VZW Rate Change Sends Chills through SMS Industry

VZW Rate Change Sends Chills through SMS Industry

By Monica Alleven
WirelessWeek - October 10, 2008

The cost of sending text messages to Verizon Wireless customers is going up, and some in the industry fear other operators will follow suit.

A Verizon Wireless spokeswoman characterized the move as something the company needs to do as part of business, but content providers and aggregators are concerned the rate increase will cause brands and marketers to ditch mobile in favor of cheaper, more traditional alternatives, like e-mail.

“This recent announcement from Verizon is very significant because a large number of market segments will no longer be able to participate in off-portal SMS services. Although we understand the carrier’s need to monetize, the immediacy, the market timing and level of cost will create a shock to the system,” said Steve Livingston, chief marketing officer at SMS aggregator mBlox, in an e-mail. “The mobile channel will quickly become unattractive to many companies, small and large, that have been investing in new innovative programs and services.”

One industry source who spoke on condition of anonymity said the notification from Verizon this week basically forces some companies to evaluate their business models and possibly change them in a matter of weeks. The rate increase, which involves an additional 3 cents per message termination, goes into effect Nov. 1.

As an example, the source said if a campaign were to pay 1 cent per message now, its cost will go up to 4 cents a message, which could make a current budget of $10,000 go up to $40,000, and many brands or marketers are not going to have that kind of budget to keep their campaigns going. Brands will be impacted the most because they have been paying the same rate for five years and now their budgets are changing dramatically.

The charge applies to a range of content providers, from sports and weather to politics and social networking. Free-to-end-user, mobile giving and non-profit programs are not affected.

Verizon points out the fees have stayed the same since 2003. The fees apply to aggregators, which can choose whether to pass them onto their customers. “We recently notified text messaging aggregators that there will be an increase in the fees they pay for the services they receive from Verizon Wireless,” said spokeswoman Brenda Raney via e-mail. “Just like any business, we reassess our charges to make sure they align with our costs for providing the service and sometimes it becomes necessary to make adjustments. In this instance, this is the first increase the company has implemented since the service began in 2003. This increase does not impact the charges Verizon Wireless customers pay for text messages.”

Other operators have talked about raising their transaction fees, but Verizon is the first to take action, the anonymous source said.