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Submissions 2018 ACCC MTAS Declaration Inquiry

14 September 2018

Submissions – 2018 ACCC MTAS Declaration Inquiry

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Contents

Contents ................................................................................................................................ 1

Part A – Summary ................................................................................................................. 3

1. MTAS declaration warrants continuation ......................................................... 3

2. Key themes ....................................................................................................... 3

Part B – Glossary ................................................................................................................... 4

Part C – Why MTAS with SMS is essential for Messaging Services ....................................... 7

3. SMS termination essential ................................................................................ 7

4. Requirements for a Messaging Service with universal reach ........................... 7

5. SMS alone meets the requirements for universal reach .................................. 8

6. On‐net or off‐net delivery are both options, if the off‐net surcharge is not

excessive ........................................................................................................... 8

Part D – SMS delivery models ............................................................................................... 9

7. Two models for SMS delivery ........................................................................... 9

8. Significance of the MTAS rate for SMS ............................................................. 9

9. Detailed comparison between Model 1 and Model 2 .................................... 10

10. Interconnection – Model 3? ........................................................................... 12

Part E – Results of existing declaration and FAD ................................................................ 13

11. Business models pre and post‐MTAS (including SMS) declaration ................ 13

12. Outcomes of current regulatory regime ......................................................... 14

Part F – The market and substitution ................................................................................. 20

13. The SMS market .............................................................................................. 20

14. Wide ambit of SMS use cases ......................................................................... 21

15. Reasons not to segment the SMS market....................................................... 22

16. Previous ACCC findings that remain current and valid ................................... 23

17. Substitution ..................................................................................................... 24

17.1 P2P scenario .................................................................................................... 24

17.2 A2P scenario ................................................................................................... 27

Part G – Declaration ............................................................................................................ 29

18. Declaration criteria ......................................................................................... 29

19. The LTIE ........................................................................................................... 29

20. Broader benefits of A2P messaging ................................................................ 30

21. The future ....................................................................................................... 31

21.1 Longevity of SMS as 3G networks shut down ................................................. 31

21.2 New players .................................................................................................... 32

21.3 Rich Communications Services (RCS) .............................................................. 32

22. What if? Costs and benefits. ........................................................................... 33


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Part H – Pivotel ................................................................................................................... 35

23. About Pivotel .................................................................................................. 35

24. Outcomes of deregulation .............................................................................. 35

Part I – Aggregation and its role ......................................................................................... 36

25. A competition cure for Model 1? .................................................................... 36

26. Why aggregation is not a solution .................................................................. 36

27. Aggregators are even more valuable under Model 2 ..................................... 37

Part J – Period of Declaration ............................................................................................. 39

28. Primary submission ......................................................................................... 39

29. Provision for RCS ............................................................................................. 39

Part K – Spam and grey routing .......................................................................................... 40

30. Outline ............................................................................................................ 40

31. Detail ............................................................................................................... 40

Part L – Miscellaneous comments ...................................................................................... 42

32. ‘Three and soon four MNOs’ .......................................................................... 42

33. Creating a fertile and sustainable environment for messaging industry ....... 42

Schedule 1 – About MessageMedia ................................................................................... 43

1. History ............................................................................................................. 43

2. In Australia and overseas ................................................................................ 43

3. Resource and investment ............................................................................... 45

4. International operations ................................................................................. 47

Schedule 2 – [CONFIDENTIAL] and MessageMedia ............................................................ 48

Schedule 3 – Checklist of ACCC questions .......................................................................... 51

Schedule 4 – Rich Communication Services (RCS) .............................................................. 54

1. Introduction .................................................................................................... 54

2. Key concept: RCS terminates on mobile phones via MNO networks ............ 54

3. Introducing RCS – a MessageMedia presentation .......................................... 54

4. RCS uptake ...................................................................................................... 57


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Part A – Summary

1. MTAS declaration warrants continuation

MessageMedia submits that:

(a) The declaration of MTAS including SMS should be continued because it has

had a powerful and positive effect on competition, and price, in both the

bulk and retail SMS markets.

(b) While developments in OTT messaging are acknowledged, they do not

obviate the need for SMS with its universal reach and its role as the default

for all Messaging Services.

(c) Declaration and regulation have largely neutralised the monopolies that

previously characterised the sector.

2. Key themes

In the course of preparing these detailed submissions, some themes which have

emerged are that:

(a) In the context of bulk SMS services, this inquiry essentially resolves into a

single question: Is the LTIE better served by a model that is structurally

non‐competitive, or by a model that facilitates and promotes competition?

(b) The SMS market should not be segmented for regulatory purposes. P2P

and A2P face the same enduring bottleneck. Also, A2P messaging is not

homogeneous. Increasingly, sophisticated Messaging Solutions relying on

SMS termination will combine A2P, P2A, A2A and/or P2P components.

If components of a single new SMS‐based product, service or feature are

regulated differently then, among other things, innovation will be stifled.

(c) While there are moves to promoting OTT messaging platforms as A2P

messaging options, the reality is that the conditions of use that are likely to

apply, the technological fragmentation of the platforms and other factors

(such as monopoly‐based pricing) give no cause to believe that they will

ever achieve universal reach or deliver a competitive pricing environment.

(d) RCS now well on the way to replacing SMS.1 RCS is the next major

evolution of SMS which will need the same protection as SMS; otherwise

its future will be monopolised by the MNOs.

1 See https://www.gsma.com/futurenetworks/digest/rcs‐now‐well‐way‐replacing‐sms/


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Part B – Glossary

In these submissions:

The term: means:

A another term for ‘application’; e.g. P2A

A2A SMS from an application (A) to another application (A) eg where a personal security device detects a heath incident and messages a remote alert system

A2P SMS from an application (A) to an end user (P) – which might or might not be in response to an earlier SMS from the end user

aggregator a ‘pipe’ business aggregating SMS for MSPs and other A2P service providers that do not buy bulk SMS services in sufficient volume to deal directly with MNOs. Aggregators have contractual relations with gateway MNOs and do not offer an MSP’s high‐end SMS features.

application a computer system that can send and/or receive and/or process and react to an SMS (eg a system that reminds a hospital patient of an appointment and notifies the hospital if the patient does not confirm it)

Brand Beta a particular retail mobile brand, which is identified in confidential Schedule 2

carriage service the same as in the Telco Act

end user a customer of an MNO

gateway MNO an MNO that, under contract:

has an SMS gateway with an MSP; and

accepts SMS via the SMS gateway for delivery to end users on its own or other MNO networks.

Where an end user is a customer of the gateway MNO, the gateway MNO is also the terminating MNO.

gateway network the gateway MNO’s network. Where an end user is a customer on the gateway network, the gateway network is also the terminating network.

grey routing delivering SMS to an Australian MNO through international mobile phone networks purely to exploit certain concessional arrangements that apply to such traffic, denying the Australian MNO any fee for terminating the SMS. MNOs use firewalls to detect and reject grey‐routed SMS. Grey routed SMS is typically not spam, but is an attempt to deliver lawful SMS at very low, or even zero, cost.


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GSMA the GSM Association

Messaging Service a service with universal reach enabling high volume and/or automated and/or urgent text communications between persons (governments, businesses and individuals) and automated systems or devices – e.g. A2P, P2A and A2A – using mobile phone networks for delivery.

