The Month in Telecoms: Nov 2022

It has been a rocky few weeks around the world with escalation in Ukraine, record inflation, an ongoing energy crisis, a pending recession and another change of Prime Minister in the UK.

We have seen hundreds of tech companies slowing down after years of mega growth and the telecoms market is far from immune from this global instability. Some of the stock market darlings that saw such incredible growth during the COVID pandemic struggle to meet shareholder expectations.

Twilio were the first in the CPaaS industry to take action after announcing back in September that they would be cutting 11% of their workforce to reduce costs and improve operating margins. Twilio have seen remarkable growth over the past few years with revenues touching $3B in 2021, an increase of over 60% year on year. Now seems to be the time to reassess profitability and unfortunately cost cutting has become necessary to improve the bottom line.

Plenty of other companies in our space have had a tough few months including Sinch , LINK Mobility and Bird all recently announcing lower than expected performance during turbulent times. The reality is that the exponential development that we saw during the pandemic was never going to be sustainable and what we are seeing is stabilisation rather than decline. I guess it is no surprise and not too much of a shock that we are seeing this readjustment at this point.

The View to 2026

In more positive news, Mobilesquared Ltd , one of the leading authorities in Mobile Messaging, released their outlook to 2026 in the CPaaS market. Messaging guru Nick Lane gave us a sneak peak of their findings and things are looking rosy for the industry over the next few years (see video below).

The industry was estimated to be worth $16.8b in 2020 and is expected to grow to $52.8b by 2026. That is a 78% growth from 2022 to 2026. Not bad at all.

Overall, we are going to see more usage of rich messaging channels (this makes up 4% of the market today and will grow to 10%). Business communication is migrating from basic messaging to chat and conversational commerce, but this is a slow process. The market is still dominated by 1-way services, but this is changing, and 2-way communication will be a significant area of growth.

Exclusivity and beyond?

One of the major trends in the messaging business over the last few years has been ‘exclusivity’ deals with mobile operators. We have seen the likes of Infobip , GMS , tyntec and many others locking down networks all over the world.

Aggregators are supporting mobile operators to monetise their connectivity assets by agreeing to act as a guardian against illegitimate methods of message delivery (or unpaid for methods of delivery) and controlling all incoming SMS into the network.

This gives MNO’s guaranteed income while the aggregators take on the leg work (in most cases). One side effect of these agreements has been massive inflation when it comes to costs of message termination. Once a firewall has been successfully implemented and there is a monopoly for message delivery then the rate can be pushed up with little (not zero) impact on demand.

Exclusivity agreements have been one reason that SMS messaging costs have tripled in the last 5 years and this trend seems to be continuing as we see more networks signing bigger and bigger deals.

Enterprises and ‘originators’ are the ones impacted the most by these agreements as they experience spiralling costs for all sorts of use cases (including OTP and other SMS based services). We have already seen many of the big OTT’s take actions including reducing the number of retries (for OTP), eliminating certain use cases (where the ROI no longer makes sense) and looking into alternative products outside of SMS (flash calling, silent authentication etc).

In the past it was always a race to the customer, but we have seen that almost all the major players have multi-vendor strategies with automated routing platforms hence there is very little stability on the customer side. The only way to create stable revenue was to control supply and this means become the exclusive messaging provider for a mobile network. If you can lock down a network effectively then the traffic will come whether you have a direct relationship with the customer or not. We are seeing more and more aggregators deploying this strategy and becoming connectivity first businesses.

Capacity Europe

In October we had the Capacity Media - a techoraco brand Europe event in London at the Intercontinental Hotel at the O2. As usual it was an event that covers everything telecommunications and has become a mainstay of the CPaaS and messaging calendar. It was also a great opportunity to get together with the S and BTS team including Makoto Imaizumi and Keiichiro Sakoyama who had made the journey from Japan to attend. It is now one of the major global industry events.

Modica Group

Recently it has become more and more important to understand the intricacies of regional markets and using reliable specialists is key.

Modica Group are the leaders in Australia and New Zealand and provide enterprise messaging to a global client base. Founded by now CEO Stuart Wilson in 2001, Modica are developing multiple products for enterprises and are directly connected with all the operators across Australasia. Their experienced team includes Marco Marchiello and Hasmik Yengibaryan .

Looking Forward

As we move into December we have the final push before 2023. The Christmas and New Year period is always important for messaging businesses and normally a barometer for things to come