It might be one of the least glamorous parts of the telecom business, but it could also be surprisingly lucrative. Covering everything from travel updates and electronic vouchers to payment notifications, the "application-to-person" messages that pop up on phones (often uninvited) generate about $55 billion each year in traffic revenues, according to recent research. That is hard for network operators to ignore.
Currently, though, service providers are missing out on about $15 billion of these revenues due to the prevalence of "gray routes," according to Dialogue, a UK-based software company that sees a big opportunity in trying to address the problem.
Used by A2P messaging companies, these gray routes take advantage of no-payment arrangements between operators in different markets, set up to facilitate the exchange of person-to-person (P2P) messages. By bouncing a message around several different markets, a messaging company can avoid making any interconnection payments and keep 100% of the fee it might charge a bank or retailer for its service. Network operators get nothing.
Branded Sentinel, Dialogue's technology aims to wage war against the gray routes by giving operators a real-time snapshot of the way the biggest brands are delivering messages. "Some operators have used the technology to shut down the illegitimate routes into their customers," says Paul Garner, Dialogue's global director of sales.
This clearly has pricing implications for brands that have been relying on low-cost gray-route providers. But there may be good reasons for them to change. Gray routes are not known for quality of service and could pose much bigger security risks than the operator-sanctioned alternatives. If messages go missing or get delayed on circuitous network journeys, it could provoke a backlash -- especially, say, if a customer is waiting for a bank notification after completing an important transaction. And eliminating spammers who have flourished on low-cost gray routes is a further incentive.
"Even in emerging markets, like Cambodia, we've seen bigger brands willing to pay about $0.03 or $0.04 per message when historically they would have paid only a tenth of that amount," says Garner. "They see value in the channel."
One of the great things about Sentinel, according to Dialogue, is that it sits in the cloud, making implementation a formality. It also promises a speedy return on investment: Operators can recoup their outlay on the technology in as little as a week, says the marketing bumf.
The obvious question for Dialogue, if this is such a no-brainer, is why more operators haven't jumped at the chance to reclaim those messaging revenues. Dialogue Communications Ltd. was founded way back in 1994 (almost the dark ages of telecom) and the revenue "black hole" appears to be getting bigger: More than two years ago, Dialogue reckoned that mobile operators were losing $5 billion annually to gray routes -- just a third of what it now estimates they are foregoing. What's more, of the 816 operators that exist worldwide (according to the GSM Association), as many as 612 appear to have identified some degree of "gray routing" on their networks. Dialogue currently serves only 35 customers.
One challenge the company has faced, says Garner, has to do with "competing priorities" at some of the operators it has approached. While $15 billion sounds like a lot, an individual company might be losing only $3-4 million a year in messaging revenues to gray routes. "That doesn't get you to the top of the priority stack," he concedes. The messaging companies that use gray routes have also been fighting back and finding new ways of bypassing networks. This makes the consulting support that Dialogue offers a more critical part of its overall service.
Yet the growing size of the revenue black hole could augur well for Dialogue, making the problem of gray routes a much bigger operator priority. The concurrent decline in revenues from P2P messaging -- as traffic moves to WhatsApp and other Internet messaging applications -- might also help, persuading operators to attach much greater importance to A2P messaging.
Dialogue is certainly optimistic. Pointing out that its current A2P messaging focus dates back only about three and a half years, Garner says the company aims to get to 60 customers this year, adding another 25 in total. Having thus far catered mainly to operators in southeast Asia and Europe, Dialogue this week announced plans for a major international expansion into Latin America, the Middle East and Africa. It is set to announce a customer deal in Latin America soon.
As a privately owned business, Dialogue does not report details of sales and profits, but Garner says revenues have grown "fourfold" in the last four years. Expansion so far has been entirely self-funded and there are no immediate plans to alter this approach.
Even so, Dialogue is likely to encounter fresh challenges if interest grows as expected -- and not least a rise in competition. With just 46 employees, it clearly lacks the personnel might of India's Tata Consultancy Services Ltd. and similar players, which are bolting A2P products on to their other consultancy offerings. And it will have to stand out from a crowd of smaller software companies if it is to prosper.
Garner is unfazed. The multinationals like Tata are "Johnny-come-latelies" to the market, he says, and lack Dialogue's understanding and expertise. As for smaller rivals, many remain "conflicted," he reckons, having tried to cater to the enterprises that are paying for messages as well as the networks that deliver them. "We've made a decision to focus on operators and stand firmly in that corner," he points out.
While Dialogue's customer targets are certainly ambitious, growth opportunities in the telco sector are few and far between. And as gray routes siphon off a bigger share of revenues, more operators could be motivated to act. Unsexy as it sounds next to 5G, the Internet of Things and other telco priorities, A2P messaging might just be one to watch. (See Growing Pains Will Force Telcos to Shape Up and 5G: Another Next-Generation Disappointment?.)
— Iain Morris, , News Editor, Light Reading