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In the view of regular research of mobile advertising and marketing markets, J’son & Partners Consulting presents main results of the SMS-marketing and bulk SMS market research in Russia.

Bulk SMS (mass messaging) – is a process of sending short marketing or advertising messages to the mobile subscribers. This process is the important part of mobile marketing mediamix and is taking the leading position by the price of contact and by the number of audience. Nowadays SMS-marketing market is experiencing vast changes, influenced by mobile operators’ and by the fight against illegal and unwanted bulk messages (SMS-spam).

 

J’son & Partners Consulting has analyzed current market situation and changes in market structure.

 

Evolution of bulk SMS market business schemes’, spam problems

SMS is a part of mobile connection standard, with a high penetration rate of mobile connection it provides wide audience for advertisers. Communication chain between advertisers and communication operators includes several sections. Usually operators provide SMS-channels to service-/content providers. Providers copperate with specialized agencies that provide access to the gateways. Agencies on the other hand cooperate with advertisers and other non-specialized agencies. Cooperation is effected by revenue share model. There is a wide range of specialized agencies on the Russian market of mobile advertising and marketing, they provide bulk SMS-, MMS-, WAP push-messages and voice services IVR for their clients for advertising.

 

The cost of one SMS depends on the number of clients’ bulk SMS per months: the more the volume, the less is the price per one message. Price range is expansive and is between 0.04 RUB (provided by “black” aggregators for a massive volume of bulk SMS) and 1.35 RUB (provided by “Big 3” operators for an average volume of bulk SMS).

 

Until 2013, bulk SMS have been sent without execution of direct contracts with operators. A company could receive services of bulk SMS not directly from operators but from agents (they didn’t conclude agreements with mobile operators directly).

 

Bulk SMS have been sent via one of channels:

 

       Foreign operators (interconnect);
       SMS-gateways;
       Companies that had direct contracts with operators.

 

The following scheme was used for sending bulk SMS: operator sent bulk SMS to the subscribers of other operators and received bulk SMS from official partner, that received this bulk SMS from other sub-partners (the chain could include a lot of steps). Meanwhile, the end sectors (towards the operator) received orders from different companies (banks, insurance companies, touristic agencies etc.).

 

All advertising and informational SMS usually have been sent via one channel to all operators from short and symbolic numbers (via open interconnect channels). As a result, customers could send bulk SMS (advertising, marketing etc) without any restriction to operators’ subscribers who didn’t agree for this, mostly via “shadow” and “black” aggregators.

 

The use of above mentioned scheme is creating problems with SMS-spam, as under this scheme it is possible to send bulk SMS without any supervision and control from operators.

 

 

Until the middle of 2013, according to J’son & Partners Consulting estimations, around 70% of incoming operators’ A2P-traffic were banking SMS-notifications; 30 % were advertising and informational SMS from distribution networks, internet-shops, auto-services, companies providing services, e-payment systems. Large part of advertising traffic took SMS-spam. Due to the growth of spam, the share of banking traffic decreased for 50 – 60% of 4Q 2013.

 

A lot of companies (customers), that were interested in bulk SMS services (because of their business sphere) prefered working with agents and not directly with operators, as agents have provided more appealing terms. Sometimes, companies that ordered bulk SMS, have compensated their costs for this service by implementing paid service for receivers of such bulk SMS. For example, some banks are withdrawing 30 – 60 RUB/month from their clients for informational SMS.

 

Companies that provide bulk SMS services did not have any costs under the contracts with operators and this have leaded to dumping. Obviously, such dumping prices created an “explosive” growth of bulk SMS. Meanwhile subpartners/subsubpartners that receive money from clients, receive vast revenue from the leverage between dumping wholesale prices of “shadow” and black aggregators without any agreements with operators.

 

Due to the increasing number of claims from subscribers and other market participants, operators start to form new scheme for bulk SMS, since the end of 2013.

 

According to PR Department of “Megafon”, the volume of SMS-spam in Russia has increased rapidly. At the end of 2013 Megafon’s subscribers have received around 2 bln spam SMS in a month, that is almost in 1000 times more than 2 years ago.

 

Same with MTS, 98% of SMS-spam was received from SMS-centers of other operators. MTS emphasize the volume of incoming spam SMS from other operators increased for 60% in October 2013.

 

Pavel Chunikhin (representative of TELE 2 Russia) admits that at average, each Tele2 subscriber has received monthly 15 informational SMS from external networks. Among them usually are expected sms (such as state of bank accounts) and unexpected advertising bulk SMS.

 

Head of Russian subsidiary “VimpelCom” Mikhail Solobodin noted in the interview for “Russia 24” TV channel, that each subscriber have received at average around 12 SMS per months, for which he wasn’t subscribed, just in August – October 2013.

 

Therefore, “Megafon”, MTS, Tele2 start to block the incoming bulk SMS from short and symbolic numbers or SMS-aggregators, that don’t have direct contracts with an operator. Operators use the legislation that does not include an obligation to conduct traffic from other operators from short and symbolic numbers that are not included in the Russian numeric plan. “VimpelCom” has created a base of “untrusted” advertises and is accomplishing selective blocking.

