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’ 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.
So, in September, Mr. Kohl sent a letter to Verizon Wireless, AT&T, Sprint and T-Mobile, inviting them to answer some basic questions about their text messaging costs and pricing.
All four of the major carriers decided during the last three years to increase the pay-per-use price for messages to 20 cents from 10 cents. The decision could not have come from a dearth of business: the 2.5 trillion sent messages this year, the estimate of the Gartner Group, is up 32 percent from 2007. Gartner expects 3.3 trillion messages to be sent in 2009.
The written responses to Senator Kohl from AT&T, Sprint and T-Mobile speak at length about pricing plans without getting around to the costs of conveying text messages.
As much as I (and many of my colleagues and friends) text and use other services (such as Twitter), which has a huge interface with mobile devices via TXT, this article really grabbed my attention.
It turns out it costs the carriers virtually nothing to transmit a text message, which means that the doubling of rates from $0.10/message to $0.20/message (for those who are not on some sort of bundled TXT plan) is essentially pure profit.
Text messages are carried in what’s called a control channel, space reserved for operation of the wireless network, which is why a message is so limited in length (typically 140-160 characters). The size of an inserted text message must not exceed the length of the control message used for internal communication between tower and handset to set up a call. The control channel uses the space whether or not a text message is inserted; so the carriers are incurring the cost regardless.
So essentially, it would appear that the only real costs associated with the carriage of text messages was the initial development of the technology; the rest is essentially gravy.
I think I need to go back through all my bills and do an analysis of how many text messages I actually send and receive each month. Perhaps paying $20.00/month for unlimited messages is not the way to go; if I can save $5 or $10 by going to a limited plan, then that’s $60-120 of pure profit the wireless carriers will no longer be getting from me …
Sure, every company deserves to earn a profit, but does the market really justify the doubling of prices over the past couple of years, when the costs have increased only infinitesimally due to the increased volume?