The New York Times: Text messages cost carriers virtually nothing

The New York Times has a good piece up on the heavy curtain of secrecy that surrounds mobile carriers’ profit margins on text messaging. In short, they’re bilking you… but you already knew that. But here’s a pretty simple explanation of why the text messages you pay twenty cents each to send costs the carrier basically nothing:

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. Srinivasan Keshav, a professor of computer science at the University of Waterloo, in Ontario, said: “Messages are small. Even though a trillion seems like a lot to carry, it isn’t.”

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.

This is why, when you call up and complain about your service, they will often try to placate you with offers of “free text messages….” they are giving away an infinite resource with almost no cost to them but a perceived value to the consumer. Text messaging fees are the biggest scam in the mobile phone market.

What Carriers Aren’t Eager To Tell You About Texting [New York Times]

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25 Responses to The New York Times: Text messages cost carriers virtually nothing

  1. Bloodboiler says:

    The text message system in GSM was invented by a Finn so here’s a Finnish proverb that describes the article:

    “Pike is a fish. Pike is a fish. Pike is a fish…”

  2. nixiebunny says:

    Considering that one second of digitized verbal communication contains a kilobyte of data, it’s obvious that SMS charges are a scam. I’ve always wondered why people would pay by the character for this method of communicating.

    My lovely wife just received an iPhone for Xmas. I looked at the cost of SMS (multiple cents per message) versus the cost of email (zero cents, unlimited) and decided that one method of written communication makes sense with this device.

    One doesn’t have to pay the exorbitant rates for this stuff. If no one chose to pay extra for SMS, the price would approach zero due to lack of demand.

  3. Master Gracey says:

    Foetusnail, the wireless infrastructure is, I dare say, even more costly than Starbucks. And you know what, many people regard Starbucks as a ripoff at $2+ per cup. Lucky for Starbucks that so many folks are willing to pay $2+ for a coffee – if Starbucks failed we need to bail it out, or those thousands and thousands of baristas might default on their student loans…

    As for local number portability, once one telco owned all the numbers in the US, then the seven baby bells and a few other companies owned all the numbers. Just recently ownership of a phone number was transferred to the consumer, and the tech behind that change was non-trivial. It involved the telco seperating a phone number not only from a wire pair or even a switch (5ESS), but even a telco.

  4. Anonymous says:

    This has something to do with the way Americans use credit. You see this imaginary market based on credit has taken a huge hit with everyone’s credit card bills and other credit schemes piling up to huge debt. It’s not a real market it seems because people will pay for anything when they can just charge it and pay it off in little bits later. everyone shoving bills onto credit cards are inflating the supply demand and when they get tanked there are a million credit debt relief companies out there to help you settle for less than what you owe. It just seems that lots of people with credit cards don’t really care what they pay because at the end of the month they just see 1 number for the bill. I think in a world without credit cards there would be a lot more companies trying to keep prices competitive. One of the largest service areas that bring in revenue through cash are fast food and they have the cheapest food ever. While convenience stores generate a lot of credit card sales you can see that the prices are way higher than at a grocery store. Just an observation.
    “I will gladly pay you 1.00$ for a .50 cent hamburger today if you charge me for it at the end of the month and I only have to pay a minimum of .10 cents.”

  5. FutureNerd says:

    Price fixing is difficult without government support. In this case that includes restrictions on: use of radio waves, putting up antennas, connecting to the phone network, giving out phone numbers, offering phone service, pricing, details of services you may offer as a phone provider, services you may not leave out, types of radios consumers may use without a license…

    It’s real nice that the US Senate is “looking into this” for us. It is the Congress that created the FCC, I wonder whether they’ll say, “Whoops, our fault!” and disband it, leaving communication to actual competition and hacking.

  6. Sean Eric FAgan says:

    Is this news, really? I’d this explained to me several years ago, and it wasn’t treated as all that unknown…

  7. dculberson says:

    There are signs that it’s not just “close to” but actually is price fixing. Congress has looked into this recently, and it’s not unlikely that they’ll look into it again.

