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The Nation's Pulse
Are Text Messages an Antitrust Issue?
Why do networks charge so much for something that costs so little?
Text messages are expensive. Most carriers charge customers 20 cents for every text they send. But the tiny messages use up only a fraction of a penny’s worth of bandwidth. Why do networks charge so much for something that costs so little?
Some people think it’s an antitrust issue. The Senate Judiciary Committee’s antitrust subcommittee even held a hearing on text messaging fees. Are service providers abusing their market power? After all, competitive markets tend to put downward pressure on prices. But phone companies are charging more for texts than ever before. And they’ve been raising their rates almost in lockstep.
Five years ago, the going rate was 10 cents per text message. Then Sprint raised the price to 15 cents. Competitors could have used their lower prices to lure away Sprint’s customers. They didn’t. They raised their prices to match Sprint’s. The move to 20 cents per text followed a similar pattern. Suspicious.
So maybe this is an antitrust issue. But it could be something else, too. Maybe phone companies are unbundling texting from their other services. That way the only people who pay for text messages are the people who use them. If phone companies don’t have to provide texting service for people who don’t want it, they can keep costs down and charge lower prices.
But why 20 cents per message? Carriers offer unlimited texting for a flat rate, often $5 per month. If you send more than 25 text messages per month — about one per day — you’re better off going with that flat rate. The 20-cent price may have been deliberately set to encourage daily texters to move to the flat rate.
That way the provider doesn’t have to keep track of how many messages those customers send. That takes time and money that could be better spent on other things, like network upgrades. It also gives the company a more consistent and predictable revenue stream.
Why not just give all customers unlimited texting and charge a higher monthly bill? That would punish people who don’t text, such as this writer. By eschewing the flat rate and tolerating a few texts per month from family and friends who haven’t been properly trained, non-texters can save $50 or more per year.
The whole point of unbundling texting from other services is to keep costs down. If you don’t use a service, you shouldn’t have to pay for it. That’s why there are different data plans, separate charges for insurance, and different warranties. Another advantage to unbundling is that companies can better keep track of which services are popular and which aren’t. It helps them adapt to customers’ wants more quickly.
That’s also why airlines now charge for services they used to provide for free. Customers can pay for the services they use — a glass of wine, perhaps — and not pay for the services they don’t use, such as a blanket and pillow. It saves money for customers and airlines alike. You get a cheaper ticket because the airline doesn’t have to buy as many blankets.
So maybe outrageous texting prices are a creature of unbundling. But let’s go back to the monopoly argument. It is suspicious that major providers raised their texting prices almost in unison. It could just be that companies copied their rivals’ successful business strategy. But let’s assume, for the sake of argument, that there is a texting oligopoly. Providers are taking unfair advantage of their customers. They’re colluding.
They’re also screwed. It turns out that a young company called Beluga makes a free texting application for smartphones. Few things are as temporary as monopoly (or oligopoly) power. Since Beluga bypasses the texting cartel, you can have unlimited texting without the $5 monthly fee. Think of it as Skype for the text messaging set.
Not a lot of people know about Beluga yet. But Facebook is in the process of buying the company, and is planning to integrate it into its service. Remember, Facebook has over half a billion users. The texting cartel is going down, even without the Department of Justice’s involvement.
There are two lessons for trustbusters here. One is that if it looks like an antitrust issue, it probably isn’t. And if it is, it’s not long for this world. Competition is an ongoing, relentless process.
About the Author
Ryan Young is Fellow in Regulatory Studies at the Competitive Enterprise Institute.
Letter to the Editor View all comments (24) | Leave a comment
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Brian Mc| 3.17.11 @ 6:44AM
First, I found it amusing that the cleaning service for the aforementioned blankets was left unmentioned in your analogy. Personally, I suspect that I would pay a little extra for a 'clean' blanket on the hypothetical airline...if I cared for one at all.
It will be a cold day on the equator before I send a text message. A luxury of this sort has no merit unless you talk to my daughters.
C. S. P. Schofield| 3.17.11 @ 7:45AM
Sadly, the lesson the anti-trust myrmidons will take away is that if you want to make your political career out of trust-busting, you have to move faster than the market, and to hell with research.
JimH| 3.17.11 @ 8:27AM
The quick answer to the subtitle: Why do networks charge so much for something that costs so little?
Is because they can. If you shop around its not so bad. I have a fixed price family texting plan. With two teenagers it is well worth it.
Michael Crites| 3.17.11 @ 11:27AM
Jim, you are exactly right. Goods or services are worth what the public will pay for them. If the communications companies have come up with a service that is very inexpensive to provide but very profitable to sell, good for them. That's why businesses exist ... I'll let the market take care of any inequalities.
Ray| 3.17.11 @ 12:00PM
Why do services charge so much for text messages? It's simple: even though those text messages use a "tiny" part of the available bandwidth of a cell phone signal. those cell phones STILL connect at the full bandwidth rate. The frequency ranges, the available bandwidths, never change, whether you're using full voice or a text message. (And there's actually two of them for every connection, one for transmitting and one for receiving.) That means that the same limitations applies to sending text messages as to voice messages, the more you connect, the more "strain" it puts on the network itself. As people who primarily text as opposed to using voice do so at far higher daily rates, the texter demands more and more resources from their network, their carrier, than the voice users do. They SHOULD be charged more for their increased use of the network.