MNO a mobile network operator eg Telstra, Optus, Vodafone

MNO Alpha a particular MNO, which is identified in confidential Schedule 2

MSP a Messaging Solution Provider that provides sophisticated Messaging Services. It will have a contractual arrangement with one or more gateway MNOs to deliver bulk SMS – and, in the near future, RCS. For examples of MSP value‐adding, see Figure 6, Figure 7, Figure 8, paragraph 12 and Schedule 1.

network an MNO’s mobile network eg Telstra’s mobile network, Optus’ mobile network, Vodafone’s mobile network

off‐net delivery an SMS that passes from an MSP to a gateway MNO and then (via interconnection) to an end user on a terminating MNO

off‐net end user in relation to an MNO, is an end user who is a customer of another MNO

off‐net surcharge the difference between the (unregulated) fee that an MSP pays a gateway MNO for on‐net delivery and the (unregulated) fee it pays that gateway MNO to forward the SMS to another MNO – see Part D

on‐net delivery an SMS that passes from an MSP (via a gateway) to a gateway MNO for delivery to an end user on that gateway MNO’s network

on‐net end user in relation to an MNO, is an end user who is a customer of that MNO

OTT Over the Top, IP‐based messaging eg WhatsApp, Facebook Messenger

P ‘person’ – another term for an end user

P2A an SMS from an end user (P) to an application (A) – which might or might not be in response to an earlier SMS from the application

P2P an SMS from an end user (P) to another end user (P)

RCS Rich Communication Services compliant with the RCS Documentation


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RCS Documentation GSMA: RCS Universal Profile (version 2.2 as at the date of these submissions); RCS Specifications; RCS Messaging as a Platform API; RCS Product Definition Documents; RCS Device API, and RCS Implementation Guidelines

SMS conventional SMS messaging – not OTT or RCS messaging

SMS gateway a gateway that passes SMS from an MSP to a gateway MNO for delivery to end users

SMS termination this is provided to other MNOs to deliver SMS to customers on the terminating MNO’s network. This charge is regulated as a result of the MTAS declaration and FAD.

spam While there is no universally accepted definition of ‘spam’, for Australian purposes it can reasonably be described as a commercial electronic message (a) which the recipient has not given express or inferred consent to receive and (b) is not otherwise permitted by law to be sent. ‘Grey‐routed messages’ and ‘spam’ are not synonyms, and should not be conflated.

Telco Act Telecommunications Act 1997

terminating MNO an MNO that receives an SMS (via interconnect) from a gateway MNO and delivers the SMS to an end user on its terminating network

terminating network the terminating MNO’s network

universal reach the characteristics described in Part C, paragraph 4


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Part C – Why MTAS with SMS is essential for Messaging Services

3. SMS termination essential

Aggregators (like CLX) and Messaging Solutions Providers (like MessageMedia)

are not access seekers – they do not use MTAS directly. But, it is integral to the

delivery of messages, as shown in Figure 1 below.2

Figure 1 – Source: MessageMedia

In the above scenario, there is a rate agreed with Telstra for (on‐net) SMS

delivered to customers on its mobile network and a higher rate for (off‐net) SMS

passed on for delivery to Optus customers.

Access to SMS termination is essential to Messaging Services in the current

conditions where MNO Alpha3 refuses to provide direct access to

MessageMedia.4 MTAS ensures that SMS can be delivered to MNO Alpha

customers. There is no viable substitute for ‘universal reach’.5

4. Requirements for a Messaging Service with universal reach

A Messaging Service must be able to communicate:

(a) with any mobile handset likely to be in use in Australia;

(b) with end users on any mobile network in Australia;

(c) without necessarily knowing what Australian mobile network an end user

is a customer of;

(d) with smart phones and with non‐smart phones;

2 Note that this figure references Telstra and Optus as MNOs for illustrative purposes. Any two MNOs might have been chosen for the purpose.

3 ‘MNO Alpha’ is identified in confidential Schedule 2.

4 See paragraph 11(b) and Schedule 2.

5 See paragraph 4 for definition of ‘universal reach’.


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(e) without any knowledge as to the kind of mobile handset an end user may

have;

(f) without any knowledge as to whether an end user has access to any (and,

if so, which) OTT applications;

(g) without any knowledge of whether an end user who may have used an

OTT application has ceased using it or is checking their OTT messages

infrequently; and

(h) at a minimum, on an A2P basis and – for value‐added features – on a P2A

and an A2A basis;

These submissions refer to these characteristics as ‘universal reach’.

The major OTT players are fighting for dominance. It can be surmised that

promoters of OTT messaging systems will actively shun universal reach. For

instance, if Apple iMessage inter‐operated with Facebook Messenger, one very

significant reason to buy an iPhone rather than another brand of smart phone

would disappear.

5. SMS alone meets the requirements for universal reach

Only SMS satisfies these criteria.

It is the lingua franca in mobile messaging.

It is the only ubiquitous mobile message delivery system.

It is the only ‘any‐to‐any’ mobile messaging system.

It is the only feasible candidate for reliably delivering mobile messages across

the Australian population, as required.

It is the default for any message to be received by a non‐smart phone.

Without SMS, it would not be feasible to operate a Messaging Services business.

6. On‐net or off‐net delivery are both options, if the off‐net surcharge is not

excessive

It is not material to a Messaging Service whether SMS is delivered:

on‐net (ie the end user is a customer on the gateway MNO’s network); or

off‐net (ie the end user is a customer on a different network) –

if, and only if, the off‐net surcharge is not excessive – see paragraph 8 in Part D

below.


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Part D – SMS delivery models

7. Two models for SMS delivery

In principle, an MSP could arrange delivery of SMS to end users in two different

ways:

Model 1: Each MNO is the sole gateway to its own network and its end users

Under this model, an MSP:

(a) negotiates an SMS delivery agreement with Telstra, and delivers all SMS to

Telstra end users under this agreement;

(b) negotiates an SMS delivery agreement with Optus, and delivers all SMS to

Optus customers under this agreement; and

(c) negotiates an SMS delivery agreement with Vodafone, and delivers all SMS

to Vodafone end users under this agreement.

Under this model, there can be no price competition, because each MNO is the

sole – monopoly – gateway to its own network.

Model 2: Any MNO can act as the gateway for all networks and all users

Under this model:

(a) each MNO can deliver SMS to any end user on any network, either:

on‐net – where the end user is a customer on that MNO’s network

(and, so far, this is the same as Model 1); or

off‐net – where the end user is a customer on another MNO’s network

(but subject to the gateway MNO paying the regulated termination

rate to the other MNO);

(b) therefore:

each MNO can act as a gateway to any network;

no MNO has monopoly control over access to its end users; and

MNOs can compete for the business of MSPs.

8. Significance of the MTAS rate for SMS

(a) If there is a regulated MTAS rate, this would mean competition under

Model 2 would drive the price of delivery down. It would be only slightly

more costly to deliver an SMS to a customer on another network than a

customer on the MNO’s own network ie on‐net and off‐net costs would be

virtually the same.

(b) Without MTAS, there is no competitive constraint on what an MNO could

charge for both on‐net and off‐net SMS. With high rates for off‐net SMS,

Model 1 would emerge. Each MNO would be priced out of acting as a


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gateway for any other network because it would be cheaper to deal with

each MNO.

Figure 2 below illustrates which model will dominate under different

regulatory conditions.


(c) It is therefore clear that, as the off‐net surcharge increases:

(i) Model 2 – the competitive model – becomes less and less viable,

and will reach a point where competition is extinguished; and

(ii) Model 1 – the monopoly model – is increasingly ‘the only game in

town’.

