Messaging Means Getting More Out Of Networks

The message these days about wireless messaging is that it appears to be on a fast track toward exceeding voice services as mobile service providers' biggest revenue producer.

These great expectations are emerging in part because inter-network short-messaging service (SMS) has reached the United States. AT&T Wireless' [AWE] high-profile launch of inter-network SMS, as well as VoiceStream Wireless' [DT] more subdued launch, have the U.S. industry waiting for its messaging traffic to rapidly accelerate close to the rates in other markets.

After Australia's mobile operators began offering inter-network SMS in April 2000, traffic increased more than 200 percent in a year, to some 300 million messages a month. SMS traffic worldwide reaches 20 billion to 30 billion messages a month -- led by users in European markets, where inter-network messaging has been a staple of wireless service since the mid-1990s.

"If we look back at SMS traffic in more established messaging countries we can see that when inter-carrier SMS is enabled the traffic levels go through the roof," said Dion Price, senior industry analyst for Mobile Streams, a Newbury, England-based messaging market research firm. "There is no reason why the U.S. market should not explode also after this development."

Reston, Va.-based Inphomatch is supplying inter-network SMS routing for AT&T Wireless. "Certainly from the empirical data on the inter-carrier traffic going through our gateway, this is growing at a rate that nobody in this country expected," said Colin Matthews, Inphomatch president and CEO.

Redmond, Wash.-based AT&T Wireless' SMS traffic has grown from 1 million a day to 30 million a day since it introduced inter-network capabilities in late November, Matthews added. The traffic level should continue "doubling every month," he said.

But the U.S. industry could be waiting a while before it accounts for a substantial portion of the global SMS pie. "I certainly believe that the U.S. market ... is really going to become the biggest market globally," said Phil O'Neill, general manager and executive vice president for mobile messaging technology vendor Logica's Mobile Networks Americas division. "The biggest priority for the U.S. carriers today is to accelerate domestic, inter-carrier SMS roaming."

Logica and other vendors providing SMS platforms won't say they expect text messaging to become the workhorse in wireless operators' revenue stables. On the other hand, they can't say enough about how U.S. wireless operators already have the network capabilities to generate more revenue from messaging.

Carriers need only to add inter-network routing capabilities to open their subscribers to exchanging messages with wireless users on other networks. So, no investment is needed in additional spectrum capacity or radio-frequency technology, and subscribers don't need new phones for service providers to have opportunities to accelerate their messaging revenues.

"It's a modest investment to get a lot more traffic and a lot more revenue," said Tim Lorello, senior vice president and chief marketing officer for Annapolis, Md.-based TeleCommunication Systems [TSYS]. "Everything's already there. They just need to buy a [routing] center."

"There really isn't a risk," O'Neill said.

Late To The SMS Party?

Much has been made of the technological obstacles to providing inter- network SMS in the United States. All major European carriers and most carriers in Asian markets have used the GSM interface technology since the introduction of digital services. But with the U.S. wireless landscape marked by competing digital interfaces -- predominantly CDMA and TDMA but also some iDEN, and with GSM added to the mix since the late 1990s -- routing SMS traffic between U.S. carriers hasn't been as simple as linking SMS traffic across networks in Asia or Europe.

But routing SMS traffic between networks using different digital interfaces isn't that complicated. The carriers themselves have been the most complicated piece of the puzzle. "There are some technological reasons, but there really is not anything quite that complex that can't be overcome," O'Neill said. "It's more an unwillingness to put business agreements together."

U.S. service providers' hesitancy probably is rooted in concern about their networks being seen by their customers just as the medium they use to reach the content of their choice and not as the most important part of wireless service. "That isn't what inter-carrier routing is about at all," O'Neill said. "The carriers still have control over traffic in their own networks."

U.S. operators also probably haven't been impressed by the revenue potential of inter-network SMS, Matthews said. "The carriers have woken up to the fact that they can make money every time an SMS is delivered into their network," he said.

Mobile Streams' Price said U.S. carriers should target young customers to drive demand for SMS. "SMS is like the technology of a generation," he said. "The key really is capturing the youth and getting them involved in it as soon as you can."