The answer, of course, is the creation of a "text only" bandwidth in the cell tower networks and the cell phones. Once the voice and text frequencies are separated, the resources needed for both will be separated as well. This would allow the carriers to charge their users according, and lower prices over all. The problem with that is that the networks need addition frequencies and that is dependent upon the FCC licensing requirements. Those licenses aren't cheap, you know. Never mind the money it would cost to build or adapt the existing cell phone system to allow for those addition frequencies.
George S| 3.17.11 @ 12:12PM
An antitrust issue is: if you don't like my price go someplace else. But there is no someplace else and the product sold is essential for the quality of life (oil, electricity, transportation). How does text messaging fall into that category? If you're not a teenager, that is.
Other than that, you really have no business sticking your nose into what a company charges -- or how much it cost them -- for a non-essential fluff product that the market willingly pays.
Ray| 3.17.11 @ 12:22PM
Now, add to the voice and text messing demands of the cell phone networks the inclusion of "internet" data transfers. You know, the 3G and 4G services they offer. That also adds to the demands of the network, increases the resource requirements necessary to provide those services. As the actual connection capabilities are fix according to the number of transceivers in a giver area (those cell phone towers you see popping up every where), the providers now have to ether limit access or build addition resources to handle that huge increase in demand. As it is more adventitious to provide addition resources in the form of more cell phone towers as opposed to limiting their customers on use, the carriers must spend a LOT of money in the construction of those additional resources, like multiplying the number of cell phone towers in any given area. Just like the cost of licensing, those towers and their associated systems aren't cheap. Where are they supposed to get the money necessary to pay for that construction and keep it maintained? They must get it from those who are causing that addition demand, the data users themselves, which includes the texters.
The bottom line is: you want all those new capabilities in your cell phone, like text messing and data access? Fine, but you better be prepared to pay more of them!
fwb| 3.17.11 @ 1:26PM
Why?
Because the companies can charge the amount. People pay the amount. Some people complain but still pay. If you don't like the price, don't use the service.
It is not and should not be illegal. If I can sell you a mg of sand for $1M and you buy it, it is not fraud nor is it wrong. It is a deal that both made freely.
Should the price be lower? Of course. But charging what the traffic will bear is normal.
GavInTucson| 3.17.11 @ 2:07PM
The one issue I have with text plans, other than unlimited, is that incoming texts count too. If I'm on a plan in which my monthly text limit is 50, and I receive 49 text, I can only send one text before I'm charged extra.
What sense does that make? It's not like I have any control over incoming texts.
Flee| 3.17.11 @ 3:42PM
I don't like the charge for incoming either and had to shut off my ability to receive a text to avoid the charges. I don't send them and did not want to receive them and be charged. I have told as many of my few contacts that I don't accepts texts. I don't know if they get a message that the text was rejected or not. I would hope they do.
Al Adab| 3.17.11 @ 4:03PM
Is there an Obamacare mandate that everyone have texting on their cell phone? If not then why is this even an issue. Sure it's convienient, but if I don't like the price I don't have to purchase.
Bob Smithe| 3.17.11 @ 4:42PM
AT&T charges me $5 a month for 200 texts. Unlimited is $20. If you buy an iPhone you are required to buy a data plan even if you only use your home internet connection. After my contract is up if I want to use my phone with another carrier, I can't because AT&T has it locked to them. It took text messages to start an anti-trust investigation?
PS: Verizon and Sprint all have the similar policies.
The Bruce| 3.18.11 @ 12:37AM
To be fair, if you buy any smart-phone under any carrier (Blackberry, Droid, iPhone) you're required to buy the data plan. The funny thing is that texting plans are still separate from the data plan.
The Bruce| 3.18.11 @ 12:43AM
I suppose the partially good news is that, if you really like the iPhone, you can use one with Verizon now.
I personally won't buy one as I find it ridiculous to have to charge it two or three times a day.
gary siebel| 3.17.11 @ 7:29PM
Congrats on non-texting. I thought I was the only one... LOL
But just how long is "not long for this world?" How much damage is done in the interim wait, is the issue. Tell it to that rich mofo in Mexico who charges an arm and a leg for a phone call. And suppose you don't do Facebook, either?
Phil4| 3.30.11 @ 7:06AM
Check ReChat (Android chat):
- Facebook, Yahoo!®, Google Talk, Jabber/XMPP;
- group chat (Yahoo!®, Google Talk, XMPP);
- free SMS worldwide BETA (with replies for USA/Canada);
- plain/bubble view, font packs, send image/video;
Facebook features: upload image/video, send image/video, send message (as private event or wall post).
Yahoo!® features: conferences (create/invite), add/remove contacts.
Google Talk features: group chat, new email notification, unread emails w/o content.
Jabber/XMPP features: rooms (create/invite), add/remove contacts.
weddingdresses | 6.23.11 @ 5:42AM
Check ReChat (Android chat):
- Facebook, Yahoo!®, Google Talk, Jabber/XMPP;
- group chat (Yahoo!®, Google Talk, XMPP);
- free SMS worldwide BETA (with replies for USA/Canada);
- plain/bubble view, font packs, send image/video;
Creative Recreation | 8.10.11 @ 11:56PM
is good
mobile phones prices | 10.28.11 @ 1:14PM
Today and next future, I think we will use text messaging base on data. I think it be easily and cheapest.