Explain Our SMS Pricing? Sure. Space Telescope Transmission Costs x 4
The bottom line is texting is at least four times more expensive than transmitting data from Hubble, and is likely to be substantially more than that.
If wireless providers applied the per-byte pricing scheme they use for SMS texting to other data transmitted over their cellular networks, it would cost nearly $6,000 to download a single 4MB song. Yet the price of text messaging has doubled industrywide in the last three years.
Why?
A good question. And one that’s finally being asked by Congress. On Tuesday, Sen. Herb Kohl (D., Wis.), chairman of the Senate Judiciary Antitrust Subcommittee, sent letters to Verizon Wireless (VZ), Sprint-Nextel (S), AT&T (T), and T-Mobile (DT) asking them to justify their outrageous text messaging prices. “What is particularly alarming about this industrywide rate increase is that it does not appear to be justified by rising costs in delivering text messages,” Kohl wrote. “Text-messaging files are very small, as the size of text messages are generally limited to 160 characters per message, and therefore cost carriers very little to transmit.”
Kohl noted as well that the companies appear to have changed text-messaging rates at nearly the same time, with identical prices. A troubling coincidence, given that together they serve more than 90 percent of U.S. cellphone users. Said Kohl, “This conduct is hardly consistent with the vigorous price competition we hope to see in a competitive marketplace.”
Makes for great profit margins though …
Comments
The SMS system works well, and the last thing we want is Congress throwing its oar into the pricing mechanism. Let the carriers react to each other’s public price announcements — and maximize their profits.
With apologies to Milton Friedman: If Kohl and the Senate ran things, we’d have an SMS shortage within weeks.
Posted by Jonathan Seder at September 10th, 2008 at 1:59 pm@Jonathan Seder: You seem to be a believer in the free market, so I can only assume that you’re missing the point of this inquiry and that your comment about an “SMS shortage” is a joke.
The job of government in a free market is to ensure that companies are remaining competitive. In a case like this, they come in and figure out why the companies appear to be price fixing (illegal) and displaying anticompetitive behavior (really, really illegal).
I don’t think the Senator is proposing that they start running things from Washington or pass any new laws, they are simply investigating a place where the laws appear to have been broken. You can’t assume that every time there is an antitrust inquiry that it is part of some liberal conspiracy to kill the free market.
Posted by Sam Garfield at September 10th, 2008 at 3:28 pmOf course it was a joke… Milton Friedman once said that if the Federal government ran the Sahara Desert, there’d be a shortage of sand within five years.
What’s the market failure here? You have a reliable and affordable service, with millions of willing buyers using it daily. Wireless telephony is one of the most competitive and innovative areas of the global economy.
Why do you think there’s a pricing conspiracy? Tacit collusion - reacting publicly to your competitors’ public announcements - is legal and appropriate. But carriers vary from list prices all the time - when I negotiated my last contract I got 300 free SMS/month without even asking.
I imagine that in their SMS pricing, carriers attempt to capture the considerable value of the product to consumers, and also to recover the cost of supporting inter-carrier messaging.
And what’s wrong with great profit margins? They measure how good a job the company is doing of serving its customers!
Posted by Jonathan Seder at October 20th, 2008 at 9:28 am