WTF? Y have txting costs doubled n 3 yrs?

Sen. Herb Kohl is trying to find out.


Cyrus Farivar
September 11, 2008 1:02AM (UTC)

In other tech news yesterday, Sen. Herb Kohl, D-Wis., has taken the big four mobile phone companies to task for the rapid increase in the price of text messages. Verizon, Spring, AT&T and, most recently, T-Mobile have all raised their prices to 20 cents per message, a doubling of what that same message cost just three years ago.

Even though I'm an occasional texter, I'm really happy to see that the government is investigating this, because seriously, 20 cents a text is a bit outrageous given that there's basically zero marginal cost to send a single message. Further, unlike in the rest of the world, in the U.S. we pay for messages that we send and receive. Just about everywhere else incoming texts (and calls) are free. So we Americans get hit twice as hard.

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As CNET reported at the beginning of the summer:

Since 2005, rates to send and receive text messages on all four major carrier networks have doubled from 10 cents to 20 cents per message. This percentage of increase is on par with similar price hikes at the gas pump as crude oil prices skyrocket. In 2005, Americans paid on average about $2.27 per gallon for gas compared with more than $4 a gallon today.

Discussion on this issue has been kicking around the tech blogs for some time now. In July, CrunchGear did the math, summed up nicely in the headline: "AT&T’s text messages cost $1,310 per megabyte."

Now I get the idea that companies should be able to charge what the market will bear, and clearly the Big Four have taken advantage of this principle. But still, isn't free and fair competition supposed to drive prices down?

It seems pretty clear that decreased competition leads to increased prices, as Sen. Kohl himself has figured out:

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What is particularly alarming about this industry-wide rate increase is that it does not appear to be justified by rising costs in delivering text messages. 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. Text messaging files are a fraction of the size of e-mails or music downloads. Also of concern is that it appears that each of companies has changed the price for text messaging at nearly the same time, with identical price increases. This conduct is hardly consistent with the vigorous price competition we hope to see in a competitive marketplace.

What has changed in recent years is the level of consolidation in the wireless telephone industry. The number of major national competitors has declined from six to four. And the large national wireless carriers continue to acquire their smaller, regional competitors, with the announced acquisition of Alltel by Verizon Wireless being just the latest example. As Chairman of the Antitrust Subcommittee, I am concerned with whether this consolidation, and increased market power by the major carriers, has contributed to this doubling of text messaging rates over the last three years.

Over in Europe, meanwhile, a similar inquiry is working its way through the European Commission. Just one week ago, the International Herald Tribune reported that the EU's commissioner for information society and media, Viviane Reding, drafted a bill to cap texts in all EU countries at 15 cents.

According to the IHT:

That would be a 62 percent reduction from the current average of 29 cents, according to the European Commission, the executive arm of the EU.

Reding also intends to recommend a cap on the wholesale cost of using mobile phones to access the Internet -- the fees operators charge each other -- that would halve the average cost to €1 a megabyte from €2.

SMS roaming prices range from 6 cents in Estonia to 80 cents in Belgium, according to the European Regulators Group, a panel of the European Union's 27 national telecommunications regulators.

Still, though, maybe it's only a minority of us that are getting our collective cellphones in a twist. After all, a recent survey showed that 82 percent of American cellphone users have never texted.


Cyrus Farivar

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