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Verizon SMS fee issue leads to grassroots opposition

If Verizon Wireless implements its proposed $.03 rate hike the mobile marketing industry will topple over, eventually bringing the carriers down with it, according to industry speculators.

Executives at mobile companies aren't happy with the proposal and feel that it would only benefit Verizon. Worst of all, the industry is very disappointed in the Mobile Marketing Association and the fact that the organization hasn't reacted in any way to the proposed hike.

"Raising the price of text messaging points to Verizon's myopic view of how the industry operates," said David Wachs, president of Cellit Mobile Marketing, Chicago, IL. "While Verizon believes these costs will be eaten by the aggregators and value added service providers like Cellit, in actuality the marketing firm must bear the cost in the end.

"As such, with a (more than) doubling of costs on the marketer, the ROI of projects is removed, leading to fewer marketing programs," he said. "Fewer marketing programs lead to fewer reasons for the end consumer to text and take full advantage of their phone and carrier.

"In the end, it is consumers who suffer as they have fewer ways to engage with their phone and carrier in compelling, meaningful and relevant ways."

Verizon Wireless surprised the mobile industry last week when rumors of the hike first started.

That charge from the nation's No. 2 wireless carrier will triple the cost to marketers who send out SMS text messages to opted-in consumers who are subscribers of Verizon Wireless' mobile phone services (see story).

Verizon is basically double dipping on every message being sent out.

The industry is appalled.

"Obviously we are very disappointed that Verizon would want to impose any type of fee," said David Deutsch cofounder/CEO at DMD Mobile Holdings Inc., New York. "I want to think it's a mistake on their part and they did not think this through in terms of how it is going to cripple the mobile industry.

"From a mobile marketing perspective this is terrible" he said. "The mobile marketing industry is finally convincing others that mobile is a viable means of advertising and Verizon is walking in and disturbing the fundamentals.

"The Mobile Marketing Association is a conduit for carriers," Mr. Deutsch said. "The organization should have reacted to this in some way and it hasn't."

Part of the other problem is all the guidelines that demand that mobile companies get consumers to opt in for messaging promotions, demand more texts to be sent out to consumer. This means Verizon gets more money.

"I haven't talked to one person or read one article where someone has said that this hike will benefit anyone but Verizon," Mr. Deutsch said. "Verizon is trying to boost its earnings and is sacrificing the entire industry to do so."

The industry is worried that if Verizon does go on and do this, other carriers will follow. That would be detrimental to the industry.

The industry will come to a point where carriers control the content that consumers get on their mobile phones. This will bring back the notion of a walled garden.

"I can't help but question whether bringing back the walled garden is Verizon's master plan," Mr. Deutsch said.

The industry once relished in the fact that there is no regulation when it comes to mobile marketing.

Now executives think that the lack of regulation might be what will bring this industry down.

"I mean the biggest problem is the carriers are always implementing these rules to protect their subscribers," Mr. Deutsch said. "That is the culture of the carrier world. They are unchecked on anything that they implement. As for the companies that are affected: either you choose to stop doing business with them, or you deal with it."

Verizon's proposal has triggered a ripple of commentary in the blogosphere as well.

NearU Search is a company that relies heavily on SMS. NearU sends consumers updates they want to their mobile devices in a text message that is 160 characters or less.

Matthias Galica, product manager for NearU Search posted a blog post on the company's Web site addressing the issue of Verizon's proposed rate hike.

"It's clear that in these uncertain economic times, Verizon's bean counters are itching to squeeze even more juice out of their most ridiculously profitable service," Mr. Galica said. "So they're starting to squeeze the goose that lays the golden eggs and I wouldn't be surprised if they start bringing out the knife soon.

"It's painfully clear that the institution of SMS is an artificially walled-off data service and the mobile phone carriers are maintaining price controls like a cartel," he said. "In an era when the power of communication is going to the people, this price structure is an artifice of the past.

"But the ease and convenience of SMS guarantees that it'll be around for at least the next few years, the only question is what it will look like."

Today the industry is in a position where it could only hope that aggregators are scared enough to push back against Verizon.

After all if the aggregator business collapses, Verizon will suffer as well.

Mr. Deutsch created a group on http://www.linkedin.com called Stop Verizon $0.03 Rate Hike.

This Linkedin organization was founded as an opportunity for companies that conduct business within the mobile industry to unite under one clear voice to challenge unfair and anti-competitive policies and practices levied by the U.S. carriers and aggregators.

"If they can do this to businesses they will do it consumers as well," Mr. Deutsch said. "Look at T-Mobile."

