A2P Volume Commitment

 In Operator News

A rather recent trend I picked up is that operators are requesting volume commitment from their A2P provider. This is making life as an A2P provider a lot more difficult and not necessarily beneficial for the Operators either.

Let’s start by establishing a few basic principles:

  1. Business must be mutually beneficial. If not, the business relation is not sustainable.
  2. Water flows to the lowest point. The same with SMS where the ecosystem will divert the traffic to the route with the lowest price, still fulfilling the relevant quality requirement for the product the customer purchased.
    The operator will receive the traffic via the interface where they offer the best price. If the operator change the price in one interface, the entire routing dynamics to that operator changes, and traffic will rapidly find the path of the new lowest price.
  3. Most aggregators have a mix of enterprise/organic traffic and wholesale traffic.

Adding these components together the conclusion is:

– For the enterprise traffic, the aggregator can choose to deliver via direct relations or any of the other relations. A committed volume will try to ensure that the aggregator send this traffic direct, but unless the direct price is the most favourable, the aggregator is put in a squeeze between honouring the commitment and staying competitive on the market. Still, the aggregator can at least be reasonably sure about the volumes to be expected and the risk of losing the traffic is basically the next time the Enterprise renegotiates the service.

– For wholesale traffic, this is traffic you can have and lose within seconds. If an aggregator has a significant volume, they can lose it almost immediately if the operator change the rate towards some other aggregator. So for an A2P provider committing to volumes, based on current wholesale volumes, is a very risky business.

– There is a middle segment of enterprises with at least rudimentary routing capabilities. Their traffic behaves more like wholesale traffic than enterprise traffic.

So, by requesting commitment from your A2P aggregator, you are requesting them to be put in a position where they are liable to pay you a minimum but with very little control to honour it. If you change the rate to one of their competitors (or if one of them finds a hole in your filter), you deny them of all commercial possibility to fill up the committed level. That is not sustainable.

Predictable volumes?

In the roaming world, operators have a good idea of the volumes of traffic they can expect to distribute with their roaming partners. It’s a volume they can choose to distribute via their traffic steering.

In the A2P world, the operator is the monopolist in termination in his network. He will get the traffic – the question is just who will deliver it to them. The aggregator can rely on their enterprise traffic during the contract period, but the wholesale traffic is “loose” and can end up anywhere. If you ask your aggregator for their forecast, it’s likely that they believe they can get a price that will allow them to capture most of the loose traffic. If you sum up these volumes, you will get a number where the same traffic is counted multiple times. This is not a relevant number. Having your aggregator commit to such a fantasy number is not sustainable.

How to do it?

The recommendation for operators to optimise the A2P business is always the same:

  • Implement a filter
  • Manage the filter properly
  • Find the commercial sweet spot for the A2P service, and set the external rate accordingly. Also ensure that it’s consistent across the interfaces that sell the service. A volume staircase is fine, but keep the principle consistent.
  • If you differentiate rates for the same service, you need to tie this to a technical criteria that the filter can manage (numeric/alpha SenderId being the main one).
  • Sign up a limited few aggregators so all of them feel the access is a bit exclusive and hence push the service in relation to the enterprise market

But do NOT request any volume commitments. It’s bad for the A2P business.