(d) The critical role of the MTAS declaration and FAD has been to constrain the

off‐net surcharge. Before MTAS, an MNO would pay another MNO around

6 to 7 cents to terminate each off‐net SMS. After MTAS, that charge

dropped to the regulated termination rate. This has enabled and

encouraged each MNO to compete for MSPs’ business as a gateway to all

MNO networks. That competition has significantly reduced the cost of

providing a Messaging Service.

9. Detailed comparison between Model 1 and Model 2

Model 1 and Model 2 are contrasted in Figure 3 below. Note that, for both

Model 1 and Model 2, ‘MSP’ could read ‘MSP or any other A2P service provider

or an aggregator’ – the analysis in Figure 3 applies in each case – see Part I.


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Model 1 Model 2

MSP forwards to each MNO only messages to be delivered to end users on that MNO’s network

MSP forwards to one MNO messages destined for all three mobile networks; that MNO arranges off‐net delivery via interconnection with other networks

MSP must secure an individual contract with each MNO.

MSP only needs a contract with one MNO.

If any MNO declines to enter a contract, MSP is unable to reach end users on that network – catastrophic outcome.

The cooperation of all three MNOs is not required. As long as MSP has an agreement with at least one MNO, its SMS can reach all three mobile networks.

Each MNO has a monopoly with respect to delivery of SMS to end users on its own network. MSP is compelled to negotiate, separately, with three monopolists.

Because MSP’s contracted gateway MNO can achieve off‐net delivery via interconnect and MTAS, the other MNOs do not have monopolies with respect to delivery of SMS to end users on their own networks.

MSP will pay a negotiated (not a regulated) amount for delivery of SMS to each network – and each price negotiation is with a monopolist.

MSP will pay a negotiated (not a regulated) amount for delivery of SMS to the mobile networks but, since any MNO can deliver to any other network at a low price, the MNOs will compete for MSP’s business.

The volume of SMS that MSP directs to any one MNO is ‘naturally’ fixed ie all Optus end user SMS (and no others) must be directed to Optus; all Telstra end user SMS (and no others) must be directed to Telstra; all Vodafone end user SMS (and no others) must be directed to Vodafone.

MSP can direct any or all SMS traffic to its contracted gateway MNO. As a result, it can negotiate better volume discounts, and the MNOs will compete for MSP’s business.

MTAS is irrelevant to the arrangement, since every SMS is delivered on‐net by the MNO relevant to each end user.

MTAS is critical to the arrangement, because it assures MSP’s contracted gateway MNO of the ability to deliver SMS off‐net, at reasonable additional cost.

MSP does not acquire MTAS. There is no off‐net delivery component to the arrangement.

MSP does not itself acquire MTAS, but the arrangement (and its benefits) depend on the fact that its contracted gateway MNO does acquire MTAS. In that sense, MSP is an indirect acquirer or upstream beneficiary of MTAS.

Note: This model has proved to be hopelessly flawed, both commercially and from a competition perspective, because it entrenched each MNO as a monopoly in relation to its own network. If even one MNO refused to negotiate or demanded unreasonable prices, the MSP was (at best) held to ransom and (at worst) unable to deliver SMS to any end user on that network.

Note: This model has proved to work well and to encourage competition, investment, innovation and economic efficiency.



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10. Interconnection – Model 3?

There is potentially a third model – interconnection.

MessageMedia has not considered the possibility of interconnection because:

(a) It is satisfied with the current regulatory model and its commercial

arrangements under it.

(b) It believes that it would be a sad day for regulation if it were forced to

consider this option.

As a specialist MSP, MessageMedia’s resources (including financial) are most

effectively devoted to its areas of speciality and expertise. It is not in the

business of telecommunications networking and does not seek to be.

Investment by MessageMedia in non‐core capabilities that the MNOs already

have and are well able to provide on a wholesale basis would not be “the

economically efficient use of, and the economically efficient investment in, the

infrastructure by which telecommunications services are supplied” (Subsection

152AB(2) of the Telco Act).


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Part E – Results of existing declaration and FAD

11. Business models pre and post‐MTAS (including SMS) declaration

(a) In the course of the previous MTAS declaration inquiry, the Commission

considered that declaration including A2P would “encourage MNOs to

offer lower prices for off‐net A2P SMS to SMS aggregators. The ability for

MNOs to offer lower off‐net prices means that it may become commercially

viable for SMS aggregators to buy on‐net and off‐net A2P SMS services

from a single MNO. MNOs will then need to compete with each other to

acquire wholesale A2P SMS customers, which is likely to lead to reductions

in both off‐net and on‐net A2P SMS prices”.6

The Commission was correct and that is exactly what happened. See

paragraph 12 for more details.

(b) Before MTAS (including SMS) was declared and pricing regulated, Model 1

was the industry standard.

This proved to be hopelessly flawed, both commercially and from a

competition perspective. Before MTAS applied to SMS, on‐net delivery

was expensive. As each MNO was the sole – monopoly – gateway to its

own network, it negotiated and priced its services accordingly. There was

no competitive constraint.

Under Model 1, MNOs would still terminate SMS received from other

MNOs, but could charge whatever they chose for doing so. While the

MNOs did not directly disclose the rates they charged each other for this

service, wholesale pricing information available to MessageMedia deduces

that as at 2013, the charge per message was between (up to) 6 cents and

(up to) 7.75 cents.

Note that only the SMS termination charge has to be regulated. If that

happens, Model 2 becomes feasible and competition between gateway

MNOs drives down both on‐net and off‐net charges.

As a graphic example of the dangers of Model 1, before the MTAS

declaration included SMS:

MNO Alpha terminated its services to MessageMedia and refused to

deal further with it – several years later this remains the position.

MNO Alpha arbitrarily and artificially designated its own brand Brand

Beta7 as an off‐net network, to justify imposing higher ‘off‐net’

charges on SMS destined for Brand Beta customers.

See Schedule 2 for more information about these events.

6 ACCC Email to stakeholders on 23 May 2014: Mobile Terminating Access Service Declaration Inquiry Application‐to‐person SMS preliminary views / paragraph 19

7 ‘Brand Beta’ is identified in confidential Schedule 2.


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(c) Since MTAS (including SMS) was declared and termination pricing

regulated, Model 2 has become feasible. An MSP can enter into a single

agreement with (for instance) Telstra under which SMS sent through the

MSP’s gateway with Telstra can be delivered to users on any network.

In fixing its charges for delivery, Telstra factors in the regulated charges it

must pay to Optus and Vodafone for termination to end users on their

respective networks – but because of the MTAS declaration and FAD,

these charges are now low.

This environment has created competition between MNOs for Messaging

Services business. It also provides ‘insurance’ against the risk that one MNO will

‘black ban’ a particular MSP from directly accessing the MNO’s network.

12. Outcomes of current regulatory regime

The declaration of SMS within MTAS had the intended beneficial impacts of

reducing prices, increasing volumes and stimulating innovation.

The reduction in prices paid for A2P SMS delivery, which were made possible by

the MTAS determination and increased competition, have been passed on to the

buyers of bulk SMS.

Figure 4 below shows how reductions in (regulated) SMS termination fees have

passed through to (unregulated) bulk SMS rates (the cost of sales – COS) and

then through to bulk SMS customer prices (average revenue per message).


