Friday, February 15, 2008

Premium SMS futures

I have often been asked why Operators don't drop the share of Premium SMS's, so that this is not such an expensive payment instrument. The fact of the matter is that they can't. Many cost elements are built into SMS's that must be recouped by the Operator and they just don't have the lee-way to discount more. One may argue that it does not cost the Operator anything to deliver an SMS from a technology perspective and this is of course correct.

But a review of the other cost elements (especially regarding distribution, billing and in-built inefficiencies), have created a cost structure that represents (according to my calculations) in the region of 25% of the amount billed to the customer. It is therefor impossible for the operator to reduce their portion of a premium SMS billing much below 30%.

As such, a premium SMS is a highly inefficient payment mechanisms (for the operator, the service provider and the subscriber). As a matter of fact, the availability of an alternative payment mechanism will benefit the total mobile payment eco-system. It would be interesting to see the development of this into the future.

1 comment:

Anonymous said...

I'm sure that paypal have all the same problems associated with processing and billing and inefficiencies in their system plus the costs of developing a purpose built system and handling credit cards and security(rather than a single simple legacy system) and yet a payment of 20 euro via paypal nets me 18.70 and the same payment via psms nets me 6.70. The scale of the difference is unjustifiable.