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VZW’s proposed text-fee increase still being digested

FOR NOW, AT LEAST, Verizon Wireless has stepped away from plans to tack on a drastic 3-cent fee to each vendor-generated message on its network. But there’s little doubt that some significant changes are in store for nearly every player on the business-to-consumer text playground.
The nation’s No. 2 carrier shocked many of its partners with notice of the new fee – which was to go into effect Nov. 1 – but backtracked within 48 hours, informing SMS aggregators and others that the charge was only a proposed way of addressing the rising costs of delivering text messages. During the two-day interim, though, industry associations such as the Mobile Entertainment Forum and Mobile Marketing Association had their hands full assuaging members’ fears.
“When the news broke, it certainly caused a lot of internal discussions within MEF,” said Jim Beddowes, president of MEF Americas. “There was a lively debate, and certainly there was a large negative reaction seen in the press . but there was also a counterbalanced argument going on about this.”
The phones were ringing at the MMA, too, according to president Laura Marriott, as members and non-members alike tried to figure out what the proposed hike would mean. And while Verizon Wireless’ hasty retreat may have quelled much of the uproar, its proposed fee underscores some serious economic problems in the space.

Ongoing concern
Carriers’ costs of delivering the messages is increasing just as SMS usage is enjoying hockey-stick uptake, Marriott said, and deals that were struck years ago may no longer be sustainable by all the players in the value chain. While the drastic nature of Verizon Wireless’ proposal took
many industry insiders by surprise, other carriers had long toyed with raising their MT messaging rates or demanding a share of revenues from ad-subsidized services.
“I think what we’re beginning to see is higher costs in terms of monitoring messages, costs around litigation – the feds are getting involved – the costs of building out networks, costs of bundling vs. per-transaction charges,” Marriott observed. “All of these inhibitors need to be considered.”
Indeed, Verizon Wireless executives were busy last week in what looks to be the first of many rounds of negotiations with the carrier’s partners, and no one expects the carrier to completely abandon plans to ramp up revenues from its MT messaging business. (A Verizon Wireless representative said the carrier was talking with a host of players “to get their input and discuss options.”) And other operators – who may be grateful Verizon Wireless was the first to take arrows in the press for proposing increased fees – may follow suit by ramping up their own corporate SMS charges.
Which is why both industry organizations are working to open the lines of communication between the carriers, SMS aggregators and those further down the food chain. The MEF is formally “reaching out to its member base and other constituencies across the industry to open a dialogue,” according to a prepared statement, and the MMA has disseminated an internal e-mail outlining a working session to help develop viable business model recommendations that everyone in the space can live with.

Impact on mobile ads
And while no one expects all the sides to find common ground any time soon, of course – insiders say Verizon Wireless may take two months or more to hammer out new rates – the clock is ticking, according to Naushad Huda, CEO of Textopoly Inc. Media companies and ad agencies are finalizing 2009 budgets, he said, and with mobile advertising in its infancy some players may opt to forego the new medium given the uncertain costs.
“You have a lot of brands hesitating to go into mobile because they don’t understand it; it’s still an enigma to a lot of the agencies,” said Huda, whose company handles text campaigns for the Detroit Red Wings, the USO and KineticWW, among others. Verizon Wireless’ proposed increase “makes them take a step back and say, ‘maybe we don’t want to do mobile this year. Maybe we’ll wait.'”
The hubbub over Verizon Wireless’ moves was a tempest in a teapot, though, rocking a segment of the mobile world even as it went nearly unnoticed outside mobile, as 4INFO CEO Zaw Thet noted. “Frankly, I don’t think most people in the ad community even heard about it,” said Thet.
But regardless of which tack Verizon Wireless takes to maximize revenues from MT messaging, there’s little doubt that business models for nearly every player in the space will need to change. Operators will charge more to deliver texts, or demand a slice of ad revenues, forcing aggregators and their text-message customers to adjust.
“I think there is a sense of urgency as an industry that’s unrelated to the Verizon issue,” said Marriott. “I think there’s a need for all of us to come together and recommend business models that might make this more attractive.”

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