Industry experts estimate that the true cost for an SMS to mobile operators is between 2c and 5c, raising questions as to why the retail cost is up to 80c per SMS

There are currently discussions around the potential introduction of an SMS termination rate, raising concerns that it may increase the price of SMSs to consumers (there is currently no interconnect – termination – fee on SMS messages).

However, BulkSMS CEO Pieter Streicher argues that prices may actually decline if a cost-based SMS termination rate is introduced.

“The introduction of an SMS termination rate will actually have the opposite effect [to an increase in the price of an SMS], as it would make it clear to the public and the regulator what the actual (very low) cost of SMS messages are for the networks,” said Streicher.

“It would be more difficult charging consumers up to 80c per message (the current scenario), when the termination rate is only 5 cents.”

Srinivasan Keshav, a professor at the University of Waterloo in Ontario, showed through detailed analysis that the true cost of an SMS message to an operator is less than 0.3 US cents (2.6 cents).

Assuming that Keshav’s analysis is correct, an SMS rate of 80c per text message translates into a profit margin of around 3,000% (three thousand percent).

This highly inflated retail price for SMSs in South Africa, Streicher argues, is quite possibly the reason why the operators have dealt with this issue without involving ICASA.

Source: Moneyweb, Mybroadband