Telstra, VHA under pressure from messaging apps

Telstra and VHA hope to convince regulators that the red-hot mobile messaging market is keeping SMS pricing in check, making any regulatory intervention in the shrinking SMS space a futile exercise. 

The incumbent telco joined Vodafone Hutchison Australia to fight a Australian Competition and Consumer Commission attempt to regulate the pricing of SMS termination services - the fees charged by carriers to accept SMS messages from users on other networks.

Optus is the only major Australian mobile carrier to support regulatory intervention on SMS interconnection charges.

Telstra execs argue that rapid growth in over-the-top (OTT) messaging apps such as WhatsApp, Viber and LINE is keeping SMS pricing in check, as carriers try to compete with the popularity of these third-party services.

"From a consumer perspective, there are a number of effective substitutes for SMS services," Telstra said in a submission to the ACCC published late yesterday.

VHA agreed in its separate submission, noting that "it is difficult to conceive of [OTT] services as anything other than a direct substitute for SMS and, in some markets (for example, the Netherlands), messaging applications have displaced large volumes of mobile SMS traffic."

The clear implication is that Telstra and other telcos have no reason to keep SMS fees artificially high if they want to have an alternative offering with any chance of competing with the OTT players. By association, regulatory intervention on SMS prices would be futile given the downward price pressure already in the market.

Optus, however, disagreed with that assessment, arguing that SMS fees would already be lower if telcos actually saw OTT apps as direct competition.

"If it was correct that data-based OTT services were a competitive option to SMS termination, one would expect to see price reactions and other competitive responses from [mobile network operators] that supply SMS termination," Optus said.

"This has not happened. It is evident from the SMS termination rate that these services have not placed an effective constraint on [operators]. There has been no incentive for [operators] to reduce their SMS termination rates."

VHA implored the ACCC to the settle the issue by undertaking a thorough "market assessment".

"We are confident that this will show smartphone messaging applications are a significant substitute to traditional SMS services and the existing retail market is already competitive," VHA said.

Telcos continues to back renewed regulation of mobile termination access service (MTAS) fees. A renewed MTAS regulatory arrangement is needed by the end of June.