[CONFIDENTIAL BEGINS …


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…CONFIDENTIAL ENDS]


Prior to the MTAS declaration and FAD, all that was really contemplated and

delivered in the Messaging Service industry was bulk SMS. The landscape was

dominated by aggregators who effectively wholesaled Telstra, Optus and

Vodafone messaging capacity, making a margin in the process but making no

significant investment in innovative or enhanced solutions for end users.

Because of the MTAS declaration and FAD, MSPs like MessageMedia have grown

in size and importance, and have invested substantial amounts in innovation for

end user benefit.


After the determination, the volume of messages used by business has increased

dramatically. This has allowed scale efficiencies to be realised leading to new


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levels on investment in messaging innovation. Figure 7 below shows

MessageMedia’s R&D spending in A$m.


There has been some consolidation of the industry as players that are unwilling

to invest, or don’t have sufficient scale to invest, have left.

As a result of investment, new and more reliable messaging products with

features built in that are advantageous for business (eg fast‐delivery gateway,

enhanced reporting, meta‐tags, and innovative use of older features like read

receipts, two‐way messaging etc) have emerged, improving business efficiency

and customer experience.

Examples of the technology deployed by MessageMedia are illustrated in Figure

8 below:

Figure 8 – Source: MessageMedia, April 2018


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8

8


18






19





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Part F – The market and substitution

13. The SMS market

(a) The Commission defines “The domestic mobile terminating access service

is an access service for the carriage of voice calls and short message service

(SMS) messages from a point of interconnection, or potential point of

interconnection, to a B‐Party directly connected to the access provider’s

digital mobile network” where “Short message service (SMS) is the

provision of messages up to 160 characters of text using capacity in the

voice signalling channel of a mobile network”.

(b) The Commission recognises the distinction between P2P and A2P SMS.

But, the SMS use cases are actually more complicated, as explained in

paragraphs 14 and 15 below. There is also a good case for anticipating the

arrival of Rich Communications Services (RCS), as discussed in paragraph

21.

(c) While P2P messaging is increasingly being done with OTT apps., the P2P

SMS market is still very large. At the same time the A2P market for SMS is

growing strongly.

Figure 12 – Source: Bain (used with permission)

(d) Where the MSP needs to communicate with all end users, there is a single

option – SMS, because of its universal reach. No OTT messaging

application offers universal reach.9

(e) The competitive landscape is complex with many players, as shown in

Figure 13 below.

9 Indeed, it can be surmised that promoters of OTT messaging systems will actively shun universal reach. (If Apple iMessage interoperated with Facebook Messenger, one very significant reason to buy an iPhone rather than another brand of smart phone would disappear.)


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The wholesale aggregators, such as CLX, play a vital role in providing a

‘pipe’ to MNOs for MSPs and other A2P service providers that acquire bulk

SMS in volumes too low to secure direct deals from MNOs. For instance

MessageMedia itself acquires bulk messaging capacity through CLX in

some markets where it has fewer clients and therefore lower volumes.

MessageMedia plays to its strength as an MSP to all customer segments as

shown below.

The MNOs also provide SMS solutions, but they sometimes choose to deal

directly with only a small number of preferred aggregators and MSPs. For

instance, one MNO had a policy of allowing a maximum of five bulk SMS

acquirers to connect to its gateway.


14. Wide ambit of SMS use cases

MessageMedia believes the Commission should take a broad view of the SMS

market. With so much change taking place, taking a prescriptive approach to its

definition would stifle innovation. Currently, as well as P2P and A2P, there are:

P2A eg interactive marketing and tele‐voting;

A2A eg machine to machine;

services where the recipient of an SMS can place a voice call to the displayed

SMS number, which call is routed to a human or an automated voice system;

spoken messages being translated to and delivered by SMS;

more people talking to businesses beyond Yes/No messages; and

the integration of SMS with MS Outlook and appointments.

These cases can mesh. For instance, a patient who receives an appointment

reminder – an A2P notification – might respond that they cannot attend – a P2A

response. The clinic’s booking system can be notified – an A2A action – quickly

enough that another patient in the queue can be offered the time slot – via


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another A2P notification – maximising resource utilisation and accelerating

treatment.

This is an example of A2P, P2A and A2A SMS messaging being combined to

achieve a valuable outcome. Such innovations have been led by new entrants to

the messaging market; not the MNOs.

15. Reasons not to segment the SMS market

(a) If one tries to segment the use cases in paragraph 14, there is a major

problem in how to practically and simply charge different prices for them.

(b) As well, new features, products and services are being created from the

innovative use and combination of basic SMS capabilities. Differential

regulation of the components of the market is inimical to that innovation

and the efficient use of existing resources that can be repurposed to create

new services.

(c) MessageMedia agrees with VHA when it says “From a policy point of view,

the assessment of whether a termination service is a ‘bottleneck’ cannot be

conditional on the source of origination. SMS termination must either be a

‘bottleneck’ for all traffic regardless of origination or the ACCC must deem

that SMS termination is not a ‘bottleneck’ for any traffic type. To do

differently is counter to the ACCC’s policy position that declarations should

be technology neutral”.10

This would mean that all SMS termination services should continue to be

declared.

(d) Regulating A2P separately to P2P would create market distortion right at

the time when much of the innovation in the industry will be driven by the

interplay between A2P and P2P and:

there is an increasing volume of P2A traffic; e.g. to confirm

appointments. Also, some OTT messaging applications insist that the

business messaging dialogue is initiated by the P, not the A; and

Rich Communications Services (RCS) will accelerate this interplay of

traffic.

(e) Looking across geographies, lower termination rates appear to have driven

greater innovation, as observed in Australia. We see faster take up of RCS

for business occurring in markets with lower rates (eg USA) and much less

innovation in countries like NZ where high rates stifle demand and

messaging innovation.

10 Vodafone Supplementary Summission (sic) to the Australian Competition And Consumer Commission / MTAS Declaration Inquiry / April 2014 / page 4


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16. Previous ACCC findings that remain current and valid

(a) In 2013, the Commission found11 “the following markets are relevant to

SMS termination:

the wholesale markets for SMS termination services on each MNO’s

network, and

the downstream retail market for mobile services.”

MessageMedia believes that this broad definition is still appropriate.

It also believes that A2P and its variants should still be encompassed by

this market definition because “The ACCC has found that declaring A2P

SMS would promote competition for wholesale A2P services and in the

downstream A2P SMS markets by placing downward pressure on the costs

of providing A2P SMS services”.12

This is exactly what has happened (see paragraph 12 above).

(b) The ACCC found that:

“Because A2P SMS messages only differ from other SMS in terms of their

technical origin (ie software application), the ACCC considers that they

should only be excluded from the service description if there are good

reasons to do so. The origination of an SMS message does not affect the

termination of the SMS message”.13

(c) The ACCC has dismissed the possibilities of increased spam and congestion

as good reasons to exclude A2P SMS from the MTAS declaration.14

MSPs with commercial arrangements with one or more MNOs do not

cause spam or congestion – see Part K. Further, the MTAS (including SMS)

declaration has created a healthy and viable bulk SMS industry in Australia

– see paragraph 33 – with both incentive and adequate profitability for

MNOs to continue to invest in efficient and effective spam and network

management tools.

(d) Providing more definition around the implications of SMS termination for

A2P, the ACCC “considers that there are two relevant downstream

markets:

(i) The wholesale market for A2P SMS services ‐ This is the market in

which the MNOs provide a wholesale service to SMS aggregators

and sometimes, A2P service providers.

