier one messaging aggregators.
Secondly; the quality of message delivery is very poor as the SMS is routed through networks of often unregulated and poorly constructed mobile operators in remote corners of the globe. For example, while a firm might be attracted to the low prices offered; some of the messages they are buying are likely to arrive late, if at all. For notification, marketing or customer support functions that increasingly rely on corporate SMS; this is one of the main faults.
Research conducted by Mobilesquared; revealed that revenue loss and fraud prevention have become the key driver for mobile operators implementing SMS firewalls.
At the end of 2017, the mobile operators' 48% had effectively “blocked” their network by investing in a next-generation SMS firewall capable of identifying the traffic of the white routes and blocking the traffic of the gray routes. We believe that by 2022, mobile operators' 82% will have invested in a next generation SMS firewall.
"Traffic SMS White route A2P 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 will invest in next generation SMS income insurance platforms to capitalize on the 'A2P SMS messaging opportunity “.
Lost revenue
Nonetheless, this means that it is going through a lot of non-monetized gray route traffic and, in the short term; gray route traffic clearly has a negative impact on potential A2P SMS revenue. We estimate that if all gray routing messages were to be instantly converted to white routing traffic starting in 2017; this would potentially generate cumulative global SMS A2P extra revenue of $ 36.52 billion by the end of 2022.
Although the impact of revenue losses on the A2P SMS messaging industry decreases over the forecast period; first mobile operators implement next generation SMS firewall; Gray route traffic can first be converted to white route revenue.
However, the impact of converting revenue from gray to white on the overall value chain is immense. Mobile operators control most of their messaging revenue and their hold would shrink as more and more networks are blocked; putting increasing pressure on aggregators active in the gray market.
Not only would the market share of aggregators shrink; but effective income would also decrease, favoring further consolidation on the market. This is because although gray route messages are charged at a fraction of the cost of the white route; there is a significant volume in gray that is entirely attributable to the aggregators.
With the transition from the gray to the white route; aggregators would only be able to operate at the margins between the authorized wholesale and termination rates charged by mobile operators, increasing the pressure on their side of the supply chain.
Fraud prevention, growing trust
While the focus on lost revenue is obviously central to mobile operators, fraud prevention and the tacit trust this creates in the network is of equal, if not greater, importance.
As more and more mobile operator networks are blocked and the number of gray routes is reduced, so companies looking to take advantage of commercial loopholes will continue to probe networks in order to discover new gray route opportunities.
Meanwhile, other companies will explore more fraudulent activities, such as SMS interception, which attacks the SS7 signaling network and exposes mobile customers to phishing activities by 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 potentially have been intercepted and exploited by a rogue company."
Although mobile operators risk their brand reputation, loss of customer confidence, increased abandonment and reduced revenue from such attacks, an SS7 firewall that monitors signaling traffic in real time is a difficult internal sale.
While SMS firewalls prevent fraudulent network activity and provide a direct return on investment from A2P SMS termination revenue, an SS7 firewall only protects A2P SMS revenue by protecting existing traffic.
