The SMS network: managing next-gen messaging opportunities and risks

Monday, 22 June 2009 11:25

Despite smart-phones, SMS thrives as one of the biggest revenue generators for mobile operators. This article explores why SMS is so successful and how it has developed into a multi-purpose tool for mobile marketing campaigns and ad-insertion, and SMS voting. It also asks why operators risk losing out on potential revenues because the original SMS architecture of 15 years ago can not cater for the today's demands.  Short Messaging Service (SMS) is at a crossroads. The compound annual growth rate (CAGR) of SMS volume is forecast at 15.6% from 2007 to 2011, while the CAGR for SMS revenues over the same period is only 5.9% (Frost & Sullivan, 2008). While operators have enjoyed SMS revenues for 16 years, the 160-character message's success - and risks - require a next-generation architecture for profits to match usage projections. Alan Pascoe, Senior Product Manager at Tekelec, presents his analysis.

Under attack and under duress

SMS traffic growth is not translating into comparable revenues due to commoditisation. Operators have rolled out bundled and flat-rate billing plans to maintain a competitive edge, and it's now cheaper and more common to send an SMS than to make a voice call. According to Nielsen Mobile data from 2Q08, a typical US mobile subscriber sends or receives 357 text messages per month and places or receives 204 phone calls. The SMS volume is a 450% increase from two years earlier, while the number of calls has barely changed. The bottom-line result is decreased Average Revenue Per User (ARPU). 

SMS also continues expanding beyond Person-to-Person (P2P) text messaging to Person-to-Application and Application-to-Application services like tele-voting and telemetry. Voting events generate dramatic spikes, and sporadic events such as sports scores and breaking news updates can cumulatively weigh down the SMS infrastructure, creating network bottlenecks and damaging customer service.

The uptake in SMS, which includes mobile payments in emerging economies, has also drawn spammers and fraudsters. SMS attacks - flooding, phishing and faking - have already appeared in Asia, Africa and the Middle East, and are now moving into other regions as criminals capitalise on subscribers' personal connections to their handsets. Spam in its many forms directly impacts the operator's bottom line, driving up capital costs to handle message volume and operational costs as the increase in unwanted messages places extra pressure on customer-care departments that have to deal with frustrated subscribers.

The limits of legacy SMSCs

The foundational architecture for transmitting text messages is the Short Message Service Centre (SMSC), created at the inception of SMS delivery technology in the 1990s. Of course, SMS pioneers could not have foreseen how the 160-character message would evolve to become one of the world's most dominant forms of personal communication.

This legacy system was designed only for P2P texting, and is proving to be inefficient and costly for today's messaging needs. The SMSC supports an antiquated "store-and-forward" delivery model, where messages are first stored and then forwarded to recipients - a process that burdens operators with unnecessary capex for storage requirements.

In addition, SMSCs limit cost-effective scaling as message volume increases. Each element in the message path must be scaled to increase network capacity, cutting into the profit potential from high SMS usage.

A new SMS network model

The meteoric growth of SMS is driving operators toward a tipping point: either heavily invest in additional expensive SMSCs or identify new ways to manage SMS traffic. Operators' decisions will help determine if they will reap the rewards of rising text message volume and reverse the declining ARPU from messaging.

The next generation of SMS architecture requires new levels of flexibility, customisation and revenue generation to support both subscribers' needs and operators' ability to close the revenue/volume gap. One option is to break down the SMSC into its functional pieces to create a modular "SMS Network." 

The SMS Network concept enables operators to deploy a new, self-contained framework to deliver and receive text messages, or harness existing SMSCs while limiting costs of future growth, thereby capitalising on current investments.  

The heart of the SMS Network model is an SMS router that switches the delivery path to "forward then store" with First Delivery Attempt (FDA) technology. This offloads approximately 85-95% of all messaging traffic from the SMSC, improving operators' network efficiency and performance and eliminating the need to store the large majority of SMS message data. SMS routers can be deployed selectively to boost capacity only at congested points in the network. For example, a Brazilian Tier-1 operator placed Tekelec's SMS routers in front of existing SMSCs, thereby offloading 70-90% of SMS traffic and doubling system capacity. 

Two other components of a next-generation message delivery system can also reduce costs. Intelligent storage integrates flexible message interception, handling, and FDA for the minority of messages that cannot be delivered immediately, giving a more efficient way to manage message volume. And an SMS firewall combats spam attacks with filtering and blocking to protect from Signaling System 7 (SS7) and Internet Protocol (IP) message originators, saving on message storage and customer service expenses. Pakistan's Mobilink GSM, for example, uses Tekelec's rules-based firewall filters to stop unwanted messages, protecting the network and subscribers from viruses, flooding and spoofing attacks.

Frost & Sullivan compared legacy SMSC networks with the new SMS Network model, looking at several hypothetical SMS use cases and comparing the costs associated with each approach. The findings: capex savings of 60% or more by implementing FDA, managing voting traffic, balancing loads throughout the SMS network, and opex savings of 90% by  blocking SMS mobile-originated spoofing attempts. 

In addition, future SMS network architectures can create new revenue opportunities. For example, a distributed approach would allow operators to insert advertisements before or after the message itself, capitalising on in the unused portions of the 160-character allotment. Operators could insert text feeds such as sponsored SMS or voicemail message enrichment (eg, "Happy New Year! You have 2 new voicemails") to deliver new content without burdening subscribers with additional messages.

Personalised services open other revenue channels, such as charging for email-like functionality of message copying and forwarding, and creating SMS filters and distribution lists. These allow subscribers to personalise their SMS experiences, boosting interest, loyalty and usage. These enhancements build brand appeal, improve customer satisfaction and reduce subscriber churn - collectively raising ARPU.

Conclusion

By 2011, Portio Research predicts that global texters will send nearly 5 trillion messages. Operators can continue with legacy architectures - and their associated costs - or explore alternatives to better align message volume with equipment costs and revenue-generating innovations. A modular SMS network presents a new path forward for both operators and customers, transforming the SMS for the next generation of improvements.

* Alan Pascoe has more than 11 years' experience in telecoms with O2 UK, O2 Germany and Tekelec, solving core network and value-added service challenges for operators. His strong background working for mobile network operators gives him a unique insight into the current problems of messaging networks and the challenges facing operators evolving to next-generation architectures.

More info:

• www.tekelec.com

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