Overall, the U.S. SMS market will grow 30 percent to 40 percent annually for at least five years once most of the major carriers offer inter-network messaging, Price added. But they first must change a basic tenet of their operations. "In the States, it's so much of protecting their own back yard," Price said.

Carriers Must Choose Routing Option

The opportunity for SMS growth is clear, but how U.S. carriers will get there isn't. Inphomatch appears to be the early leader for inter-network SMS routing because of its work for AT&T Wireless, which it announced when the carrier launched the capability in November 2001. While Bellevue, Wash.-based VoiceStream hasn't announced it is offering inter-network SMS, Inphomatch said it began providing the service in late January for the country's largest GSM operator without naming the company.

Linda Barrabee, senior analyst for wireless and mobile services at Boston-based telecom market research firm Yankee Group, said U.S. carriers probably will keep as much control as they can of their SMS traffic. "We believe that carriers will want to maintain control over their core messaging infrastructure... while they may be willing to outsource the messaging translation between standards, particularly while the traffic volumes are low," Barrabee said.

In addition, carriers' decisions on inter-network routing will be determined largely by the technologies they've already invested in for their infrastructure. For instance, Barrabee added, Sprint PCS [PCS] is foregoing two-way SMS in favor of its "short mail" messaging service based on wireless application protocol.

Inphomatch, which is backed by equity partner IC3S, a long-time provider of SMS routing in Germany, operates a routing gateway outside wireless networks to distribute SMS traffic between systems. Other options for SMS routing are direct, individual agreements between carriers, or installing within a network a router which connects it to multiple networks.

Inphomatch's Matthews said AT&T Wireless' choice of his company's gateway indicates the direction U.S. carriers will go for SMS routing. "The carriers have made it quite clear they do not want to get into [installed routing systems]," he said. "They're quite happy to do this on an outsider basis."

TeleCommunication Systems isn't hearing the same story from carriers. "We do believe that more carriers are going to be doing more direct connections and doing less [gateway routing] over the long haul," Lorello said. "Many of them have mentioned to us they want to do direct connections."

TeleCommunication Systems also is the first SMS technology vendor to integrate its platform with the mobile commerce billing technology of CIBERNET, the unit of the Cellular Telecommuni-cations & Internet Association that provides inter-company billing protocols for wireless carriers.

In addition, TeleCommunication Systems in January announced it will expand its SMS inter-network routing capability to Europe through wireless application infrastructure provider Netsize.

Logica in January introduced its latest product, Global Interconnect Network. The company, which already offered platforms for intra- and inter- network SMS, said it designed its new product to deliver SMS messages across 400 wireless networks worldwide and to offer carriers improved billing for SMS.

O'Neill said Logica also is participating in an initiative to standardize global SMS interoperability, launched in January at an SMS Forum workshop.

Global SMS interoperability won't work without the standard, O'Neill said. "There's no common group behind this and there's no common direction about an overall solution for carriers, which is really what we're working on," he said.

Messaging isn't moving from the front burner of the industry's items. Not when its revenue potentials are so high, and when mobile telecom devices are so easily adapted for text.

"You're really looking at personal device as opposed to just a phone," O'Neill said. "I believe that data services on a phone will certainly become a primary use on the phone. Obviously voice is always going to be a part and it's always going to be a significant revenue generator."

Lorello said TeleCommunication Systems will "stir the pot" by reminding carriers how much they have to gain by offering more services over their existing infrastructure. "Get people to think about how these technologies can be used, especially at a time when carriers are trying to increase their [average revenue per user], meaning it is a fantastic way to increase ARPU."

But don't count your messaging revenue just yet, Barrabee cautioned. "Interoper-ability must be achieved, handsets must be more usable for text and appealing content must be available," she said.

"Complicating things is also the fact that the messaging market is very fragmented, as the carriers offer numerous wireless messaging solutions -- ranging from SMS to e-mail to wireless IM," she added. "The carriers need to clearly communicate the value of these different services and make them easy and simple to use. For some potential users, the low cost of wireless voice in the U.S. will inhibit [messaging]; however, for many it is expected to become an invaluable, low-cost communications tool."