T-Mobile raised consumers' messaging rates from $.10 to $.15 and then again to $.20.

Mr. Deutsch isn't the only one who is disappointed.

"As you can imagine, we would be disappointed to see the SMS rate increase by Verizon," said Zak Dabbas, managing partner at Punchkick Interactive Inc. "Mobile marketers in the U.S. have been jumping a variety of hurdles for years.

"We've been educating a hesitant public about what mobile marketing is and creating mobile campaigns despite non-uniform technologies and carrier guidelines," he said. "With mobile marketing just beginning to truly blossom in this country; it would be unfortunate for any carrier to take actions to discourage this growth."

For mobile aggregators that focus exclusively on SMS marketing, this would be a devastating decision. It is scary to even think of how it would impact off-portal SMS services.

Overall, this rate increase will have a negative effect on the industry.

"For mobile marketers, it's a reminder that we never know when a major corporate shift, beyond our control, is going to impact us," Mr. Dabbas said. "For the general public, it's bad because a decreased saturation of SMS campaigns means less exposure to mobile marketing."

Most of the mobile companies who have reacted to the hike are surprised that Verizon initially planned for the increase to go into affect just three weeks after its leak.

"I think that as a tech company they needed to give us way more time than three weeks," said Jared Reitzin, CEO of mobileStorm, Los Angeles. "It is ridiculous to expect us to overhaul our systems to work differently in that time frame.

"I am against the rate hike because Verizon doesn't have a good enough reason to triple it," he said. "They can't possibly take any more money from their customers so they are moving on to the content providers."

The mobile Internet is no different than the regular Web.

Back in the 90's AOL and CompuServe ruled the Internet the same way the carriers rule the mobile space.

People pushed and the walls came down and the wireless Internet is now facing the same situation.

Verizon is making an obvious attempt to keep everything closed via taxes.

"I think that the Mobile Marketing Association members should be extremely angry with the organization because they haven't stepped up for their members," Mr. Reitzin said. "People join the MMA to have someone to go and bat for them in situations like this.

"I don't think the rate hike will go into affect Nov. 1," he said. "It will happen at some point but right now I think Verizon saw this incredible backlash and realized that it has hit a bee hive."

TextCaster primarily serves clients in media, education and public safety.

They use the TextCaster platform to send patrons timely mass notifications that are germane to their respective ecosystems.

Subscribers who opt-in to receive text message content from TextCaster clients pay standard rate message fees as part of the wireless carrier's billing plan in order to receive text messages on their mobile devices, regardless if the content is sent to via the carrier's SMTP gateway, or via short code (SMPP) through as SMS aggregator.

These fees can range from a la carte fees of as much as $0.25 each, to unlimited messaging plans at a cost of $20 to $30 per month.

"The proposed $.03 rate hike by Verizon will make it increasingly difficult for content providers and mobile marketers to make a business model work when sending text messages to Verizon customers," said Rob Sweeney, founder/CEO of TextCaster. "Off-deck mobile content companies, including platform providers like TextCaster, may be forced to not serve Verizon subscribers because of the added cost.

"That is something we hope won't happen," he said. "The momentum and growth in mobile content is strong - from both the consumer and business perspectives. I believe the $0.03 rate hike by Verizon will impede the overall growth and effectiveness we're now experiencing in mobile content."

There are always two sides to every story.

As Verizon talks with their partners about the proposed rate change, the company is surely getting an earful on what this type of per-message adjustment could mean for commercial uses of SMS.

As a third-party researcher, Nielsen is in a unique position to consider what this means for both its carrier and media clients.

"I'm encouraged by the attention that's being paid to the proposal, because this is a really important negotiation for both groups," said Nic Covey, analyst at Nielsen, Chicago, IL. "At the end of the day, aggregators, carriers and media companies involved all want the same thing: to grow their own business.

Raising this rate would add to the challenges faced by aggregators and media companies monetizing SMS, but would allow carriers to have a cut in this action which wouldn't be possible without them, Mr. Covey said.

"Aggregators and their media partners are sure to become more effective at monetizing the SMS platform in the next two years," he said.

As the short code audience grows, the market will get better at targeting, tracking and driving engagement in SMS media and advertising. This will naturally drive higher CPMs and broader advertiser and media investment in the platform.

"With that growth in mind, I can understand why, from the carrier perspective, you'd want to see some of the benefits of this expanding medium," Mr. Covey said. "The operator is a mission-critical player in this process and so where there aren't revenue share models, the operator is left to pull the best lever they have to partake in the growth of the SMS media and marketing economy.

"If you're going to be a pipe, you might as well be lined with gold," he said.