SMS: The Evolutionary Path To 3G

Exactly a year ago, in November 2000, I had written an article on mobile
commerce. At the time when WAP and 3G were piping hot, and all operators and
software developers were falling head-over-heels to announce one thing or the
other about WAP, GPRS or 3G; I had questioned if WAP would survive? I had
predicted that at best WAP will co-exist with the other technologies. Well,
after one year, it appears that the best case predicted scenario shall prevail.

After the initial 3G scramble and a subsequent sanity that is prevailing; at
least two governments in EU, have indicated a cut in the 3G license fee. Other
governments will have to follow the suite.

Java (J2ME, Java 2 Micro Edition) capable PDAs are debuting the mobile
handset market; Nokia, with its 9210, Ericson, Handspring (with Trio), Symbol
(Palm-based PDA mobile), have all brought in Java-capable models, although they
support WAP as well.

SMS has overtaken WAP, both in terms of revenue source for the telecom
network operator and from the end-user utility view point. The SMS revenue
figures are between 10 percent to as high as 30 percent of the total earnings of
the telcos, worldwide.

Emboldened by the relative accuracy of my predictions on mobile commerce
market scenario, I feel confident to stick my neck out, while peering past the
haze and gloom surrounding the global economic outlook in general, and the state
of the software and telecom data market in particular.

I see the mobile data market evolving in three distinct phases, which may be
out of sync with the 2G, 2.5G and 3G technologies. As in all evolutionary
systems, at one point of time, all the three phases may co-exist in one or the
other geographical areas.

In the first phase of the SMS evolution, the operators in India are creating
an awareness among the users, about the utility of communicating via SMS even
when the voice option is available. This phase will see an increase in
person-to-person SMS, to the level of revenue, currently prevailing in Europe.
Thus in the first phase, SMS is being exchanged mainly between humans.

In the second phase, person-to-computer system interaction using SMS will
equal, if not exceed, person-to-person SMS traffic. The technology and systems
for human-to-computer system via SMS already exist, though the usage level is
infinitesimal, as compared to the overall SMS traffic. For example, most
operators allow news pull, railways and airline time tables. These are basically
enabled through Internet gateway at SMS Center (SMSC) of the network operator.

In the person-to-person SMS exchanges, the business model is simple. The
sender pays to operator a sum ranging from Rs 1 and Rs 2 per SMS. The receiver
gets it for free.

In the second phase, where a human and a computer system interact, the
computer will always respond. The quality and utility of the information
provided by the computer system, results in an increase in SMS traffic. The
operator gains by the way of increase in SMS traffic, which he is willing to
share with the content provider. Here, a content provider may or may not be
involved. For example, e-mail notification service, Internet chat and Internet
search services, are run by the operator. Most often than not the Internet
website does not get paid, but gains from residual advertisement and brand
recall gained by the use of their content.

However, business-savvy content providers like the Indian Railways, charge
the mobile operators a fixed and a per access charge for their content access.

One may argue that the Indian Railways have a monopoly over the information
pertaining to train and reservation information it provides. This privilege is
not conferred on the Internet content providers who have to often compete with
equally desperate competitors. Though not denying this, I would point out that
there are other brand leveraging strategies available with the content providers
to help them to distinguish from others. For example, the famous astrologer
Bejan Daruwalla, commands premium on astrology content, and therefore by this
strength may get paid for his SMS-based, pre-stored predictions, which can be
automatically accessed through a computer to SMSC interface. So, may be the case
of Reuters, which has a potential of being paid by the operator for its quality
content and brand goodwill.

Operators share the revenue with the quality content providers, ranging from
20 paisa to as much as 60 paisa per SMS, depending on parameters like
exclusivity, quality and potential for volume.

We, the mobile users, apart from being customers of the mobile operator, are
also customers of other services like air travel, courier services and financial
services. This makes us valuable for the corporate that competes with others to
provide us with such services which we need or desire to consume. An important
way of service distinction is the quality of the CRM. SMS provides a new and an
exciting way of communicating with the potential and existing customers.

SMS provides a brand new channel for CRM. This is the third business model of
the second phase of mobile data applications evolution.

Most of the banking and credit card providers are already using SMS as an
additional means of keeping in touch with their customers. I find Citibank’s
Citi Alert service very useful. Even my local neighborhood bank provides me
access to my bank account via SMS! Soon, logistics companies will follow the
suite. For example, DHL already provides a SMS-based tracking system to its
international customers.