11 Domestic Mobile Terminating Access Service Declaration Inquiry / Report of the ACCC’s Draft Decision – 13 December 2013 / paragraph 5.2



14 ACCC Email to stakeholders on 23 May 2014: Mobile Terminating Access Service Declaration Inquiry Application‐to‐person SMS preliminary views / paragraphs 12 to 14


24

(ii) The downstream markets for A2P SMS services –These include the

market in which SMS aggregators supply A2P SMS services to A2P

SMS providers, and the market in which the A2P service providers

supply A2P SMS service to end‐users”.15

In the former, MNOs regard the carriage and termination of one SMS as

the same as any another type of SMS. They are all just ‘communications

blips’ across their networks.

In the second case, while the traffic between aggregators and MSPs might

be a commodity, the down‐stream market for MSPs has varied uses,

different values and is sometimes mission‐critical.

17. Substitution

17.1 P2P scenario

(a) It is true that, with the increased availability of smart phones, OTT

messaging applications are being used to bypass traditional P2P SMS

provided by MNOs. But, SMS is still very important to business.


(b) There are many P2P apps. But, they all require both ends of the message

to use the same app.

For instance:

Facebook Messenger users can communicate only with people that

also have Facebook accounts;



25

Google Chat users can communicate only with people that also have a

Google accounts; and

In the case of Apple iMessage, it’s purely Apple‐to‐Apple. A person

can’t send an iMessage to an Android phone (and vice versa).

(c) Other limitations compared with SMS are illustrated in Figure 15 below:


(d) In 2014, ACCAN noted that there are many vulnerable people who may not

be able to use OTT alternatives to traditional SMS:

“Inflated wholesale rates for SMS termination are likely to be felt most

acutely by low income, older Australians and people with a disability. These

segments of the population are far less likely to have access to

substitutable smartphone‐based Over the Top (OTT) services for

messaging. According to ACCAN research, 53% of consumers who earn less

than $60,000 a year have a smartphone, compared with 76‐78% among

those earning over $60,000. Meanwhile smartphone usage among the 55+

category is 39% compared with 85% among 18‐ 34 year olds. This disparity

also exits (sic) among deaf consumers who have a 47% usage rate

compared with 64% among the rest of the population. It is unacceptable

that the monopolistic practices of MNOs are impacting most on those who

are less equipped to pay.”16

(e) Traditional P2P SMS is still popular with consumers. According to a report

cited in CommsWire on 20 August 2018,17 almost two thirds (62%) of

Generation Y use text messages or messaging apps to chat to friends and

family: one in three (33%) prefer SMS while nearly as many (29%) prefer to

send a message via an app (such as WhatsApp, Facebook Messenger).

16 Letter dated 14 February 2014 from ACCAN to ACCC Domestic Mobile Terminating Access Service Declaration Inquiry / page 2

17 https://www.finder.com.au/press‐release‐august‐2018‐11‐million‐avoid‐phone‐calls


26

Figure 16 – Source: Finder

(f) The degree to which OTT services have eroded the monopoly of P2P SMS

termination is debateable because there may still be many people who still

prefer to use plain SMS. Figure 17 below shows the penetration of

different messaging platforms – anyone with a mobile phone of any type

can receive an SMS:


(g) The limitations of some of the most popular OTT messaging platforms are

illustrated in Figure 18 below. Note that:

only SMS and RCS (and MMS) have universal reach – to every device,

whether smart or non‐smart;18

18 Provisions for fall‐back to SMS are on pages 39‐40 of the GSMA’s RCS Universal Profile Service Definition Document Version 2.2 16 May 2018 at https://www.gsma.com/futurenetworks/wp‐content/uploads/2018/05/Universal‐Profile‐RCC.71‐v2.2.pdf


27

these all depend on mobile numbers – to which guaranteed access is

required;19 and

Australia is in danger of falling behind other markets – if the Model 1

monopolies are reinstated.


(h) Another substitute is email, which is often requested to provide

confirmation of a hotel or airline booking. But, it is not suitable as a

Messaging Service, as shown by this comparison with SMS:


17.2 A2P scenario

(a) There are no retail substitutes for A2P SMS that have universal reach.

It would be impractical for, say, a bank to use an OTT messaging app to

send a security code to a customer, because it would have to know, at a

minimum:

19 A mobile phone number is required for RCS. See RCC.14 in GSMA specifications for RCS above.


28

which app platform each customer used;

whether the customer had ceased using an app platform, in favour of

an alternative one; and

what security and fraud considerations apply in the case of each OTT

app, and how to address and mitigate them.

(b) It is not true that OTT developments have diminished the monopoly each

network operator has over the termination of bulk / A2P SMS.

Nor is there any prospect that this will change. There is an enduring

bottleneck for the termination of A2P SMS.

(c) Before MTAS for SMS was declared, MSPs such as MessageMedia had to

agree with each MNO for delivery of SMS to the customers on the MNOs

respective networks. That meant that an MNO could restrict access to its

customers by imposing unreasonable terms or very high prices to

terminate SMS on its network.

Given the history of MSP/MNO commercial negotiations before SMS was

included in the declaration of MTAS, this is a powerful argument for the

status quo.


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Part G – Declaration

18. Declaration criteria

A declared service does not have to be an interconnection service. It just has to

satisfy the three declaration criteria:20

To determine whether declaration will promote the LTIE, the ACCC must have

regard to the extent to which declaration is likely to result in the achievement of

the following three objectives:

1. Promoting competition in markets for carriage services, or services

provided by means of carriage services.

See Part D which demonstrates how the current MTAS led to lower

prices, increased volumes and increased innovation.

2. Achieving any‐to‐any connectivity in relation to carriage services that

involve communication between end‐users.

See Part C which explains how the current MTAS broke the terminating

access monopolies.

3. Encouraging the economically efficient use of, and economically efficient

investment in, infrastructure by which listed services are supplied and any

other infrastructure by which listed services are, or are likely to become

capable of, being supplied.

The MTAS allows SMS to flow over a small part of the voice spectrum

with the only investment needed by MNOs being a gateway.

19. The LTIE

The Commission uses the term LTIE to refer to the end‐user’s economic interests,

which include lower prices, increased quality of service and greater diversity and

scope in product offerings.21

(a) The Commission says, “The ACCC is more likely to find declaration of a

service is in the LTIE where that service is an essential bottleneck service,

and the market is not operating effectively (i.e. there are signs of market

failure). In these circumstances declaration ensures that service providers

are able to gain access to the bottleneck service on reasonable terms and

conditions and that prices for the service are not inefficiently high. In this

20 ACCC: A guideline to the declaration provisions for telecommunications services under Part XIC of the Competition and Consumer Act 2010; discussed in more detail separately in Sections 6 to 8 of the guideline



30

way declaration will likely promote the LTIE”. 22 This is the case for SMS, as

detailed in Part D and Schedule 2.

(b) Part XIC of the Act seeks to promote the LTIE via a more competitive

industry, with efficient investment and use of infrastructure, resulting in

lower prices, service innovation, greater choice of service for customers

and improved quality. The MTAS (including SMS) and associated FAD have

achieved these objectives as detailed in Part E.

MessageMedia’s products are particularly designed for small business and

platforms which serve small business. This is an area that the MNOs have

been particularly poor at serving well as they focus on the larger

customers in the enterprise and consumer segments.

