Why do text messages cost so much?
We've told you before that text messages cost cellular service providers almost nothing to transmit, even though the four major providers upped the price for users from 20 cents to 40 cents each.
Last week, the New York Times (via Gizmodo) confirmed that text messages cost even less --- in fact, pretty much nothing at all.
According to the story, text messages are sent as part of short signal bursts that have to be sent anyway:
A text message initially travels wirelessly from a handset to the closest base-station tower and is then transferred through wired links to the digital pipes of the telephone network, and then, near its destination, converted back into a wireless signal to traverse the final leg, from tower to handset. In the wired portion of its journey, a file of such infinitesimal size is inconsequential ...
Perhaps the costs for the wireless portion at either end are high — spectrum is finite, after all, and carriers pay dearly for the rights to use it. But text messages are not just tiny; they are also free riders, tucked into what’s called a control channel, space reserved for operation of the wireless network.
That’s why a message is so limited in length: it must not exceed the length of the message used for internal communication between tower and handset to set up a call. The channel uses space whether or not a text message is inserted.
Basically, cell companies make plenty of money selling you text messages, and even more money when you commit to an unlimited plan with a $15 or $20 monthly fee.
Now, don't get me wrong --- the companies can charge whatever they want for a service to cover their own costs and earn profits, and consumers can decide for themselves whether to spend the money on it. But when all four of the major carriers charge the same inflated price for something that costs virtually nothing, you've got to wonder why, as Sen. Herb Kohl, a Wisconsin Democrat, asked in September.
So what are the alternatives for non-aural wireless communication? Folks with smartphones could rely on e-mail. Gchat (through Gmail or Google Talk) lets users send free text messages to U.S. numbers --- if you're sitting at a computer.
Categories: Cellular/Landline/Voice over Internet, Cheap/Frugal
Comments
I suppose they charge so much, because they can. But as you mentioned, it is strange that there is no real competition between the carriers as far as price goes. If it doesn't cost anything for them to let us send text messages, I wonder why one of the major companies hasn't instituted 'free texting,' it couldn't hurt subscriptions..
Nick, I'm wondering the exact same thing. Unless ... they're making so much money with the charging, because people keep paying for it, that they don't want to kill that revenue stream? --- lfk
Posted by: Nick | January 2, 2009 9:37 PM
That they all charge the same price makes sense. They are offering a commodity. There's no value proposition being offered by one company over another. They all offer the same number of characters and can be sent to any cell phone. It's like gasoline. Prices are within pennies from location to location because they product is the same.
It's a bit odd, however, that government gets all hot and bothered about prices being too high when it is known to place minimums on the prices of such products as milk.
On that note, I've also been amused at how there was much talk about price gouging this past summer and post-Katrina but in those few instances when price wars raged and prices fell in at certain gas stations, public officials would ask the stations to raise their prices because the lines caused by their attractive prices was causing traffic safety issues. Can't they just make up their minds!
You raise an interesting point ... never thought of txt msgs as a commodity before! --- lfk.
Posted by: Jeff | January 6, 2009 4:02 PM
Text messages are not a commodity. Commodities are scarce and they operate on a pure supply vs. demand pricing structure. If demand goes up and supply doesn't, price stays the same. However, with text messaging, because of the way they are managed, supply is essentially infinite (and cost carriers basically nothing) therefore the price doesn't depend on supply or demand at all.
I think that text messages are more comparable to razor blades. The pricing structure for these is relatively simple: go as cheap as possible for the initial blade, but charge exorbitant amounts for replacement blades to cover costs. Basically the higher text message fees would pay for the rest of your service.
The only problem is that all of the carriers raised their prices to the same amount at approximately the same time. This is where the antitrust issues come into play. As stated in a previous comment, you would think that at least one carrier would offer cheaper, or even free, text messages as a way to attract customers.
Posted by: Jayme | February 19, 2009 5:51 PM
recently I have found myself texting more than usual, generally I prefer calling a person over the text message. in some cases for me texting has replaced phone calls, because sometimes it really is easier... simple questions, simple answers.
I suppose if the cellular phone companies offered unlimited free texting, then the problem would be that the customers would call each other much less. Also texting within a company, you generally get it free txting out you get charged, same with phone calls. if they got txting for free they might use the smallest plan using 450 minutes... and txting for all other conversation outside of the company. its better to give the customer limitations to their freedom of cellular use... well not better for the customer... So... they charge you for texting... in order to keep you calling.
Posted by: Greg | February 25, 2009 1:05 PM
I see exactly why rates on text messages have increased. With the growing popularity of text messaging, the use of the minutes has probably dropped substantially. "If it ain't possible to say in a text, it probably ain't worth saying". Thus the overages profits have likely dipped in recent years.
Another effect of the increase is to commit people into paying for higher texting packages. Just look at the AT&T pricing model.
200-$5
1500-$15
unlim-$20
Even as a light texter, accounting for both incoming and outgoing, 200 is not nearly enough. now 500 is managable with constant usage monitoring but that isn't offered. Nor is 1000. The next step is 1500 for 3 times the cost. With the increase to potential overage cost in texting, many would opt for getting 1500 or even the unlimited plans.
The carriers win again.
But aren't the carriers still making money by charging for packages of phone minutes, even when they're not used? Sure, there are fewer overage charges, but still. I need to come up with a business plan where people pay me for something that is essentially free! It's like a restaurant charging for the air you breathe while you sit down at one of their tables! --- lfk.
Posted by: Huy Nguyen | June 24, 2009 7:35 PM