    Side note, a cup of coffee from Starbucks only costs about $1.50; less than the cost at many restaurants nowadays.

  8. jeshii says:

    Wait, how do I get them to offer me free text messages? That would be great. Any suggestions on what I should call and complain about?

  9. FoetusNail says:

    Yes, it is news to a lot of people. How TM is handled will be informative to many more people who already new or suspected TM was a ripoff.

  10. FoetusNail says:

    Can’t remember why, but we’ve had free TM for three or four years.

    But I just remembered what really pisses me off about cell plans. Why doesn’t the cost of the plan drop when the contract expires and the *free* or subsidized phone is paid in full? Oh, so they can sell another contract. Logic says if we’re still paying 90 bucks a month, we might as well sign another contract and get new phones, even if we don’t need ‘em. The pile of disposable phones gets higher and higher.

  11. Master Gracey says:

    Dculberson, Congress didn’t look into this, one tee’d off Senator sent a letter to four companies:

    Senator Herb Kohl of Wisconsin, chairman of the Senate’s antiturts committee, has sent a letter to the four big cell carriers, asking to explain the rising costs.

    I can remember Chuck Schummer of NY railing against ATM fees and the price of a box of cereal (compared to the bushel price of the grains that make up the cereal) – neither effort bt Sen. Schummer resulted in lower ATM fees or cheaper cereal, but it got his name in the press and (I’m sure) pleased some of his constituents.

    As for Starbucks coffe prices, I defer to USA Today(from 2006), where I pulled this item up from:

    Currently, a tall, or 12-ounce, cup of Starbucks coffee costs $1.40 to $1.65. Twelve-ounce lattes cost $2.40 to $3.10, depending on the market, and a tall mocha costs $2.70 to $3.40.

    A more timely article is here, which includes mention that the average price for a plain 12 oz. cup of coffee is $1.40.(from 2008)

    I stand corrected, but I can also say I never knew Starbucks had a 12 oz. size cup – I personally don’t drink coffee, so I’ve not spent any time under the spell of their baristas. When asked about the price of Starbuck’s coffee, Deb Trevino, director of global communications for Starbucks said:

    Our customers are interested in more than just the coffee, they come for the experience.

  12. clarkie604 says:

    True, it seems like mobile carriers have ridiculously high profit margins on text messaging. But ridiculously high profit margins do not equal scam. Text messaging fees are generally disclosed. And I think most people already knew they were high. But people text anyway. They are willing to pay for the product the carriers are selling at the price the carriers set.

    Carriers set prices based on demand. As price rises or falls fewer or more people will take advantage of the service. If that’s a scam then every company’s a scammer.

  13. slywy says:

    You’re not being gouged if you play along . . . that’s why I don’t use texting.

  14. slywy says:

    er, don’t play along, that is.

  15. Anonymous says:

    I’d like to thank my Senator (Herb Kohl WI-D) for launching an inquiry into this issue!

    http://kohl.senate.gov/press/08/09/2008909B29.html

  16. FoetusNail says:

    There are a lot of deaf people, and their friends and families, who are getting gouged.

  17. Anonymous says:

    Slywy: “You are not being ‘gouged’ if you play along”

    No, if the carriers are banding together and price-fixing then consumers *are* being gouged. This is why I use Cricket Mobile. The service isn’t as great but for $50/month I get unlimited EVERYTHING.

  18. Master Gracey says:

    Why must the cost to the consumer relate to the cost of production? What’s next, Starbucks coffee only costs $0.12 to brew? A bottle of water only costs $0.02 cents to fill? The fellow sitting next to you on the airplane paid half the fare you did?

    I’m suprised that a failure to understand simple economics constitutes “news” to so many.

    Next up, Caller-ID doesn’t cost $6.95/month for your incumbent telco to provide it, and their per-use “*69″ service doesn’t cost $0.50/use either – that is what the market will bear…

  19. Daemon says:

    Actually, cellphone companies gouge you just about every way they can. Texting is just the incredibly obvious and not-at-all-news tip of the iceburg.

