Text Messaging Price Hikes All About Profit

[Hooch Tan]

<div class='os_post_top_link'><a href='http://www.nytimes.com/2008/12/28/business/28digi.html?_r=1' target='_blank'>http://www.nytimes.com/2008/12/28/b...8digi.html?_r=1</a><br /><br /></div><p><em>"TEXT messaging is a wonderful business to be in: about 2.5 trillion messages will have been sent from cellphones worldwide this year. The public assumes that the wireless carriers&rsquo; costs are far higher than they actually are, and profit margins are concealed by a heavy curtain. Senator Herb Kohl, Democrat of Wisconsin and the chairman of the Senate antitrust subcommittee, wanted to look behind the curtain. He was curious about the doubling of prices for text messages charged by the major American carriers from 2005 to 2008, during a time when the industry consolidated from six major companies to four."</em></p><p>&nbsp;</p><p>As a Canadian, I watch the US telco scene closely since it affects me, north of the border.&nbsp; That's why I'm very concerned over developments in text messaging.&nbsp; The New York Times has raised some issues in how wireless carriers are trying to hide just how much they profit from texting.&nbsp; In short, increased text messaging usage does not equate to increased operational costs for the carrier.&nbsp; This means that text messaging is almost all pure profit.&nbsp; In Canada, some carriers even charge for recieving text messages if you don't have a plan.&nbsp; For me, this is very worrisome because wireless carriers are exploiting our ignorance of the technology to make an obscene amount of money.&nbsp; If this continues, it hampers our ability to make full use of useful technology.&nbsp; A line has to be drawn and we have to start standing up by making sure that companies, especially monopolies and oligopolies are held accountable to the government for their practices.&nbsp; Anyone else angered by this abuse?&nbsp; Anyone know what you can do to help reign it in?</p>

[Chris Gohlke]

You get billed here also for receiving when you don't have a plan. Yet there is no way for me to block them. I usually get nicked for about 50 cents a month.

[jeffd]

text messaging is the biggest idiot tax.

[alanjrobertson]

Wow - that's shocking - I'd heard about US carriers charging customers to receive calls but didn't realise some charged to receive text messages! I think any British carrier that started doing that would find great difficulty getting hold of any customers unless they were amazing value for money in some other way. We don't pay to receive text messages at all, even when roaming anywhere else in the world. The cost to send them varies markedly when roaming although the European Commission has put some limits on those costs.

With regards profit I'm surprised anyone was hoodwinked by the telcos that an increase in SMS traffic led to a doubling of costs - those little 160 character messages are of neglible cost and easily the biggest moneymaking product they have - just think how much money they'll start 2009 with at the stroke of midnight later this week!

[ptyork]

Well, it's a double edged sword. Yeah, there's absolutely no question that carriers are charging 20cents for something that costs 2nanocents. However, there's the other side which says that they are just protecting the revenues required to maintain and grow their infrastructure (costs in the US are staggering starting with mega-billion frequency auctions and paying many more mega-billions for towers and equipment to cover this massive land mass and even more mega-billions to run and maintain it all). As competition continues to drive down voice call prices and texting continues to displace short voice calls (I know lots of folks who move down to low minute plans because they spent so little time talking anymore), they have to find some method of replacing a ton of lost revenue.

That said, I do think they are too high (designed to drive folks to their unlimited messaging plans) and minimally they MUST remove the incoming text charge. They'll be forced to do the latter soon, I'm sure. It is criminal.

FWIW, I'm still shaking my head that they allowed the Alltel + Verizon merger to move forward. Yet more potential for collusion. I smell price hikes in the near future.

[Hooch Tan]

You get billed here also for receiving when you don't have a plan. Yet there is no way for me to block them. I usually get nicked for about 50 cents a month.

That's one part that I object to. If they feel that they must charge you for incoming, provide a way to block them. They've already got some money from the sending of the message. With phone calls, you can reject them. With snail mail, you don't get charged for getting them.

However, there's the other side which says that they are just protecting the revenues required to maintain and grow their infrastructure (costs in the US are staggering starting with mega-billion frequency auctions and paying many more mega-billions for towers and equipment to cover this massive land mass and even more mega-billions to run and maintain it all).

