T-Mobile Hikes SMS Rate: What Is Impact on Marketers?

toll-bridgeTake a deep breath, folks. There’s no Twitter tax, and it’s not the end of SMS marketing.

Yes, T-Mobile plans to up the rate it charges businesses to send text messages to its subscribers by a quarter of a cent per SMS, according to one service provider.

For large mobile marketers, it’s not a big deal. For smaller businesses, maybe, maybe not.

One company, known in the industry as a mobile transaction network, or simply an aggregator, sent an email to its B2B customers saying, “We wanted to let you know that we just received a notice that T-Mobile plans to assess a $0.0025 per-message fee for standard rate messages effective October 1, 2010. These T-Mobile charges are in addition to carrier fees and will be passed on to publishers. At this time we are assessing of how this may impact each of our partners. We will send more detailed information shortly.”

Brian Johnson, SVP of sales and marketing for mBlox, another aggregator, confirmed the price change. T-Mobile had not provided comment by press time.

Time for a quick review of how a mobile marketing message gets from marketer to consumer cell phone: Most marketers text through an SMS service provider (AKA messaging gateway or SMS reseller) such as SkyWire Media, Text Ripple or Tatango. The SMS service provider forwards the messages to an aggregator that has direct relationships with mobile network operators. The mobile carriers deliver the texts to their subscribers and bill the aggregator. The aggregator marks up the carrier’s charges a bit and bills back the SMS service provider, which in turn charges the marketer.

One important point: All mobile carriers already charge businesses for texting to their subscribers. The question is, how much is too much?

Phillip Hilgaertner, director of product management for SkyWire, says that $.0025 is right in line with what other carriers charge. He contrasted this with Verizon’s attempt to levy a charge of three cents per message two years ago.

“Verizon claimed it was to cover the overhead. However, the technology used to deliver SMS is built into all the cell phone carriers’ data packet structure. Quite frankly, at [$.03], pretty much the whole industry said they would stop using Verizon, and Verizon quickly backtracked,” he says.

If a marketer wanted to stop sending texts to customers of a particular network, the mobile aggregator has the ability to identify and block those customers.

While large advertisers could probably absorb the extra T-Mobile toll, it could whack smaller businesses.

Many of Tatango’s customers are churches and nonprofits. Tatango’s service plans range from $24 per month for 300 messages up to $149 for 2,000 messages. T-Mobile accounts for approximately one-quarter of the company’s traffic, and CEO Derek Johnson hasn’t decided whether he would pass the rate increase on to customers. But he adds that it’s a slippery slope he doesn’t want to go down.

Johnson says, “For smaller companies in this economy, every little extra expense makes them think twice about doing it. Mobile marketing is just starting to hit its stride, and if we put up roadblocks, that makes it harder to promote that text message marketing is finally here.”

By the way, while GigaOm called this a “Twitter tax,” it’s likely that the ever-expanding Twitter SMS service will be unaffected. Today, a Twitter spokesperson confirmed to ClickZ that the company has direct deals with all U.S. wireless carriers, including T-Mobile. She also said that Twitter has not received notice of a rate increase.

That’s not to say that Twitter has not struggled with rising texting costs. In August 2008, it ceased sending outbound tweets via its UK number and advised users to use alternatives such as mobile websites and iPhone apps.

Co-founder Biz Stone’s explanation on the Twitter blog at that time read, “When you send one message to Twitter and we send it to ten followers, you aren’t charged ten times – that’s because we’ve been footing the bill. When we launched our free SMS service to the world, we set the clock ticking. As the service grew in popularity, so too would the price.”

Thanks to negotiations with mobile network operators, Twitter said, it had established sustainable costs for full incoming and outgoing SMS services in Canada, India and the United States.

In response to the potential T-Mobile rate increase, some marketers think SMS is already on the way down. According to Alicia Whalen, CEO of marketing agency A Couple of Chicks, “Customers will always find ways to SMS for free. And there are so many other options for marketers to connect with customers.”

Says mBlox’s Johnson, “Mobile operators have the right to adjust the pricing as they see fit for their business. And conversely the market will make the judgment if the pricing is reasonable and fair. Pricing changes can affect certain business models, and the market may need to adjust to these new economics. We will all be watching to see how this plays out.”


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