Why Perspective is everything when it comes to the A2P SMS Marketplace

Much of the discussion throughout the messaging industry over the last 18-24 months is of the demise of the A2P SMS marketplace. But we’re flipping that narrative to explore what will establish a sustainable A2P SMS marketplace. A2P SMS is not going to die, and it will not follow the path of its P2P relation. It is going through another reset as it did in 2020 with the onset of COVID 19 pandemic. Which means we need to take a step back in order to see things more clearly.

If we analyse the data from 2015 up to the end of our current forecast period of 2029, we are able to identify three phases of A2P SMS activity.

Phase 1

Phase 1 ran up to the end of 2019 with a period of steady growth and stability. Phase 2 experienced a significant uplift in traffic initially sparked by the COVID pandemic and subsequent lockdowns, and boosted further with the exponential adoption of one-time passcodes (OTPs). And the third phase is revealing itself to be all about sustainability.

Up to the end of 2019, virtually all markets had a flat rate for domestic and international termination, with year-on-year rate changes increasing in line with market inflation. The increase in traffic growth was steady but not spectacular.

Phase 2

The period of 2020-2024 witnessed businesses turning to A2P SMS to communicate with consumers during the global lockdowns in 2020 and 2021, creating a massive upsurge in traffic (and spend). This growth was sustained into 2022 and 1H 2023, driven by the monumental rise of OTPs. However, it also coincided with the emergence of high international termination rates (which started in 2H 2021) and led to the massive escalation of artificial inflation of traffic (AIT) and related fraud types,such as traffic pumping and trashing, through the exploitation of OTPs throughout the international SMS marketplace.

Phase 3

Phase 3, from 2025 to 2029, is all about sustainability. However it is also about applying perspective to where the A2P SMS industry is today and where it is heading, to reveal the underlying true picture. This is the second market re-balancing that the industry has undergone in the previous 5 years, though this time it is to the detriment of the industry. With growth from the channel removed globally (please note there are still some markets in growth), this next Phase is about building the foundations which will ultimately ensure the sustainability and longevity of the channel.

Between 2019 and 2024 (i.e the end of Phase 1 and Phase 2) total spend in A2P SMS increased by 77.73%; international spend increased by 173.5% and domestic spend by 59.2%. Equally, between 2019 and 2029 (the end of Phase 3), total spend on A2P SMS is still 35.5% higher than spend in 2019, with international spend 19.3% higher and domestic spend 38.6% higher.

What is the long term outlook for A2P SMS

Our perspective is based on the fact that even by the end of Phase 3, the market is still worth more than it was in Phase 1 prior to entering the Covid phase. If anything, Phase 2 represented an artificial high for A2P SMS and was not sustainable. With this information in mind, it’s our view that the market needs to stop catastrophising about the decline of A2P SMS. The channel’s longevity is guaranteed and it will continue to be the foundation upon which rich messaging and CPaaS will flourish.

Explore our latest A2P SMS forecasts and market insights in more detail or contact us at nick@mobilesquared.co.uk if you’d like to ask our analyst team a question or contribute to our research