I have to disagree with this part of your logic. The whole reason why the auctions go so high is because they see the ability to draw a such a high profit. If they didn't think they could exploit the market for as much of a profit, I sincerely doubt that the auctions for the frequencies would go as high as they are.

I agree that owing to the geographical area telcos have to cover in the US and Canada, it can explain some of the costs, and I'm comfortable that it costs more than denser populated countries like Japan. But, I believe that the costs are artificially high owing to the market being structured as an oligopoly.

[Pony99CA]

That's one part that I object to. If they feel that they must charge you for incoming, provide a way to block them. They've already got some money from the sending of the message.
Not necessarily. Unless there's some revenue sharing in place, a carrier only gets money for a sent text message that was sent on their own network.

But, I believe that the costs are artificially high owing to the market being structured as an oligopoly.
Where isn't it an oligopoly? The cost to enter the market is very steep, so the competition will be limited by default.

If I recall correctly, there were originally only two carriers per "area" -- A and B. Now, in the U.S., we have four major carriers (AT&T, Verizon, Sprint and T-Mobile) and many smaller ones (Metro PCS, Alltel, etc.). I think that's more competition than in cable TV (or even cable + satellite).

Steve

[Hooch Tan]

Not necessarily. Unless there's some revenue sharing in place, a carrier only gets money for a sent text message that was sent on their own network.

True enough. But by the same logic, one shoud pay for incoming phone calls, even if it isn't answered. I think the way in which is generally operates though is similar to Internet network traffic, where the carriers don't charge each other as long as the traffic is generally symmetrical.

Where isn't it an oligopoly? The cost to enter the market is very steep, so the competition will be limited by default.

If I recall correctly, there were originally only two carriers per "area" -- A and B. Now, in the U.S., we have four major carriers (AT&T, Verizon, Sprint and T-Mobile) and many smaller ones (Metro PCS, Alltel, etc.). I think that's more competition than in cable TV (or even cable + satellite).

Steve

That's where I see the government's role in managing limited resources carefuly. I see a difference between infrastructure and services provided through that infrastructure. Much like how in Canada, Bell has their wholesale DSL service, and end-user DSL service. I'll freely admit that's turned into a whole mess in itself too. But the fundamental concept underlying it, one company creating the infrastructure, and then a separate department selling services based on it, reduces the cost to enter the market.

[doogald]

Business Week had a story that said that the NY Times article was pretty much BS.

http://www.businessweek.com/the_thread/techbeat/archives/2008/12/why_randall_str.html?campaign_id=rss_blog_tech_beat

It seems reasonable. I do think that the carriers are profiting, and certainly wouldn't mind a price cut, but I cannot believe that it is as costless to them as the NYT article suggested.

[Pony99CA]

True enough. But by the same logic, one shoud pay for incoming phone calls, even if it isn't answered. I think the way in which is generally operates though is similar to Internet network traffic, where the carriers don't charge each other as long as the traffic is generally symmetrical.
I agree that we shouldn't have to pay for incoming texts. I just wanted to point out that the carrier hadn't necessarily made money off of sending the text.

As for incoming calls, I think most cellular plans in the U.S. do charge for incoming calls (or the minutes used for the incoming calls count against your any-time minutes). There are some "in network" plans where calls to people on the same network are free, I think, but I don't think that's the typical case.

That's certainly different than for landlines, where only the caller pays (unless it's a collect call).

That's where I see the government's role in managing limited resources carefuly. I see a difference between infrastructure and services provided through that infrastructure. Much like how in Canada, Bell has their wholesale DSL service, and end-user DSL service. I'll freely admit that's turned into a whole mess in itself too. But the fundamental concept underlying it, one company creating the infrastructure, and then a separate department selling services based on it, reduces the cost to enter the market.
I've seen articles saying that should be done for Internet access. The government should build the pipes and the ISPs would just provide access to them. In fact, isn't that what MVNOs were about? The carriers who built the infrastructure sold rights to use it to the "virtual network operator". And didn't most of them fail (in the U.S., at least)?

Steve