    I mean, seriously, if your plan has you paying $.45/min, to pick a number at random, then they are effectively claiming that a text message uses the same bandwith as 20 seconds of voice communication. That’s either really impressive voice compression, or a tremendously inefficient method of sending plaintext.

  20. zuzu says:

    (Yes, I know my daughter texts too much, but at least she’s not making her 90 minute phone calls anymore.)

    If you have an unlimited texting plan, then there’s no such thing as texting “too much”. You won’t clog the tubes.

    As for the market bearing customers paying for unlimited texting, a recurring cost which is provided by the telco’s fixed cost of infrastructure… that’s a problem with the FCC creating a barrier to entry and thus limiting real competition.

    Remember when Google tried using its deep pockets to license the 700MHz spectrum for openly competitive mobile data?

  21. Moriarty says:

    For that matter, music costs more than zero dollars to record…

    *runs from torch-and-pitchfork-wielding mob*

  22. FoetusNail says:

    First, one look at Starbucks infrastructure will tell you why their coffee costs more than 0.12. Secondly, what the telco’s have been doing is close to price fixing.

    I believe most of us understand how a company profits and prospers. What we don’t approve of is being ripped off. If Starbucks tasted like convenience store coffee and the only place to drink it was in your car, then it would cost less. There are alternatives to Starbucks. I buy fair trade Ethiopian coffee for less than 8 bucks a lb including shipping. I can’t make my own TM service.

    TM pricing is an artifact, that is quickly becoming free. Alltel has a 1000 minute, two line family plan that includes 1000 free Text, pic, and video message bonus for each line, which also includes my circle and unlimited blah, blah, blah. Also, look how long it took them to allow portability.

    Here is a great quote from having been in the packaging business for a number of years. One of the executives from a well known yogurt company once told me, we don’t sell yogurt, the yogurt is free. Starbucks doesn’t sell coffee. However, all of the wireless companies sell over priced TM without much competition. Strange how their plans all seem to cost about the same.

  23. clarkie604 says:

    @12

    Problem is, there is a lot of competition between wireless carriers. Just because carriers have similar prices doesn’t mean there is price fixing. It could just as easily mean carriers generally agree that the common price is the best balance between keeping a high profit margin and losing too many subscribers because of a high price. Alltel is a great example. That text is offered for free shows that Alltell sees a competitive advantage in freeness. It doesn’t show higher rates were a scam.

  24. ripplepoppy says:

    Comparing coffee beans to text msgs? Two fruits come to mind. Nevermind.
    Anyone, ever, who has used a dial-up modem to download data has figured out that text messaging prices are a ripoff: it’s the file sizes, stoopid! And if you ask your cel representative why you should pay 10 dollas a month extra for this service (hey, not all of us like speaking on the phone, plus texting is discreet and doesn’t annoy the people around you)… they say you need to pay for your use of their network. Yeah, I know my texts are practically sagging the phone lines and crumbling the towers.
    And um, infrastructure? If I’m not mistaken, the telcos were putting up towers long before they were offering to let me pay for unlimited texting. It’s not like they have to grow the towers and bandwidth overseas and harvest them, haul them here and pay taxes, and deliver them to the consumer directly. Please.

    Woooh, I’m glad to see this in the spotlight. Thanx for some space to rant!

  25. Alan says:

    All I know is this: Carriers charge up to 40 cents a text (if it’s sent and received on the same carrier, they get to charge twice!); I pay $30/month for family unlimited texts; I have a teenaged daughter who logged in close to 5,000 texts in November; my son and I had another 500 or so; this comes to close to a half penny a text.

    No one out there can tell me that when carriers started offering unlimited text plans that they didn’t know teenagers would go crazy with them. They knew they’d have customers like me, and I’m sure they’re still making a profit from me.

    (Yes, I know my daughter texts too much, but at least she’s not making her 90 minute phone calls anymore.)

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