Slower growth in business SMS revenue amidst rising costs and OTT threat

According to a recent study by Juniper Research, mobile operators are anticipated to witness a modest 5 percent increase in revenue from business SMS traffic in 2024. This figure marks a significant decline from the preceding year’s robust 23 percent growth in global business SMS revenue. The slowdown is primarily attributed to diminished demand from enterprises, prompted by substantial price hikes imposed by operators.

study highlights a critical necessity for telecom operators to enact substantial reductions in SMS termination costs, aiming to cap the average termination cost at $0.10 per message. Failure to implement these cost adjustments may render the market for SMS business messaging financially untenable, with high termination expenses undermining enterprise return on investment. Consequently, operators risk forfeiting revenue-generating traffic to alternative platforms like APIs or Over-the-Top (OTT) business messaging solutions.

Addressing the looming threat posed by OTT messaging applications such as WhatsApp, the study underscores an anticipated surge in OTT business messaging traffic. This influx is poised to erode operators’ business messaging revenue, particularly in authentication traffic segments like OTPs (One-time passwords) and MFA (Multi-factor authentication).

Molly Gatford, the author of the research, stated, “Operators are expected to lose $3.1 billion in business messaging revenue to OTT messaging channels over the next five years. To mitigate these losses, operators must embrace new technologies like APIs to sustain high levels of mobile messaging traffic within their ecosystem.”

The study also outlines the evolving landscape of Application-to-Person (A2P) messaging channels. While SMS presently dominates as the primary channel for A2P messages due to its widespread adoption and familiarity, the adoption of Rich Communication Services (RCS) and OTT channels is anticipated to increase substantially by 2028. Brands are projected to adopt an omnichannel approach, leveraging rich media channels for promotional A2P messages to enhance customer engagement.

Despite the growing popularity of alternative channels, SMS retains its appeal as a universal messaging platform, enabling global outreach, particularly in regions with low smartphone penetration. Moreover, stringent regulatory frameworks, such as those enforced by the Mobile Marketing Association (MMA), ensure compliance and help curb spam and unsolicited messages, a concern prevalent in OTT platforms like WhatsApp.

Nevertheless, the escalating costs of SMS have inadvertently fueled the rise of Artificially Inflated Traffic (AIT), attracting fraudsters seeking illicit gains. Consequently, some enterprises are exploring alternative authentication channels to mitigate losses, further pressuring operators to hike A2P SMS prices.

Looking ahead, while A2P SMS usage is projected to continue growing, its pace may taper due to escalating costs. The market dynamics suggest a shift towards omnichannel approaches, with OTT messaging platforms likely to siphon revenue from traditional SMS channels, especially in regions with high OTT app penetration. However, the extent of this transition varies across regions, with some countries still in the nascent stages of digital transformation, presenting growth opportunities for A2P SMS, notably in Africa and the Middle East.

Juniper Research highlights the rising prominence of Rich Communication Services (RCS) as a pivotal avenue for delivering Application-to-Person (A2P) messages. The surge in RCS-capable subscribers over the past couple of years, propelled by increased operator backing, underscores its growing significance in the messaging sphere.

While RCS messaging has hitherto been exclusive to Android devices, its potential has been somewhat hampered by this limitation in reaching wider audiences for business-critical A2P communications. However, Apple’s announcement in November 2023, committing to RCS support on iOS devices starting in 2024, marks a watershed moment poised to reshape the A2P messaging landscape significantly.

To facilitate the transition from Short Message Service (SMS) to RCS for business messaging, Mobile Network Operators (MNOs) have introduced billing structures tailored for RCS messages containing up to 160 characters, dubbed Basic Messages. With price parity established between Basic Messages and SMS, this move incentivizes the uptake of RCS, offering brands and enterprises enhanced messaging capabilities without incurring additional costs.

Nevertheless, achieving global adoption necessitates concerted efforts from operators worldwide to bolster RCS support, addressing existing market disparities. Fragmentation across regions poses a barrier to widespread adoption, impeding global brands’ ability to effectively engage with their customer base.

One of the distinguishing features of RCS is its capacity for brand verification, ensuring message recipients can trust the authenticity of communications, thereby mitigating risks associated with fraudulent activities prevalent in SMS. Additionally, end-to-end encryption fortifies security in RCS messages, a crucial advantage particularly for sectors like banking and healthcare, seeking robust safeguards against fraud.

Google, as the proprietor of RCS, is ramping up investments in security and anti-spam measures to safeguard against potential revenue losses stemming from fraudulent activities. Furthermore, RCS Basic Messages offer brands valuable insights through analytics, furnishing data on message delivery and engagement metrics, indicative of its potential to drive higher customer engagement compared to SMS.

As familiarity with RCS Basic Messages grows among brands and enterprises, the scope of its utility is expected to expand, encompassing diverse use cases, including conversational interactions. Consequently, operators stand to reap increased revenues, as more brands and enterprises opt for RCS messages featuring rich content, such as images.

Projections from Juniper Research anticipate a substantial uptick in Global operator revenue from Rich Business Messaging (RBM) traffic, soaring from $1.3 billion in 2023 to $8 billion in 2025, largely propelled by Apple’s slated support for RCS technology.

Apple’s foray into the RCS arena, extending support to iOS devices, is poised to augment the user base by a staggering 900 million over the ensuing two years, culminating in 2.1 billion active users globally. This influx of users amplifies the allure of RBM for enterprises, serving as a catalyst for heightened operator interest in deploying the technology across their networks, enticed by the burgeoning revenue streams from RBM termination.

Moreover, RCS is poised to emerge as a linchpin technology for operators within the business messaging ecosystem, offering a bulwark against the pervasive threat of fraud plaguing the SMS segment. With RCS poised to potentially supplant SMS for business messaging needs, operators face a pressing imperative to act swiftly in addressing fraud concerns and price competitiveness, lest they risk losing market relevance.

Aside from RCS, Over-The-Top (OTT) messaging platforms present an alternative avenue for A2P messaging. Apps like WhatsApp, Messenger, WeChat, LINE, and KakaoTalk boast extensive user bases, offering businesses diverse channels to engage with their clientele across various regions, further diversifying the messaging business. TelecomLead