 

All these actions have created a negative reaction from banks. National Council of Financial Market sent a claim to the Federal Anti-Monopoly Service regarding the increased tariffs on SMS exactly before part 4 Article 9 of Law №161-FL «About national payment system» was going to entry into legal force. Under this Law, all banks should notify their clients about every operation with client’s banking cards via any channel (e-mails, bulk SMS). In reply to these actions, “Megafon” and “VimpelCom” have announced that they didn’t increase tariffs and MTS on a contrary have decreased such tariffs on bulk SMS for all legal entities for 15 % in average.

 

Mass bulk SMS is being discussed widely nowadays. J’son & Partners Consulting assumes, that mainly due to the fact that banks have used services of bulk SMS via aggregators (with low tariffs) and not directly via operators, now they are intensely experiencing growth in tariffs.

 

The fact that operators start to block SMS from short and symbolic numbers and transfer bulk SMS on direct agreements have influenced first of all “shadow” and “black” market participants (they still try to avoid the blocking by implementing new ways for SMS sending: instead of symbolic-digital signature put random phone number – such SMS cannot be blocked by law).

 

Nevertheless operators announced that such measures have decreased number of spam drastically (MTS stated that after blocking, the number of spam, in December 2013, decreased in 4,7 times in comparison with November, VimpelCom – in 3.7 times, Megafon – in 3.8 times). Mikhail Slobodin said that they are aiming to decrease SMS spam in 24 times in 2014.

 

J’son & Partners Consulting considers that such measures will lead to market stabilization, increase its “clearness”, remove a number of agents in the chain of bulk SMS distribution and will expand market of legal SMS-aggregators.

 

Foreign operators and aggregators provide much higher tariffs on bulk SMS in comparison with Russian operators. For example, 1 SMS costs 0,04$ in West Europe and USA (large volume), that is almost twice more than to send SMS in Russia directly from “Big 3” operators.

 

Bulk SMS market participants

According to J’son & Partners Consulting observations, bulk SMS market participants can be divided in 3 categories: operators, official aggregators, “shadow” and “black” aggregators (spam SMS).

 

Operators and official aggregators. This group includes cellular operators and their official partners (work directly with operators under contracts). The advantage of this group – is an ability to accept large volume of SMS.

 

The price range on bulk SMS is 0,20 RUB till 1,35 RUB (depending on the volume of bulk SMS).

 

The price of 1 SMS from official aggregators, as a rule, depends on subscriber’s operator that receives this SMS. 1 SMS costs from 0,065 RUB (large volume to subscribers of regional operators) till 0.8 RUB (average volume to subscribers of “BIG 3” operators).

 

«Shadow» SMS aggregators. Aggregators that don’t work with operators directly (so called “Sub-partners”). These aggregators have very similar client base with official operators and official aggregators.

 

The only difference is that “shadow” aggregators have a pool of subpartners, that are sending their bulk SMS from numbers of “shadow” aggregators and sometimes such SMS are not agreed and legal.

 

The costs of services are also depend on “receiving” operator and is vary from 0.1 RUB till 1.06 RUB.

 

Some “shadow” SMS aggregators provide SMS-advertising together with bulk SMS services for their clients. Aggregator provides client base for sending advertising-informational SMS. A client, as usual, can choose a specific group (detailed) for his advertising SMS.

 

«Black» SMS-aggregators. The main feature of this group is a very low price – much less than market price. Usually such companies do not announce their address, they don’t have official offices or contact persons, they are hiding under scrimpy web-interfaces for purchasing bulk SMS. This group is formed from aggregators and SMS-gateways that provide bulk SMS services. A large number of SMS-spam is going exactly via “black” SMS-aggregators.

 

Result of spam SMS – growth of SMS-fraud

Nowadays any individual or legal entity can organize personal spam-SMS without a phone – via special SMS-gateways. “Black” aggregators provide exactly such services.

 

It is worth to mention, that operators cannot control whether “shadow” or “black” aggregators have an agreement with subscribers on receiving bulk SMS or not, despite the fact, that according to the Law about advertising, the distribution is allowed only with an agreement from subscriber to receive advertising. (Article 18 “Advertising is distributing via telecommunication channel”).

 

On the other hand, subscriber does not understand where and how he should express his agreement or disagreement and support services of operators know neither the source nor the client of such bulk SMS.

 

Fraud SMS are usually conducting via “black” aggregators.

 

SMS-fraud – it is when law-violators collect the information and pursue clients under different reasons to execute financial operations in favor of third parties via bulk SMS.

 

The most dangerous scheme of SMS-fraud – is the distribution of malicious software that aimed at smartphones with Android OS.

 

Under such scheme, the “infected” phone send SMS with malicious software using the base of contact (for example using the words: “Rate this cool link”). By following the link, the malicious software starts working and ruins the phone. Using such scheme, fraudsters could underwrite subscribers on very expensive content-services or withdraw money from banking account (mobile banking). For example, in the period of November 2013 – January 2014 Megafon registered that such cases increased in 3 times.

