Why the high cost of SMS is holding back the mobile internet (and not just twitter)

Over the last week there's been a bit of a storm over twitter turning off SMS updates for some UK users. 

Twitter says that one user, capped at 250 received SMS messages per week still costs them $1,000 per year in SMS costs! This isn't so much of a problem in countries like the US where users pay to receive SMS nor in some other countries where they’ve been able to negotiate "sustainable billing rates".  Even passing on the cost to users isn't feasible as twitter says this could be up to "73 euros per month for 35 tweets a day in some markets"

As others have pointed out SMS is not expensive for mobile networks to deliver, given the tiny amount of data involved and basically runs to nearly £380 per MB (thanks 4lfie).  Ok, the operators have had to invest in SMSC network equipment etc but overall SMS is a total cash cow for them which they are milking for all it is worth.  Most consumers put up with this, partially as there are a lot of generous bundle deals for SMS right now and you typically get most of your usage free with your contract. 

However, it is becoming clear that the high cost of SMS is beginning to have an impact on the whole mobile service ecology.  Whilst it is twitter turning off SMS that has got everyone's attention, the high cost of SMS is holding back virtually every new worthwhile mobile 2.0 service.  This is for a number of reasons.

Firstly, SMS provides the glue that links mobile to other forms of media.  For example, a user browsing the web can be driven to a mobile site, application download or content item through an SMS trigger linked to a web form.  SMS shortcodes are also used for the same purpose to push users to mobile from print, TV, radio and outdoor media. 

SMS is also vital for managing communications with users of mobile services.  In the online world you can use email for this purpose, but at present, most phones do not have a reliable email connection, especially one that doesn't require firing up a separate app to get hold of it.  So, in the world of mobile, SMS has to be used for a range of functions that email would normally fill, including:

• managing account sign-up and activation
• providing help and support
• letting users know about new features and changes to the service
• warning users to avoid them running up data charges

Having this kind of communication can be really important with mobile services where users might need quite a bit of guidance and handholding to get them familiar with the service. 

For example, just look at the different SMS Shozu sends out:

Example 1:

 

Example 2:

 

So these SMS really help you to use the service cheaply and effectively, but must be costing them an absolute fortune - often you get several of these a day!  Shozu is a well backed company, but for smaller startups there's no way they could afford this.  So it's clear that the high cost of SMS isn't just an issue for twitter, it's an issue for all mobile services!

The question is, what can be done about this?  If sms was free, there would be a lot of problems with spammers, even at the current high rates there is still quite a bit of sms spam out there.  Capping the cost beyond a certain volume would help the bigger services like twitter or Shozu but do little for smaller startups.  Lower bulk SMS prices, but not free, would help to make things more affordable for everyone so that might be one way of moving forward.  The problem here might be that the bulk SMS aggregators that sit between the operators and service providers would struggle to make providing SMS services pay if the price came down a lot.  

Perhaps if push email was more widely available on mobiles as it is in Japan, (and Blackberries) this might be a solution?   Does anyone have any more ideas on this? 

Comments

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[Phil Barrett]

SMS effectively costs zero to the carriers and it's silly that costs are rising instead of falling. i posted a story called "the truth about sms" here:
http://www.burningthebacon.com/2009/01/01/the-truth-about-sms/

[james (mjelly)]

Hi Phil - I guess the carriers would say that pricing shouldn't necessarily be done on a cost-plus basis. However, there is a real issue for mobile services that need to send out bulk SMS.

[Magnus Jern]

I worked for Vodafone, Orange and various other mobile operators for several years and there is one very good reason to not cut the cost. Spam.

The current bulk cost is a great barrier to protect from high volumes of SMS spam in Europe and elsewhere. The US is a different story as one company (Neustar) is acting as a gatekeeper and that the US operators are extremely restrictive (it takes 3 months and 3000+ USD) to get a shortcode approved.

A great alternative is to use mobile applications to deliver these services instead whereas you can still get a great user experience while keeping your SMS inbox relatively spam free.

I really don't think SMS prices is a huge issue.

[james (mjelly)]

Good point on spam marcus - you are probably right it isnt a huge issue - after complaining most people on twitter seem happy getting their updates via the mobile web.