A2P SMS traffic is set to increase from 2.52 trillion in 2022 to 2.88 trillion in 2027, with traffic peaking in 2026 at 2.93 trillion. However, the market is going to be eroded by WhatsApp, which is set to take some 601.3 billion messages away from SMS by 2027 – up from the 10.6 billion SMS lost to the service in 2022.
According to data from Mobilesquared’s Messageverse presented at World Telemedia in Marbella, A2P SMS accounted for more than 98% of total business messaging traffic in 2020, 96.6% of total business messaging traffic in 2022, but this will fall to 74.7% by the end of 2027 because of the rise of WhatsApp Business. For the period that represents traffic migration growth of 5,581.34% and a CAGR of 124.3%. Cumulatively over the forecast period from 2022 to 2027, over 1.23 trillion SMS will be lost to WhatsApp.
Over the forecast period alone, WhatsApp Business traffic will experience growth of 1,572%. This will actually be overshadowed by RCS business messaging growth of over 3,000%, but that is coming from a significantly smaller base, and will only account for 1.96% of total business messaging traffic by 2027.
Part of the reason why WhatsApp is gaining ground is price. According to the data, A2P SMS is on average 128% more expensive than WhatsApp Business. A2P SMS is cheaper in 9 markets (Brazil, Chile, France, Germany, Mexico, Netherlands, South Africa, the UK, and the USA).
The real battleground between SMS and WhatsApp will most likely be for international security traffic, and OTP in particular, where on average, WhatsApp OTP is 99% cheaper than SMS. A2P SMS is cheaper than WhatsApp Business for OTP traffic in eight markets.
In 2021, the average global termination rate for A2P SMS was $0.033. In 2Q 2023, the average global termination rate was $0.06495 – almost double that of 2021. Between 2021 and 2023, just 0.6% of mobile operators kept their international rates the same, 9.4% reduced their rates; 90% of mobile operators increased their international rates.
Just 7.7% of mobile operators have increased their rates by up to 5% – the recognised upper limit of any product or service price increase that will not impact on sales or usage. 25.3% of mobile operators have increased their rates by 20%-49%, with a further 20.5% increasing their rate by 50%-100%. More than one-third of mobile operators (36.4%) have increased their international termination rates by over 100%; in fact, 3.9% of mobile operators have increased their rate by in excess of 500%.
High international termination rates will have a negative impact on international SMS growth for the remainder of the forecast window. The increase in international termination rates has altered the trajectory of grey route traffic over the forecast period, with the subsequent increase in grey route traffic potentially putting the decline of the grey route market back two-to-three years.
Spend trends
According to the research, total global A2P SMS spend will increase from $30.47 billion in 2022 to $35.36 billion in 2027. For the period that represents growth of 16.1% and a CAGR of 3.0%. Or, total global A2P SMS spend (excluding blue traffic, aka AIT) will increase from $29.9 billion in 2022 to $35.2 billion in 2027. For the period that represents growth of 17.9% and a CAGR of 3.3%.
Year-on-year incremental increase in spend by businesses reveals solid growth between 2018 and 2021, a massive leap in spend between 2021 and 2022, and a similar – albeit lower – increase in spend in 2023. Most telling of all is the drop from 2024 onwards, with business spend going into decline from 2026.
Speaking at World Telemedia, Mobilesquared’s MD and chief ‘messagenaut’ Nick Lane, says: “From a spend perspective, the increase in international termination rates has clearly altered the trajectory of the entire market, generating a business spend peak earlier than expected, and a decline in spend when the market could, according to Mobilesquared, still be enjoying significant growth.”
Uncertain times
Fraud is still an issue, and is increasingly costing the industry dear. Total harmful spend (blue traffic spend + red traffic spend + orange traffic spend) will decrease from $2.9 billion in 2022 to $2.3 billion in 2027, and this represents 9.47% of total spend in 2022, and 6.41% in 2027. For the period that represents growth of (negative) -21.39% and a CAGR of (negative) -4.7%.
The A2P SMS marketplace is constantly evolving, and right now given industry developments over the last 18 months, a situation of uncertainty has been created in – what was previously – a very certain market.
Mobilesquared believes that there are three major elements that present considerable concern for the messaging ecosystem and A2P SMS in particular (as of Q2 2023). At the top of the list is Artificial Inflated Traffic (AIT), and not far behind are the price increases to international termination rates and the impact exclusive deals are having on particular markets.
Mobilesquared’s Lane, believes that the industry is in a deconstructive period for SMS, based on businesses operating within the SMS environment failing to recognise the opportunity for SMS.
“Mobile operators have long been concerned with the potential OTT traffic cannibalisation. There is a clear section of mobile operators that hold the view that A2P messaging is set on the same course as P2P messaging and has a limited shelf-life,” he avers. “Companies with this belief are the drivers implementing a pricing model to extract as much value from a dying industry.
“Our Alternative View of A2P SMS highlights what Mobilesquared believes is the true potential for A2P SMS, with the companies at the epicentre of the SMS industry needing to educate not only businesses using SMS, but mobile operators supplying SMS.”