 

Low price is the most specific feature of “black” SMS-aggregators. Bulk SMS are created by unfair business practices and as a result are creating spam problem. The cost of such bulk SMS does not depend on subscribers’ operator and costs around 0.04 – 0.35 RUB.

 

Volume of Russian SMS-marketing market

According to J’son & Partners Consulting estimations, bulk SMS market’s volume in Russia was 101 mln. USD in 2013.

Market has grown for 68% in comparison with 2012. Main reasons are the growing popularity of mobile marketing, increasing number of market participants, development of loyalty programs, payment services and expanding of government services sector. Increasing traffic of SMS advertising, including spam, has also influenced the growth.

 

According to J’son & Partners Consulting estimations, the volume of bulk SMS market will reach 137 mln USD till 2016. The growth rates will slow down starting in 2014 because of banners A2P for bulk SMS from short numbers implemented by operators. The transition of advertising and informational bulk SMS on the direct contracts with operators should consolidate the business of legal SMS-aggregators. And this very process will lead for market “healthy recovery” and will help to decrease the volume of SMS spam. Legislation and advertising impression on customers from SMS advertising will influence also the market growth.

Drivers for bulk SMS market development:

       High penetration rate of cellular connection;
       Increased consumer activity;
       Formation and development of loyalty programs by network retailers;
       Changes in advertising campaigns: from global to customized, specific campaigns;

Specific groups are the targeted audience nowadays for most advertising campaigns. SMS advertising allows to pick a detailed bulk SMS by sex, age, subscriber’s revenues and other features.

       Phones and smartphones that support navigation services (LBS, GPS and GLONASS);

Advertising campaigns are using more and more the geo-targeting (the provision of information to the client in accordance with his geolocation). With the development of mobile internet, companies are obtaining more and more ways to identify subscribers’ geolocation. The development of internet-sales, e-services and mobile commerce, distance banking services;

       Changes in the Law «About the national payment system»;

Since 1 January 2014, the amendments of the Law “About the national payment system” took into force. Under this Law, all banks should notify their clients about every operation with client’s banking cards via any channel (e-mails, bulk SMS), this is making bulk SMS one of the necessary solution in the process of fulfilling banks’ obligations.

       Low costs on bulk SMS in comparison with other advertising methods.

Barriers for bulk SMS market development:

       Technical restrictions on bulk SMS;

From technical point of view, SMS messages on mobile device could take small volume and could not include multimedia (photos, audio and video) and, as a result, are not always good for advertising campaign.

       Restrictions on interactive communication;

It is very inconvenient or impossible for many phones’ users to follow the link directly from SMS, to send the reply on SMS is a paid option (that is being defied as SMS-fraud); the call on the number from SMS – is also a paid service and it didn’t get any popularity.

       Legal restrictions of bulk SMS;

Bulk SMS are restricted by Russian legislation. Main demand is the agreement of subscribers to receive such SMS on their phone;
In 2013 State Duma launched several projects against SMS-spam. Ruslan Gattarov – Head of The Federation Council by informational policy, suggested some amendments to the Federal law “On Communication”. The Bill is suggesting to include the definition of “Bulk SMS-spam” via mobile connection, the authorization for bulk SMS only with agreement from subscribers of mobile connection and also provide a right for operators do not conduct SMS-spam. In case the Bill, provided by Ruslan Gattarov, will be accepted, it will help to preserve subscribers from SMS-spam. This Bill will also force SMS-aggregators to conclude direct contracts with operators for bulk SMS, clients (who need bulk SMS services) will have to provide the fact of subscribers acceptance on receiving such bulk SMS, to ease the procedure of refusal from bulk SMS via direct communication with operator and not with the client company that ordered bulk SMS.

       “Image” restrictions on bulk SMS

Bulk SMS have a very “poor” image in front of advertisers same as users; this is mostly due to the expansion of SMS-fraud and illegal spam. All these factors influence badly on decision making: which channels to use for advertising campaigns.

Detailed results of the research are presented in the full version of the Report: 
«Russian bulk SMS market»:

1. Resume
2. Introduction
3. Sources and Methodology
4. Main terms and definitions
       4.1. Overview of the Russian bulk SMS market
       4.2. Market volume and dynamics, 2010-2012
       4.3. Market development, forecasts, 2013-2015
       4.4. Market structure, participants
              4.4.1. General market structure
              4.4.2. Operators and official aggregators
                     4.4.2.1. «Shadow» and «Black» segments of bulk-SMS, SMS-spam
                     4.4.2.2. «Shadow» SMS-aggregator and gateways
                     4.4.2.3. Non-legal bulk-SMS, SMS-spam
       4.5. Pricing on bulk SMS market, value chain
       4.6. Main models, customers, cases
              4.6.1. Banks/Payment systems
              4.6.2. Retail/Loyalty programs
              4.6.3. Airlines
              4.6.4. Insurance companies
              4.6.5. Embassy
              4.6.6. Advertising agencies
              4.6.7. Internet projects
              4.6.8. Others
       4.7. Legislation and regulations
              4.7.1. Global practice
              4.7.2. Russian practice
       4.8. Drivers and barriers of bulk SMS market
5. Conclusions and recommendations