20. Broader benefits of A2P messaging

The use of SMS to improve customer service and productivity is now embedded

in many sectors and applications:


(a) About 7.4 million SMS were sent on 1 December 2017 to warn of the

potential flooding alert in Victoria.23

(b) “[A] study in the UK concluded that an outpatient reminder service of the

type provided by Message4U contributed to a reduction of 25% to 28% in

missed outpatient clinic appointments, which translated to national cost

savings of more than £150m per year” 24


23 MTG, p17 Dec 2017 submission on ACCC Market Study

24 Text message reminders of appointments: a pilot intervention at four community mental health clinics in London https://ps.psychiatryonline.org/doi/pdf/10.1176/appi.ps.201100211


31

(c) A more local example of the benefits of improved appointment reminders

comes from a client on the Gold Coast:


(d) Another typical application is rostering:


21. The future

21.1 Longevity of SMS as 3G networks shut down

Macquarie (MTG) notes25 that the Commission “will need to deal with the

planned shut‐off of 3G services in Australia starting in 2020.26 It is important to

highlight that SMS over IP (i.e., LTE) was fully specified by the 3GPP in Release 7

(released Q4, 2007) and SMS becomes more critical given inter alia its use for

emergencies and its use for cybersecurity by banks, software companies etc for

25 MTG, P16 Dec 2017 submission to ACCC Market Study

26 See Telstra’s announcement of November 2016 summarised in www.finder.com.au/telstra‐is‐alreadyplanning‐for‐the‐death‐of‐3g )


32

two‐factor authentication”. In effect, it was foreshadowing RCS, which is SMS

over IP. RCS is explained below and in Schedule 4.

21.2 New players

Global players could enter the messaging market. The most likely is Amazon – see

Figure 23 below:


21.3 Rich Communications Services (RCS)

SMS will evolve into RCS, which is SMS over IP (Internet Protocol). The standards

for this were set by the GSMA many years ago and now Google has made it

native to the Android operating system which has been taken up in the handsets

offered by over 60 MNOs around the world.



33

When a business registers with an RCS server, the end‐user receiving a message

can have the identity of the sender verified instantly by the RCS server. This

assures the end‐user the message is not spam.

At the same time, for a business, the advantage of relating RCS to user handsets

is that the business knows with confidence the mobile number to which the

message is being sent. That is why, today, SMS is sent to mobile phones to verify

that a person attempting to access online banking is the authentic account

holder, in control of the account holder’s handset and verified telephone

number.

The difference between today’s SMS and RCS is the richness of the interactions

that RCS makes possible. Some examples are shown in Schedule 4.

The similarity with SMS, is that RCS will have universal reach. If the receiving

phone is non‐RCS‐compatible (eg older phones, iPhones and any other handsets

that cannot or do not implement RCS capability) the message defaults to SMS.

(Although, in that case, the full functionality of RCS will not operate.)

The key similarity for the purpose of MTAS is that access to the end‐user’s mobile

phone is an essential part of delivering the service.

To treat RCS differently from SMS would not be technology neutral – unless it can

be determined how the cost of termination differs. But RCS must be covered by

MTAS, or RCS will be governed by Model 1 – island monopolies.

22. What if? Costs and benefits.

The ACCC considers it helpful to apply the future with and without test as one

way to determine whether the LTIE will be promoted by declaration27.

The Commission is obliged to consider the difference in outcomes between

continuing or revoking the declaration of MTAS for SMS as well as the costs and

benefits of declaration.

(a) Without declaration:

the outcomes discussed in Part E will be reversed – the ‘bad old days’

will return as costs increase;

MNOs will be incentivised to increase the price differential between

on‐net and off‐net SMS delivery so as to drive bulk SMS acquirers

towards direct contracting arrangements;

the incentive to invest in new messaging products and features will be

reduced;

the ability of some MNOs to engage in oppressive and arbitrary

conduct towards other market participants will be greatly increased –

27 ACCC: A guideline to the declaration provisions for telecommunications services under Part XIC of the Competition and Consumer Act 2010 / paragraph 5.2.1


34

see Schedule 2 for evidence of pre‐declaration conduct and Part H for

an example of specific concerns if declaration was discontinued.

(b) What if A2P did not have the protection of MTAS declaration under the

access regime established in Part XIC of the Telco Act? Could competition

rules under Parts IV and XIB of the Telco Act provide viable protection for

messaging services?

Parts IV and XIB of the Act establish market conduct rules designed to

prevent market participants undermining the competitive process. These

rules prohibit anti‐competitive conduct, with Part XIB specifically relating

to such conduct within the telecommunications industry.

The problem is that the access regime is ex‐ante while competitive

conduct is judged ex‐post. The costs and delays associated with pursuing

misconduct can kill‐off competition and innovation before the misconduct

is corrected.

Businesses like MessageMedia have directed very substantial investment

and resources into innovation and enhanced service delivery because

declaration has provided and sustained a stable and favourable

environment for confident investment. The destruction of that

environment would scare off investment – even before any actual anti‐

competitive conduct had manifested itself.

That’s why there is an ex‐ante access regime and why we need MTAS for

SMS.


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Part H – Pivotel

23. About Pivotel

(a) MessageMedia also notes that the ACCC’s Discussion Paper does not

explicitly acknowledge the role of Pivotel Satellite Pty Ltd (Pivotel), a

licensed carrier which operates a mobile satellite communications business

and (MessageMedia understands) interconnects with the three better

known MNOs.

(b) The declaration of MTAS (including SMS) enabled Pivotel to launch a

wholesale SMS service that, uniquely, competes with both:

the other MNOs – for the business of large MSPs like MessageMedia;

and

aggregators – for business that is best placed through an aggregator.

As such, Pivotel is:

the only MNO competitor to the ‘big three’; and

the only domestic competitor to the major international aggregator

that services Australia.

(c) The company’s services are a valuable commercial option for bulk SMS

acquirers.

24. Outcomes of deregulation

MessageMedia considers that if the major MNOs are reinstated as monopolists

with respect to access to their individual networks:

Pivotel will inevitably be ‘frozen out’ by at least one (and most likely all)

MNOs, by means of increased termination charges;

Its wholesale SMS service will become unviable; and

The only MNO competitor to the major networks, and the only real domestic

competitor to the international aggregator, will have been removed from

those respective markets.

That would be a very bad outcome.


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Part I – Aggregation and its role

25. A competition cure for Model 1?

It has been suggested that aggregation may cure the monopoly problem that is

inherent in Model 1. For instance in Optus’ submission to the ACCC’s 2014

declaration inquiry, Optus stated (in the context of the then unregulated market

for SMS MTAS):

Bulk SMS aggregators utilise this on‐net model for their service. An aggregator company

sends bulk SMS messages on behalf of its clients using mobile numbers from each of the

three MNOs. The aggregator would have an Optus allocated mobile number, a Telstra

allocated mobile number, and a VHA allocated mobile number. When a client wishes to

send out a bulk SMS, the aggregator looks up the Mobile Number Portability database to

see which MNO the receiving number is subscribed, and then uses the allocated mobile

number that corresponds to the receiving MNO to send on‐net bulk SMS. The aggregator

has a commercial retail contract with each MNO that sets out the retail charges that

apply.

While MessageMedia acknowledges the value of SMS aggregators in the market

– see for instance paragraph 13(e) in Part F – their role is irrelevant to the central

question: Are end users better served by a fundamentally competitive

environment or a fundamentally monopolised environment?

26. Why aggregation is not a solution

For four reasons, aggregators cannot solve the anti‐competitive nature of Model

1.

