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Improving SMS delivery and revenues in Latin America

Vince Lesch reviews successes in enhancing SMS in Brazil and Argentina, as well as in Latin America as a whole.

The mobile market industry buzz in the late 1990s was, "What's the next killer app?" With voice revenues declining, operators were searching for the next big revenue engine. Few guessed that a 160-character message exchanged between mobile users would emerge as a large new revenue driver for operators around the globe.

Like other global markets, Latin America is witnessing a surge in Short Message Service (SMS) usage. Mobile subscribers generated 152.4 billion messages in 2007, and that number will swell to 350 billion by 2013 according to Portio Research's Mobile Messaging Futures 2009-2013. And while SMS is evolving more gradually in the region than in other markets, subscribers are becoming increasingly dependent on the service as a primary communication tool.

That dependence, combined with lower tariffs and bundled packages, will drive continued growth. This should all generate optimism from operators, but many are discovering the downside of SMS growth: legacy SMS Centres (SMSCs) cannot efficiently handle the higher traffic loads.

Brazilian Tier-1 operator faces the SMS challenge

That was the primary challenge faced by one of the largest operators in Brazil. Its SMS network capacity was strained under a 25% annual growth rate. A secondary issue was SMS revenue leakage, a by-product of the network's inability to support advanced services like real-time, prepaid charging.

The underlying problem was the operator's SMSC architecture. SMSCs were originally designed decades ago to handle simple person-to-person text messaging at a time when most messages could not be delivered on the first attempt, due to early-stage hurdles such as sporadic network coverage and shorter battery life.

In this legacy "store-and-forward" approach, all text messages are first routed to and stored in the SMSC, and are then delivered to recipients. In today's SMS environment, however, 85-90% of messages get through on the First Delivery Attempt (FDA). Thus, the SMSC's initial processing to store, query and forward messages is largely wasted and limits the flexibility and scalability for future message delivery.

Also, like many operators with legacy SMSCs, the Tier-1 operator relied on post-process, hot billing for the service. This, however, can result in revenue leakage, especially for prepaid accounts. The system does not generate Call Detail Records (CDRs) until after the SMS transaction, leaving a window of opportunity for revenue leakage even in the quickest systems.

Rather than purchasing more SMSCs or overhauling the network to tackle its SMS challenges, the operator boosted system capacity and message-handling flexibility by placing SMS Routers in front of existing SMSCs. This enabled the operator to off-load between 70-90% of SMS traffic and doubled its system capacity.

Unlike legacy systems that route all SMS traffic through the SMSC, the SMS Router deployed uses FDA for mobile-originated (MO) and application-originated (AO) messages.  Advanced load-balancing and throughput-control techniques maximise capacity utilisation and prevent network bottlenecks. Peak-traffic control directs high-volume traffic generated by special events like "voting" to the application itself, preventing SMSC overload.

With the system's versatile and flexible routing rules, the operator now routes traffic on virtually any text message parameter, including: sender; recipient; SMSC address; data coding scheme (DCS); Mobile Switching Centre (MSC); and message content. Additionally, the SMS router includes firewall functionality which can stop malicious attacks on operators' SMS networks.

The SMS router's online billing feature has also reduced the operator's revenue leakage by an average of 90%. The open diameter interface into the operator's existing prepaid systems allows faster credit verification and message delivery. The SMS router checks the originating party against an internal subscriber database to ensure that only messages originated by prepaid subscribers are rated and charged by the prepaid system.

Messages from postpaid subscribers are directed back to the SMS router for further processing. The data stored on the subscriber database is updated through a real-time connection to the operator's internal provisioning system. The feature has not only checked revenue loss but has also  enabled the operator to offer prepaid subscribers flexible billing plans that were typically reserved only for postpaid customers.

SMS success in Argentina and Venezuela

Mobile operators in Argentina and Venezuela, the two countries which generate the highest proportion of SMS traffic in Latin America experienced similar problems to those in Brazil.
One operator serving more than 10 million subscribers had experienced tremendous growth year-over-year in messaging traffic, particularly on holidays like Friendship Day, Christmas and New Year. On Christmas Eve and Day in 2008 alone, its subscribers exchanged more than four million messages - double the number sent in 2007.

To boost its network capacity and message-handling ability, the operator replaced its legacy SMSC architecture with a new SMS router. The new network efficiencies decreased SMS delivery time, improving the customer experience and increasing the operator's voting application revenue.

By integrating the SMS routers with the core signalling functions the Argentinean operator further increased performance and reduced costs with flexible routing, integration with its post-paid and prepaid solutions, and high-volume applications like voting.

Summary

By fiscal year 2013, SMS revenue in Latin America is projected to top US$6 billion, according to Portio Research (Mobile Messaging Futures 2009-2013), making SMS an increasingly important revenue driver for mobile operators in the region. Providers need to take a hard look at their legacy SMSC systems as they prepare for the expected growth and emerging revenue-generating messaging applications. The key to ensuring profitability and improving the subscriber experience is optimising the SMS network with the capacity, message-handling flexibility and scalability to manage increasing traffic loads.

About the author: Vince Lesch is currently Vice-President of Product Marketing at network signalling, mobile messaging and performance management equipment vendor Tekelec. He has a diverse 20-year telecom and communications software background, with companies ranging from large communications services providers such as AT&T to early stage software start ups engaged in interactive advertising. He previously held positions with Bell Laboratories, Lucent, and General Electric in engineering, product management and marketing, and has served on the board of the IMS/NGN Forum and the strategic advisory board for Solid Technologies, which was acquired by IBM.

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