The world’s A2P market is going from strength to strength as more and more brands trust in SMS messaging to support their product and service delivery.
Projected growth in the sector over the next few years is expected to see revenue increase from around $61bn in 2019, to more than $78bn by 2022*.
The growth will come from across all industry verticals, but especially from financial services and tech giants like Amazon, Facebook and Google, as brands turn to consumer-trusted SMS systems to share information and enable services.
Yet, despite this projected growth and its huge potential to pull in new sources of revenue, the businesses that should be at the centre of this market development – the Mobile Network Operators – stand to lose out.
That’s because the SIM farm grey-market industry for SMS is not only growing, but it also poses risks to the entire industry.
So what are those risks, and what can operators do to take back control of the SMS and RCS traffic flowing across their networks?
It’s an area SMS revenue defence and growth specialists HAUD have been building insights into for some time now.
HAUD’s research has shown, for example, that in some markets, MNOs faced a staggering 50% leakage rate on their international SMS A2P traffic – traffic that should be generating revenue for them but is instead being gobbled up by the grey market.
However, as HAUD Head of Global Market Intelligence, Joanna Kuligowska outlined on a recent Carrier Community Webinar , there’s also a more insidious threat embedded in grey route traffic too.
That threat is the erosion of confidence in the channel – which could ultimately stifle both the projected growth in this segment, and in the long term, its viability as an A2P channel.
To understand why, first we need to back up a little. The growth in SMS and RCS messaging is coming, in part, because of the belief amongst users – both business clients and end users – that these channels are secure – or at least more secure than email or other messaging systems.
Yet, as Kuligowska explained, half the issue with grey route traffic is that it frequently bypasses the authentication and assurity processes that legitimate traffic goes through. That, sadly, makes it susceptible to fraudulent usage – an area that has seen huge growth during the Covid pandemic as people turned to digital devices to run their lives.
But, as people are subjected to increasing fraud attempts – from data theft to smishing to access hacking – their trust in SMS as a channel erodes, and as that erodes, so too will usage by business clients seeking to communicate with their customers via this channel.
For HAUD, the crux of the problem centres around a few core issues related to Sim farms and Sim box activity.
Firstly, the grey market for A2P messaging is dynamic and quick moving. The costs of operating a SIM farm are low – the technology needed is freely available and cheap, and SIM cards are readily available too.
As Kuligowska says: “The SIM farms today are not what they were five, or even three, years ago. They are constantly adapting and become more sophisticated. At HAUD, across our Smart NForce firewall, we deal with new threats everyday – and that means constant Ops management on the systems we use to protect MNOs.”
Secondly, there are both regulatory issues and unhelpful market dynamics in play. For example, for many MNO, a core KPI centres around subscriber numbers and market share – hence the wide availability and easy sign-up to pre-paid SIM cards.
Kuligowska, adds: “The negative result of this KPI is that it creates a kind of trojan horse inside the MNO’s own networks, that contributes not only to the A2P revenue erosion, but also increases fraud, which in turn hurts the operators’ brand in the perception of subscribers.”
So what can be done? Well, for Kuligowska, a multi-pronged approach is needed.
She said: “The first step is to stop the leakage. A lot of MNOs now use firewalls, but too frequently these aren’t managed on a daily basis – in fact our research suggests less than 25% are managed effectively, and therefore aren’t optimised to detect and stop the latest threats and evolutions in grey traffic as they emerge.
“The network needs to be protected on all entry points with a multi-layered firewall and our view at HAUD – and OK, we are bound to say this as the market leading firewall provider – is that MNO’s should be using partners to help with this.
“That’s really because, to beat a network you need a bigger network – a network that gathers global market intelligence and distills it down into actionable insights that can be implemented on the individual MNO firewall – which is what organisations like HAUD excel at.”
However, that’s only part of the solution, because once you’ve minimised the grey route traffic, you also have to then both defend and grow your SMS revenue off the back of it.
This could include the implementation of things like flexible pricing strategies – after all the grey route market only exists because it’s cheaper than MNOs offer – as well as working with a partner that specialises in revenue growth. HAUD’s SmartXChange platform, for example, is designed to help MNO’s build direct relationships with wholesale and business clients, allowing the operator to easily manage, and build, revenue generating partnerships with those looking to send A2P messaging.
Kuligowska concluded: “We have the same goal and that is to maximize the revenue for the MNO. Our primary objective is to maximize A2P messaging revenues for MNOs by combining the implementation of an effective firewall solution along with implementing the right market strategy in order to maximize the A2P revenue.
“We have this golden opportunity now to really cement SMS as the most efficient, most secure, most universal channel for A2P traffic. We’ve seen in the past year just how much of people’s personal lives, work and commercial activity has shifted to digital, and while there will be a partial reversion to how people lived and worked before Covid-19 struck, the need for digital communication between brands and their customers will continue to grow.
“What we are saying to MNOs is, securing this future growth potential of SMS A2P, and maximising the revenue you could now receive, is a chance not to be missed – and HAUD suite of tools are designed to help MNOs do just that.”
*Statista Research: Credence Report (2020)