Vodafone cut angers txt msg partners

By PETER GRIFFIN

Vodafone has put the thumbscrews on its text messaging partners in the mobile industry, slashing the revenue it shares with partners in a move some predict will drive developers into the arms of Telecom.

Around 35 text partners - Bulletin Wireless, Jungle Drum, TextToWin, Datasquirt and The Hyperfactory among them - now face largely reduced margins in their dealings with Vodafone after a shake-up in the mobile operator's revenue-sharing model.

Where a text partner used to receive a 20c share on a 50c premium text message sent by a customer, it now receives just 5c. For a 99c text, the share to the text partner has dropped from 60c to 42.5c. For the less common 20c text promotion, the text partner has gone from receiving 3c to having to pay Vodafone 20c.

Vodafone has begun charging for terminating text messages - something that was previously free.

Text partners have little choice but to sign contracts under the new terms.

The text partners make the bulk of their revenue by charging media outlets and consumer goods vendors for facilitating text message-based promotions. But volume-based revenue-sharing can contribute hundreds of thousands of dollars more to the text partners' business and is what one partner described as the "cream" on top of fixed revenue.

Text partners must also send a reply message to texts sent in by consumers, which the text partners are charged for.

Some text partners have examined the possibility of routing the message from their server to an overseas supplier but Vodafone has vetoed such an arrangement, they say.

"It's not creating any more network traffic than a text from me to you," said one text partner.

"Why the greed?"

While text partners are fuming at the reduced margins, some are more worried by a perceived shift in strategy - Vodafone approaching customers directly to run texting campaigns through its own promotions platform.

Suzie Wigglesworth, Vodafone's market development manager, said Vodafone was capable of running promotions itself and had done so in the past with customers such as Coca-Cola. But she envisaged the bulk of promotions to continue to involve text partners.

Vodafone, which has cemented its leadership in the SMS market with clever marketing and promotion of the technology, claims it is losing money on text promotions.

Peter Gudsell, the general manager of Vodafone's commercial consumer business, said many of the texting promotions had been unprofitable.

"There were a large number of cases where we hadn't fully recovered our costs. To make it sustainable and to remove the negative margin, we've recovered our costs and we share the profit margin on top of that."

The main cost to Vodafone of the text promotions is carriage of the text messages across its network. Every text promotion message has a reply path.

"Even now its not a case of us rolling in clover," said Gudsell of the new arrangement.

Vodafone claims it gives 90 per cent of the "profit" on premium text messages to its partners.

The Telecommunications Users Association weighed into the argument after being approached by disgruntled text partners, but its appeals to Vodafone were ignored.

"For any business to arbitrarily increase its prices by 50 per cent overnight in the knowledge that it squeezes their partners' margins is extraordinary," said Tuanz chief executive Ernie Newman.

"It's behaviour that shows a very high degree of market power."

Text partners do not buy Vodafone's argument that it was losing money on some promotions and point to its $90 million net profit for the year to March 30 as a sign that Vodafone is already highly profitable.

One mobile industry source described Vodafone's move as a "knee-jerk" reaction to Telecom's introduction of a $10 a month flat-rate texting offer in August.

"Vodafone has been so progressive in the data and texting space. It's now like a role-reversal where they've become incumbent and arrogant."

Neither Vodafone nor Telecom break out revenue derived from text messaging but for the three months to September 30, Telstra reported that it had generated revenue of A$94 million ($108 million) from text messages, a jump of 45 per cent. The number of SMS messages sent had jumped by 49 per cent to 432 million.

Text partners usually work with both Vodafone and Telecom, but with a more attractive revenue share model and belated interest in texting, Telecom is being seen as a more attractive partner.

"Telecom is going very hard and approaching all the big clients," said one text partner.

Some observers suggest Vodafone is set on reducing the number of text partners it deals with and is using pricing to force smaller players out.

In Australia Vodafone deals with "preferred aggregators" numbering only a handful and broker deals between Vodafone and the text partners.