(a) Aggregators face exactly the same problem that any other would‐be bulk

SMS acquirer faces: to establish links to all three major MNOs, they must

negotiate contracts including pricing with three monopolists.

Everything said in these Submissions about the problems with that

scenario apply to aggregators, MSPs, other A2P service providers and, for

that matter, any other entity that wished to acquire the capacity to deliver

SMS to each MNO for delivery to end users on its network.

Likewise, just as MessageMedia was arbitrarily excluded by ‘MNO Alpha’

from direct access to its network, an aggregator that hitherto enjoyed

access to all mobile networks could lose its relationship with any of them.

In short, one cannot transform a monopoly into a free market simply by

inserting a ‘middleman’ between the monopolist and the market.

(b) As a ‘middleman’, an aggregator ‘takes a cut’, which adds an extra cost to

the supply chain. For low volume bulk SMS buyers, the pricing available

from an aggregator may still be better than the pricing they could

negotiate directly with the MNOs.

But that is not true for large‐scale messaging services like MessageMedia,

which can obtain best pricing direct from the MNOs. Where a large‐scale


37

bulk SMS buyer buys through an aggregator, its costs will be significantly

higher.

(c) History demonstrates that only a very large aggregator has the ‘clout’ to

obtain and maintain long term supply relationships with the MNOs, and

that smaller aggregators are unviable – and are eventually acquired by

very large ones.

That is the recent history in relation to the Australian bulk SMS market,

which is now serviced by a single ‘mega‐aggregator’ and Pivotel. For the

purposes of this discussion, however, Pivotel must be ignored, because its

bulk SMS business would be unlikely to exist in a Model 1 world.

The immediate result of a Model 1 outcome would be that:

access to each mobile network would be controlled by a monopoly

MNO;

one very large aggregator would enjoy a monopoly or near‐monopoly

in the ‘middleman’ role; and

a business like MessageMedia would face a choice of negotiating with

three MNO monopolists, or one aggregation (near) monopolist with a

higher pricing structure.

(d) In a Model 1 world, a bulk SMS acquirer’s contract with each MNO is

‘priceless’ – there is no alternative means of access to a network if it is lost.

It is not sufficient for an aggregator to obtain three MNO contracts … it is

vital that the aggregator retains those contracts.

That need to maintain good relations with all three MNOs:

limits an aggregator’s ability to negotiate best possible pricing with

each MNO; and

incentivises an aggregator to align its interests with the MNOs rather

than with the aggregator’s own customers.

Any suggestion that Model 1 can operate in the LTIE by means of aggregation is

‘smoke and mirrors’. Any sense it creates that the end user market would be

served by a competitive supplier industry which naturally tends to best pricing is

an illusion.

27. Aggregators are even more valuable under Model 2

In relation to Model 1, it has been suggested that aggregators:

may be able to secure direct contracts with all MNOs;

provide a means of supply to A2P providers, etc that are not in a position to

bargain with the MNOs;

obtain better pricing by means of superior buying power; and

pass some of that price benefit on to their customers.


38

All of those virtues are acknowledged, and they are enhanced by a Model 2

environment. If an aggregator in a Model 1 world is good, in a Model 2 world it is

even better: it can deliver all the same benefits with the ‘fair winds of genuine

competition’ behind it.

For instance, if an aggregator ever did fall out of favour with one of the MNOs, it

would still be able to secure access to all three networks via an alternative

gateway MNO – thanks to the regulated MTAS price.

Further, in a Model 2 world, an aggregator:

can bargain much harder with MNOs; and

no longer needs to fear falling out of favour, and losing its ‘partner’ status,

with any single MNO.


39

Part J – Period of Declaration

28. Primary submission

As documented in this Submission, the existing declaration of MTAS has

delivered a sustained period of:

wholesale and retail price reductions;

confident investment in innovation;

development of new and improved services to end users;

adoption of SMS solutions in a wider range of use cases;

long term planning based on a stable environment; and

improved MNO commercial behaviours.

There is every reason to maintain this environment and the benefits it delivers.

Therefore, with one reservation – see paragraph 29, MessageMedia supports a

five year period of further declaration.

29. Provision for RCS

MessageMedia considers that termination of RCS also warrants declaration (and

urges the Commission to give the most serious consideration to doing so).

However, if the Commission was of the view that it is premature to make such a

decision about RCS, it would be important that a further period of declaration of

MTAS in relation to SMS alone did not operate as a de facto decision not to

regulate RCS termination for the same period.

If RCS termination is not regulated in the short term, the Commission should be

mindful of the strong possibility that it must be regulated in the medium term,

and provide for the possibility of such regulation.

Optimally, that would be achieved by a five year further declaration in relation to

SMS termination, explicitly providing for the extension of the ambit of the

declaration to include RCS if so decided by the Commission at any time.

As noted in Schedule 4:

MessageMedia anticipates that some, if not each, of the major MNOs is well‐

advanced in building its own RCS platform intended to be subject to monopoly

control. An early indication of that intention would be failure to provide

wholesale access to services based on an MNO’s RCS platform, on reasonable

terms and at reasonable prices – or at all.


40

Part K – Spam and grey routing

30. Outline

MessageMedia makes only brief comments on this topic because the ACCC’s

relevant findings in relation to the existing declaration were correct and remain

so.

MessageMedia only adds that:

(a) spam and grey routing are not the same things;

(b) data concerning them must not be aggregated; and

(c) to the very questionable extent that the topic is of any relevance to ACCC’s

current inquiry:

(i) the predictable effect of MTAS declaration and the associated FAD

has been to reduce the use of grey routing by Australian businesses;

and

(ii) the declaration has created a healthy and viable bulk SMS industry

in Australia – see paragraph 33 – with both incentive and adequate

profitability for MNOs to continue to invest in efficient and effective

spam and network management tools.

31. Detail

(a) Grey routing exploits certain concessional pricing arrangements in effect

between MNOs in different countries. Those concessional arrangements

are intended to facilitate inexpensive P2P messaging, but can sometimes

be exploited to facilitate A2P messaging at very low cost to the sender and,

importantly to Australian MNOs, without any remuneration for their role

in receiving a message from an international MNO and delivering the

message to their end user in Australia.

(b) In brief, the sender arranges for the message to pass over international

routes, for the sole purpose of exploiting the international concessions.

Grey routing not per se illegal, but it does result in a situation where an

MNO ends up providing a service (ie mobile message termination) for the

benefit of a sender (eg an A2P service provider) that has no direct or

indirect commercial arrangement in place to pay the MNO anything for

that service.

(c) Before the MTAS declaration applied to SMS:

(i) prices charged by Australian MNOs for A2P messaging were high;

and

(ii) the low prices offered by grey route facilitators were extremely

appealing to some A2P service providers – despite the fact that grey

routed services may suffer from delivery delays and lower service

standards.


41

(d) After the MTAS declaration applied to SMS:

(i) prices charged by Australian MNOs for A2P messaging were

considerably reduced; and

(ii) the motivation of some A2P providers to use grey routes to deliver

SMS to Australian end users was correspondingly reduced.

(e) Importantly, however, grey routing was (and is) used to carry SMS traffic

that was entirely lawful and legitimate (leaving aside the MNOs’

understandable objection to not being paid to terminate that traffic on

their networks).

No doubt, there was (and is) a component of spam and other unlawful

traffic within grey routed traffic. But MessageMedia submits that any

spam data proffered to ACCC must not conflate ‘spam’ and ‘grey routing’.