In this model, corporates pay for the reply SMS sent by their
computer systems, in response to their customers querying their information
systems. However, the corporates get to pay only a fraction of the SMS tariff,
by availing bulk discounts from the mobile network operator.

Personally, as an user, I prefer SMS over Interactive Voice
Response (IVR) and human call center. In all cases, I might have to wait if I
need information during a busy hour. Yet after sending a SMS query, I can attend
to my work, while I wait for the information.

The best thing I like about SMS-based CRM, is that, I do not
have to hold the line nor am I forced to listen to a canned music punctured by
messages like "Your call is important for us, but all our officers are busy
attending to customers like you.

Thanking you for holding the line (keep wasting your
time)". As for IVR, listening to a canned voice and pressing innumerable
buttons after listening to each option, really drives me crazy! Every time I
call the credit card company, I have to endure the torture, just because someone
was trying the "Keep It Simple and Stupid" philosophy.

SMS provides an asynchronous and non-intrusive channel of
communication between the customers and the corporate information systems.

Thus to summarize, three business models prevail in the
second phase;

• Operator run services, where operator keeps the SMS
  tariff charged

• Operator shares a part of the SMS revenue with the
  content provider

• An operator independent service provider, uses SMS as an
  added channel to CRM

The third phase, which is yet to take off, will see an
entirely different commercial orientation. This phase would precede 3G in India,
and may take off in a big way only after GPRS is introduced in the major metros.
However, certain applications are viable even with SMS (2+G).

In this phase, computers will communicate with one another.
This opens exciting possibilities, ranging from Wide Area Mobile Commerce Value
Added networks to PDA-enabled access to corporates’ ERP systems. As the GSM-enabled
PDAs are emerging fast, a few corporates will deploy mobile applications for
supporting their field staff, even before GPRS is available in all their
geographical operational arena.

Here are some of the application scenarios:

One of our corporate customers is already talking to us to
explore the possibility of a pilot project, using Nokia 9210 Communicator based
J2ME (Java 2 Micro Edition) application, to enable their sales staff to access
ERP systems (implemented using BAAN) over GSM SMS network. The goal set for this
pilot, to consider it to be successful, will be to cut down the time lag between
the raw data being available to the field staff and collated information ready
to be presented to the management for decision-making. The additional benefit,
is the savings rendered by way of eliminating duplication in data entry. The
field staff also feels empowered, because they can now directly interact with
the ERP system even while on the field.

By using open-ended protocols like Narrow Band Sockets (NBS)
and Java technologies, a seamless migration path from SMS to GPRS and finally,
to 3G will be provided. This will also take care of the migration period when
all the three technologies prevail in the operating domain, which covers
multiple operators. For example, the metros may have 3G network, the class ‘B’
cities may have GPRS deployed and the smaller towns would still be operating on
2+G SMS network. As far as the end-user is concerned, he or she may only notice
a slight deterioration in response times, as the J2ME and underlying NBS
infrastructure takes care of the protocol switching application message routing.

Another, application based on NBS is Value Added Secure
Mobile Commerce network for banking. As the IT 2000 Act comes into effect, a
cryptographically secured NBS over SMS can be deployed between banks, for
clearing cheques and inter-bank electronic money transfer. This infrastructure
is available in most of the banks, since all the banks have a SMS gateway in
place. All they need is an enabling software, which may be agreed upon some open
standards like Open Financial Exchange (OFX), EDI-XML or Secured Electronic
Transaction (SET).

Department of Post (DoP), can save a huge sum of tax-payers’
money, by deploying NBS over SMS wide area network for affecting message
interchange for ‘Telegram’ and ‘Money Order’. Currently, DoP is
deploying an expensive VPN using VSAT technology.

Many more applications are possible; any application that
needs to be always connected yet exchanges short messages, is ideal for
deployment using GSM SMS network. NBS provides a migration path from SMS to GPRS,
to UMTS systems.

In this business model, though the corporate pays for the
data traffic, the gains by the way of cost reduction and value additions, far
outweigh the cost.

To conclude, we mentioned that the operators and the content
providers gain directly from the increase in mobile data traffic. The mobile
user win by the way of improved quality-of-life. The corporate gains by an
increase of customer-retention and loyalty. The government gains by charging a
service tax and a spectrum license fee. The technology providers, like us, get
paid for the innovations in software technologies.

Ashish Banerjee, tech, director, Osprey Software
Technology Pvt Ltd