The communications regulator, Ofcom, has today proposed to cap the wholesale price charged by mobile network operators (e.g. EE, O2, Vodafone and Three UK) for the delivery of automated text messages, known as application-to-person (A2P) SMS, which are widely used by business and organisations across the public and private sectors.
Such messages are often sent, for example, by the NHS when issuing medical appointment reminders, as well as parcel delivery notifications, and one-time passcodes etc. The regulator states that over 20 billion A2P messages like this were sent in 2023-24 and are worth around £400m a year to the mobile operators.
The market for these particular text messages is complex, as businesses do not usually buy them directly from mobile operators and will instead go through intermediaries. A business will first contract with a Messaging Service Provider (MSP), with whom they have a direct relationship. The MSP will often then use the services of an Aggregator, who contracts with the main mobile operators for delivery (‘termination’) of the text messages.
However, wholesale prices for the termination of these messages (A2P SMS termination rates) have increased significantly in recent years, with Ofcom seeing prices rise by as much as 70% since 2021 (the consultation document actually expresses this as a range from 15% to 75%). Naturally, these increases are starting to translate into increases in retail prices (i.e. the prices charged by MSPs to business senders for sending A2P SMS), which has prompted Ofcom to examine competition within this space (an area they haven’t previously regulated).
The regulator’s assessment of the A2P SMS termination market has now provisionally found that MCPs have Significant Market Power (SMP) in this market, including the “ability and incentive to increase their termination prices to an excessively high level“. As a result, Ofcom are proposing to intervene by imposing a price cap.
Ofcom’s Proposal
Our preliminary view is that there are 51 separate markets for wholesale A2P SMS termination, one for each of the MCPs allocated mobile phone numbers on which they terminate A2P SMS (or MCPs which are planning to do so during the review period).
We consider that these MCPs have SMP in those corresponding markets. This derives, in part, from our assessment that there are currently no effective substitutes to A2P SMS messaging services in the retail market and an effective substitute is unlikely to develop during the proposed market review period.
We consider that, in the absence of intervention, the MCPs would be likely to exercise their market power by increasing pricing to an excessively high level.
To address the competition concerns we have identified, including the risk of these rates being set (and maintained) at an excessively high level, we are proposing a price cap on the A2P SMS termination charges of each relevant MCP:
• We propose applying the cap for all A2P SMS termination, both ‘on-net’ termination via Aggregators and for termination on interconnect routes between MCPs. The cap would be set at the same level for both channels.
• The cap would be based on an average of ‘on-net’ December 2020 prices charged for termination by the four large MNOs (1.60p), equal to approximately 1.96p in September 2024’s prices (when allowing for inflation at CPI since 2020)4 and going forwards it would be adjusted by inflation.
Ofcom’s new consultation is now inviting comments from stakeholders on the proposals until 8th April 2025, and they aim to then reach a final decision during Q2 2025/26. The final remedy would then be introduced only 3 months after the publication of their final decision and this would be subject to a 3-year review period, which they plan to run from 1st January 2026 to 31st December 2028.
“We consider that by promoting competition in valued A2P SMS services these proposals will help enable private and public sector efficiency (e.g. by reducing missed appointments) while facilitating innovation in the business messaging market,” said Ofcom.