42

Part L – Miscellaneous comments

32. ‘Three and soon four MNOs’

(a) ACCC’s Discussion Paper in relation to this inquiry notes that there are

currently three, and soon to be four, MNOs in Australia. Developments

since the release of the Discussion Paper may possibly result in the

consolidation of two of the four.

(b) MessageMedia is no better placed than any other observer to opine on the

outcome of the proposed consolidation. MessageMedia does, however,

submit that the case for maintenance of the MTAS declaration (including

SMS) is overwhelming, such that whatever the outcome may be, it would

not materially impair that case.

33. Creating a fertile and sustainable environment for messaging industry

(a) While consumer‐facing service innovation and enhancement are promoted

by sufficiently moderated MTAS charges, it must be recognised that there

is also a need for network‐level investment (eg firewall and low latency

delivery technologies) that also contribute to those consumer‐facing

outcomes.

(b) MessageMedia supports MTAS regulation that sustains adequate

profitability and incentive to re‐invest, both in the MSP‐to‐consumer

segment and the MNO‐to‐MSP segment. Experience in international

markets indicates that both segments must thrive and be sufficiently

profitable for optimal consumer outcomes to be achieved. In some United

States scenarios, inadequate SMS profitability for carriers has resulted in

correspondingly inadequate investment in related network infrastructure

and maintenance.

(c) MessageMedia believes that the existing structure of the bulk messaging

industry – MNOs, MSPs and aggregators – has matured and performed

well under the environment created by the existing declaration.

While the MNOs’ monopoly profits of prior years have ceased, and

competition has reduced their negotiated, unregulated pricing there is still

adequate profitability to:

(i) contribute to a reasonable rate of return on their extensive

infrastructure; and

(ii) keep them investing in messaging infrastructure,

(d) This balance has eluded some other markets and MessageMedia would

not support changes to the regulated environment that risked Australians

losing the clear benefits it provides.


43

Schedule 1 – About MessageMedia

1. History


2. In Australia and overseas

MessageMedia operates in Australia and other overseas markets. In Australia

and New Zealand, it is one of the larger MSPs.



44

MessageMedia provides many different messaging solutions to diverse sectors

and small customers.


MessageMedia is a strong MSP with many brands and channels to market.



45

MessageMedia is a multi‐million dollar company with strong revenue growth.


MessageMedia also offers a variety of sophisticated, value‐adding messaging

features.

3. Resource and investment



46

Unlike basic P2P SMS, high quality messaging solutions requires investment in a

sophisticated state‐of‐the‐art gateway.

The gateway must be capable of reliably supporting:

very large volumes of SMS;

high SMS throughput;

short delivery times; and

regulatory compliance.

For instance, where a large population must be notified of a natural disaster, it

may be critical that a very high number of SMS messages is processed by the

gateway in a short period and delivered without delay.

The gateway must also be capable of reliably supporting high‐end features, such

as described above.





47


4. International operations

MessageMedia also operates as an MSP in markets outside Australia, including

New Zealand, the USA and Europe.

But the core of its Australian service is arranging for the delivery of SMS

messages to mobile phone users on the Telstra, Optus or Vodafone (and

potentially TPG) mobile networks.


48

Schedule 2 – [CONFIDENTIAL] and MessageMedia



49


50



51

Schedule 3 – Checklist of ACCC questions

Question Comment / response

1 What kind of voice calls require acquisition of termination access by the originating network? What are the technical characteristics of these calls?

No comment – the question relates solely to voice calls.

2 Who can provide the MTAS? Can non‐mobile network operators who use mobile numbers to provide voice services terminate calls?

MNOs can provide MTAS. Otherwise – No comment.

3 Is the current service description fit for purpose and does it adequately address the issue of monopoly power held by mobile network operators? Is the service description technologically neutral?

Yes, in the short term – see Part F – but regulatory provision for RCS is also required in the short to medium term.

4 Do smaller network operators have difficulty securing commercial arrangements to terminate voice calls on behalf of their customers?

Yes, for SMS. In fact, this is the main reason for the declaration of SMS. See Part D and also Schedule 2 – [CONFIDENTIAL] and MessageMedia.

5 What percentage of voice traffic is carried by: CS technology? / VoLTE? / VoWiFi?


6 What kind of short message services require acquisition of termination access by the originating network?

All off‐net SMS – see Part C.

7 Is the current service description fit for purpose and does it adequately address the issue of monopoly power held by mobile network operators?

Yes – see Question 3.

8 Does the current service description encourage the supply of innovative services?

Yes – see Part E and Part G.

9 What percentage of SMS traffic is carried by each technology used to deliver it?

Some P2P messaging is OTT and all SMS is circuit switched – that will change with the introduction of RCS.


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10 Do network operators continue to have a monopoly over the termination of mobile voice calls on their respective networks?

No monopoly for P2P voice or SMS where an end user has an app installed and configured and the party that they wish to communicate with has the same. But, for A2P bulk SMS, they do have a monopoly.

11 Do smaller networks have, or are they likely to have, sufficient market power to negotiate sound commercial outcomes without declaration?

Without MTAS, small networks and service providers have no negotiating power – see Part D – and even substantial service providers can be treated imperiously – see confidential Schedule 2.

12 Are there wholesale substitutes for mobile voice call termination?


13 Are there retail substitutes for mobile voice call termination?


14 Do network operators continue to have a monopoly over the termination of SMS on their respective networks?

Yes, for bulk SMS – see Part C.

15 How are wholesale agreements for SMS termination currently structured?

See Part D.

16 Are there wholesale substitutes for SMS termination?

No.

17 Are there retail substitutes for SMS termination?

Some OTT for P2P (Part F) but OTT for A2P is not ready (and does not promise universal reach) and RCS is not yet available.

18 How has the MTAS declaration affected competition in each of the relevant markets since the 2014 Declaration?

See Part E.

19 Are the markets identified in 2014 still relevant for the MTAS?

Yes – see Part F and Part G.


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20 Is the MTAS still an essential input to the MTM market? Is mobile voice termination still an essential input to FTM market? Will continued declaration of the MTAS promote competition in these markets?

Yes – see Part C.

21 Do MNOs distinguish between termination of MTM SMS and A2P SMS termination? Why?

No. They are treated the same way in the MNO network and currently cost the same to terminate. See Part F.

22 Have reductions in the MTAS rate been passed on to consumers in the downstream markets?

Yes – see Part F.

23 What is an appropriate duration for a declared MTAS? Why?

5 years, but the Commission must also have a mechanism in place for dealing with RCS – see Part J.


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Schedule 4 – Rich Communication Services (RCS)

1. Introduction

This Schedule comprises mainly pictorial content, intended to rapidly convey

some of the ‘flavour’ of RCS and high‐level information about it.

2. Key concept: RCS terminates on mobile phones via MNO networks

Although RCS supports exciting new functionality, and is not a switched

communication service, it is key to understand that (like SMS) it terminates on

mobile handsets, which are recognised by their standard mobile number, and

relies on MNO networks in doing so.

Accordingly, in the absence of regulation, RCS is exposed to the same risks of

monopoly control as SMS.

MessageMedia anticipates that some, if not each, of the major MNOs is well‐

advanced in building its own RCS platform intended to be subject to monopoly

control. An early indication of that intention would be failure to provide

wholesale access to services based on an MNO’s RCS platform, on reasonable

terms and at reasonable prices – or at all.

3. Introducing RCS – a MessageMedia presentation



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4. RCS uptake


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