While wireless application service providers (WASPs) have welcomed the release of short codes by the cellular networks for premium rated SMS, many feel the service provider model is hindering the growth of mobile data services.
Clickatell key account manager Gary Cousins says the codes will greatly enhance the benefit of premium SMS for consumers because the short 5-digit codes are easy to remember and common across all three networks.
"The short codes allow the WASPs to provide services like ringtones and logos, chat services, competitions, charity donations and so on through the medium of SMS," he says.
The customer simply SMSs the number to buy the content or enter the competition, he says. They are then charged anything between R1 and R30 depending on the price of the service, which is then charged to their cellphone account. Through a series of steps, the content provider receives their cut back from the sale of the product.
Exact mobile portal and entertainment director Gavin Penkin says while short codes will help in promoting premium SMS, the problem is that because of the way the model is structured, after the network and service providers have taken their cut, the content provider only gets back between 10% to 55% return on that SMS.
"For example, if we sell a premium SMS to the customer for R10, R1.40 is taken off for VAT, the service provider takes a cut of about R2.90, the network charges 50 cents for the SMS leaving the content provider with about R5.20. If there are more people in the value chain, then the content provider gets even less," he says.
The model explained
Norman Parks, CEO of WASP aggregator Intergrat says premium SMS is a difficult market to get into because the start up costs are so high and one can only make a real profit if one is pushing large volumes of content.
"For a company to be able to play in the premium SMS space they need to first pay an entry fee between R6 000 to R10 000 depending on the network, pay a monthly connection fee between R800 and R1 500 to each network, and pay for all their infrastructure including things like call centres. After that, you can start pushing content," he says.
Companies like Intergrat and Clickatell therefore provide the infrastructure for companies who can`t afford to do it themselves or want to reduce the costs of entering the market. And of course, they too charge for the use of their infrastructure.
In Vodacom`s case, 29% of the price of the SMS is goes to the service provider, while in MTN`s case between 50% down to 23% of the price of the SMS is charged depending on the volumes that are pushed.
Penkin says the reason for this is that the service providers bill the customers each month for voice and data calls and then pay the networks, taking a 29% cut for themselves according to the agreement they have with the networks.
"In MTN`s case, one would have to be sending at least 10 000 SMS a month for a viable business and more than 100 000 SMS a month in order for MTN and the service providers to only take a 23% cut from each SMS," he says.
Terry Shatenstein, founder of start up Java game aggregator and distributor, The Mobile Games Company SA, says although premium SMS is ideal for his business model and the easiest way to buy a Java game for one`s cellphone, it costs too much.
Penkin says its for that very reason that Exact Mobile does not sell Java games via premium SMS. He says there is just not enough return on higher prices premium SMS. Instead they are making most of their money from premium SMS in the R1 to R5 range.
Shatenstein says the fact the networks only allow a maximum charge off R30 is also problematic because much of his premium content would have to sell for R50.
A vicious circle
While much is being done by the networks to promote WASPs by providing advertising and exposure, the WASPs want the service provider cut to come down to make it easier to get businesses off the ground and of course to make more money.
The WASPs would also like to see the networks move towards Japan`s Docomo model, which gives up to 92% of the price of the SMS back to the content provider.
However, Laurence Seberini, Vodacom`s WASP commercial manager says that while the WASPs would like to see the figure come down, the flip side of the coin is that the networks are not seeing large volumes being pushed.
"And while the WASPs would like to see similar returns to the Docomo model, the problem is that the Japanese model is based on a subscription fee not on the price of individual SMS and Japan is a mature market where ours is in its infantile stages," he says.
Penkin says he doesn`t think the local market will ever get close to Docomo model.
"Previously, we were restricted to interactive voice response. Having premium SMS is undoubtedly better and while the pricing model is far from ideal, we just have to make do with what we`ve got."
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