Text Messaging is a Ripoff
The mobile phone carriers are some of the worst offenders of monopoly power. Case-in-point is the pricing of the text messaging system. A recent New York Times article explores it in some detail - but I don’t think they go quite far enough. Consider that the average per-message cost (assuming you don’t have a special deal) is $0.20. If you have a special plan (which according to the article run $10-15) you can cut that price to about $0.01 per message. That may sound really cheap - but let’s do a little math:
Text messages are limited to 160 characters. Assuming a standard ASCII encoding, it takes only 1 byte to store each character - so a message is approximately 160 bytes in length. At the prices quoted above:
- $0.20 per message / 160 bytes per message = $0.00125 per byte = $1.28 per kilobyte = $1,310 per megabyte = $1,342,177 per gigabyte
- $0.01 per message / 160 bytes per message = $0.0000625 per byte = $0.06 per kilobyte = $65 per megabyte = $67,109 per gigabyte
Now let’s compare that to another great monopoly offender - Comcast. They recently announced a bandwidth cap of 250 gigabytes on their “unlimited” monthly service, which in my case costs about $50 per month. Doing the math, we get a cost of $0.20 per gigabyte. If Comcast decided to charge the text-messaging bulk rate for their service, it would cost a staggering $16 million per month!!! If Verizon et al. charged the Comcast data rate, then you could send an equally staggering 53.7 million messages for a single penny!!!
The only reason the phone companies manage to get away with this outright robbery is because few people actually take the time to figure out how exorbitant these fees really are.
January 6th, 2009 at 11:53 pm
If the matter is strictly a question of the quantity of data, why would anyone bother to text at all? What is the cost of not having text message availability for those who are willing to pay for it (thus proclaiming with their cash decision that it is worth the price)? The same could be discussed regarding cell phones or any other convenience technology wherein the value of the convenience to the customer is not properly evaluated. Is it worth the price of receiving a text message to be notified automatically that your flight has been delayed by more than an hour? Ultimately though, what price any non-essential good or service is able to maintain is function of what price enough consumers are willing to pay. The effort used to generate the NY Times article might have been better spent investigating the reasons why someone is willing to pay the prices for texting or why carriers impose data limits to tethering but not to handset data use instead of attacking the companies on the basis that they are making too much money for a successful product under the guise of “awareness”. However, poking at companies for making too much money is probably much easier (and possibly safer) than telling consumers in large metropolitan areas with good overall coverage that they are morons for paying $100 or more for an unlimited service plan when they can get the same effective service for $35 with another carrier.
January 18th, 2009 at 2:00 pm
I am not saying that there is not a huge profit margin in text messaging. There is. I have some idea of how much those systems costs — I do telecom systems for HP
However, you are really over simplifying the costs tremendously judging it on a theoretical person who manages to maximize their text message use (without going one message over nor one message under) and figuring the cost from there. That almost never happens. If they go over they pay a higher per-message rate, and if they go under, their cost per message goes up. Those that sign up for a plan that do *not* use all their minutes still get charged, and that extra money subsidizes the actual messages sent.
There are a lot of hardware and maintenance costs, and those are covered by the subscriber fees. Those are not insignificant costs, trust me on that.
Granted, the US is pretty much the only place where you get subscription plans — the telecom providers love that since under-utilization of a subscription is money in their pocket. Everywhere else in the world is pretty much pay-as-you-go. Much more reasonable for many reasons. Not the least of which is that if a service is not priced right for the consumer, they won’t use it and the income drops.
Thus the carriers have an economic incentive to keep the price low so that more people will use it. That can result in less-than-stellar service sometimes, but they have to cut corners somewhere. Of course, it is not like the US carriers really have that much better service overall, but they do have more redundancy built into their systems. The extra cash flow makes that easier to justify.
June 9th, 2009 at 12:47 am
so…on average…i send and recieve in the ballpark of 3700 text messages each month…unlimited text fee of $10…and verizon to verizon does not have the 160 160 character limit…so there…ha…chew on that…tee hee…i just have to ruffle your feathers…it’s fun….-shell
August 21st, 2009 at 7:14 am
Even the monthly plans are a ripoff - just not quite as dramatically as the per-message rates. Taking your example of 3700 messages/month for $10, and assuming your average message is 160 characters (i.e. the maximum for non Verizon-Verizon messages), the math comes out as: $10 / month * 1 month / 3700 messages * 1 message / 160 bytes * 1024 bytes / KB * 1024 KB / MB * 1024 MB / GB = $18,137 per Gigabyte. Compare that to Comcast’s price of $0.20 per Gigabyte.
Now let’s assume that you are a true texting fiend: using the same $10/month unlimited plan, let’s assume you manage to send one text message of maximum size every second of every day for 31 days - that’s 2,678,400 messages in a month. Applying the same math as above, you’re still paying $25 per Gigabyte - over 100 times what Comcast is charging.
Finally, consider again that we’re using Comcast - a pretty notorious monopolist with excessive rates - as our baseline comparison.
My point in presenting this article was not to “poke at companies making too much money” - nor to insinuate that the cell phone providers are somehow required to provide data service at rock-bottom prices, despite their infrastructure and other fixed costs. Rather, my intention was to illuminate the fact that this particular market is effectively a monopoly, or at the very least an oligopoly. The simple fact that the companies can charge such outrageous rates is evidence of that. Given the barriers to entry in this field (the not-insubstantial fixed costs that Tristan alludes to), the likelihood of breaking the monopoly through market forces is unlikely at best. The only thing that stands a reasonable chance is sheer customer outrage or governmental intrusion. And while in most cases, I think the government should keep its grubby nose out of the market, there are some definite exceptions.