SMS revenues chase traffic volume

Alan Pascoe, Tekelec
11 May 2009

When SMS made its debut 16 years ago, few could have guessed that a 160-character message exchanged between mobile subscribers was destined for such great success. Portio Research estimates that in 2008, global texters sent nearly 3.5 trillion messages or roughly 500 times the number of people who currently live on the planet.

All those messages are creating impressive returns -- according to Frost & Sullivan, SMS generates more revenue than all of the other data services combined. While operators have welcomed this dramatic growth, they are beginning to discover that success has a downside.

The good news is that SMS message volume is forecast to expand at a CAGR of 15.6% from 2007 to 2011. The bad news is that SMS revenues are only expected to grow at a CAGR of 5.9% over that same period.

Commoditization of the service is largely to blame for this. Operators have rolled out bundled and flat-rate billing plans to maintain a competitive edge. This strategy has boosted SMS usage but also has driven down ARPU.

Also, the uptake in SMS has drawn the unwanted attention of spammers and fraudsters. SMS attacks - flooding, phishing and faking - have already arrived in Asia and are now moving into other regions. While the sophistication of the attacks and techniques may vary from region to region, it is clear that mobile spam and malware are on the rise around the globe. Spam in its many forms directly impacts the operator\'s bottom line, driving up capital and operational costs.

As the global SMS market evolves, it is expanding beyond simple person-to-person (P2P) text messaging to person-to-application and application-to-application services like tele-voting and telemetry. Voting events like Asian Idol generate dramatic spikes in traffic that can overload the SMS infrastructure, creating network bottlenecks and crippling service.

The unbounded growth of the market is exceeding the technological capability and capacity of first-generation SMS centers (SMSCs). Operators have pushed these systems to their limit. Legacy SMSCs, created for simple P2P texting, are not designed to meet today\'s messaging challenges. They are behind the technology curve in cost, performance and operating efficiency.

The current SMS network architecture is built on legacy SMSCs, which support an antiquated "store-and-forward" delivery model. The SMS message is routed initially to the SMSC, where it is stored and then forwarded to its recipient. Since 85-95% of SMS messages can now be delivered on the first attempt, all of the initial processing that the SMSC does to store, query and forward messages is largely wasted.

Shaving expenses with a next-gen network

The advent of the SMS router more than five years ago has enabled a new network model for handling SMS messages - the SMS Network. The next-generation SMS Network is built with modular, carrier-grade servers that replace the traditional SMSC. It provides an entirely new way for operators to capitalize on their investments since it can be deployed as a self-contained, greenfield network or used in conjunction with existing SMSCs.

The heart of SMS Network model is the SMS router.

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