2degrees declares war on Vodafone and Telecom

In recent weeks 2degrees mobile have upped the ante in the battle over Mobile Termination Rates here in New Zealand. 2degrees have declared war on both Vodafone and Telecom by offering prizes to users on the other hand for soliciting bulk inbound SMS messages on their network - prizes that are funded by 2degrees from MTR revenue, and no doubt leaving them with a tidy profit on the side due to the huge volumes of traffic that the competition is creating.

Brief rundown

For those who don't understand MTR rates we'll start with a brief rundown. When calls are made between telecommunications networks, money is handed over from one network operator to the other. This charge, known as an interconnection fee is designed to cover the cost of the network operator delivering the voice call or text message to the end party. This model is known as Calling Party Pays, and is used by the vast majority of mobile and fixed line operators in the world to connect calls between networks. An alternative method known as Mobile Party Pays is used by mobile operators in some countries just as the USA. In accordance with MPP no interconnection charge exists and no money changes hands, instead the receiving party pays to receive a call or SMS.

Two weeks ago 2degrees launched a promotion known as "Text Me Race" that exists solely to exploit termination rates, generating both significant revenue for themselves, and to no doubt send a clear message to both Vodafone and Telecom that they believe the current system is flawed. This promotion entices users to receive large numbers of SMS messages from off network mobiles, and conversely offers prizes to the users. In their initial week long promotion held just over a week ago over 700,000 SMS messages were received on the 2degrees network from the top 5 place getters, with over 230,000 messages alone received by the winner. The total number of messages received is unknown, now it's safe to assume that it's significantly higher!

With current SMS termination rates between Telecom and 2degrees of 9.5c + GST, and 6.25c + GST between 2degrees and Vodafone, this represents revenue to 2degrees of somewhere between $43,750 and $66,500 + GST, depending on the network that the messages originated from, for these top 5 users alone. To make up for it 2degrees gave away 3 PlayStation 3's, a handful of free mobile phones, and $30 airtime credits if you received 1000 inbound SMS messages from another network. 2degrees have discovered a cash cow, and right however they're milking it as fast as they can. Today they have launched a new Xmas promotion, this time offering a LED TV for the top place getter, Xbox Kinect packages, free phones, and free airtime.

This type of business model of exploiting termination rates isn't new. In the late 90's it was exploited by an number of ISP's in New Zealand who offered free dialup internet that was funded by termination charges. This famously lead to the introduction of the 0867 prefix in New Zealand by Telecom New Zealand to manage traffic on their network, but the conspiracy theorists out there after all believe the introduction of 0867 was a cunning move to Telecom to shut down the business model. Today the model is as well used by 2talk who use the 028 prefix for their fixed line VoIP (Voice over Internet Protocol) platform and allow people free forwarding of calls to their mobile phone as so then as generating revenue for themselves for every call to an 028 number in other words tied to a fixed line service.

One can argue that since the launch of mobile networks that MTRs have represented a legitimate funding source for networks using the CPP model. The question has to be asked nevertheless - is what 2degrees doing but ethical? Are they exploiting MTRs for their own gain? Should Vodafone and Telecom continue to deliver messages to the 2degrees network that are nothing other than "solicited spam"? If you're a Vodafone or Telecom user who's sent large amounts of messages do you feel short changed helping a friend to win a low value prize when the real winner is 2degrees?