Text messages may be “free,” but the network isn’t

by on August 6, 2009 · 14 comments

One reason AT&T may not like Google Voice is that it allows you to send and receive text messages for free. This has led many to argue that SMS are free to the carriers and they are overcharging. Congress is considering getting involved. Most recently there’s this from David Pogue in the NY Times:

The whole thing is especially galling since text messages are pure profit for the cell carriers. Text messaging itself was invented when a researcher found “free capacity on the system” in an underused secondary cellphone channel: http://bit.ly/QxtBt. They may cost you and the recipient 20 cents each, but they cost the carriers pretty much zip.

The price of a text message does sound ridiculous when you consider it on a per bit basis. The problem with thinking about it that way, though, is that it neglects the fact that AT&T had to build a network, and it has to maintain that network, before a text message can be “free.” AT&T charges customers so it can recoup its investment. It does so through voice and data service fees, but also through other fees, including for text messages. However it charges customers, it ultimately has to bring in enough to cover its costs or it goes out of business.

Now, if we passed a law today that said carriers could not charge for SMS because, after all, it’s free, we would see a an increase in the fees it charges for voice, data, and other services. The mix of prices for services we have right now is one the market will bear and consumers want, and there’s no reason to think that we could command a better one.

Better yet, if you want a “free” text messaging option, consider Boost Mobile, which offers just that. Of course, they have different voice prices and an older and slower network. In the end, they have to cover their costs, too.

  • http://www.techliberation.com Adam Thierer

    Nicely put, Jerry. Once again, there is no free lunch. Many people still fall prey to the old marginal cost fallacy, it seems. Even smart New York Times reporters.

  • afternoontea

    The problem is not really about the recouping of costs though, it is that the cellphone carrier market is not really a free market. The reasons for that are tortous and complex, but it is undeniable that the market suffers from a real lack of competition at this time. Of course, there is no easy solution to the mess that has been created, certainly not in arbitrary government intervention, but that does not mean that consumer pressure should not be applied to move towards a model which recognises phones as part of a wider data network rather than artificially isolating them

  • http://techliberation.com/author/berinszoka/ Berin Szoka

    Note that we're talking about HUGE volumes here: “over one trillion text messages [were] sent and received in the U.S. last year, according to CTIA-The Wireless Association” http://online.wsj.com/article/SB100014240529702

  • http://www.facebook.com/RichardBennett.Cal Richard Bennett

    AT&T doesn't have a problem with Google Voice. I have an AT&T Blackberry which interacts with Google Voice just fine. Getting the invite from Google to use the service (it's still in beta) was actually much harder than getting the Blackberry application. So the actual issue is between Apple and Google.

    SMS is costly on cell phones because it has historically been provided over a control channel with limited bandwidth instead of over the digital voice/data channel that carries the calls. This has to do with how the service was originally conceived and implemented, and as others point out it's part of the revenue model for cell phones at this point. SMS is part of the system that pays for towers and backhaul, and high SMS fees help keep voice fees low.

  • dm

    A long time ago, we had a monopoly in phones. One network, which was fairly inexpensive. However, you could only plug a phone from Western Electric into it. You couldn't buy a Western Electric phone, you only rented them (this meant the phone company fixed it when it broke, and they were solid pieces of engineering).

    Then that bad, bad, bad government insisted that a phone was just a set of technical specs, and anyone who built a device to the right specifications could plug it into the phone network. This was disastrous, of course, since those phone rentals were what subsidized the costs of the network. The utter collapse of the phone network, led not only to economic collapse, but pestilence from all the carrier-pigeon poop.

    No, wait. That last bit didn't happen.

  • http://bennett.com/blog Richard Bennett

    What actually did happen was the phone network's interface spec was cast in concrete and sent down the road to obsolescence. How many applications can I run on a wireline telephone, dm?

  • http://ben.klemens.org/blog/ B

    Yeah, this is mis-characterizing Congress's intent. Why did text message prices rise from 5 or 10 cents depending on the carrier to 20 cents, almost simultaneously, and shortly after a few major mergers? At the surface, it sounds like collusion—conveying a text message certainly didn't become two to four times more expensive one day. And remember, there are still many parts of the world that don't have any options outside of the big N (where N approaches one), so arguments that people can switch to Boost or Cricket are of limited use.

    To say that Congress is demanding that text messages be set at their zero marginal cost is a pretty steep mischaracterization of an inquiry into potential anti-competitive behavior.

  • dm

    How fast a modem do you want to use?

    I think you'll find that the capital investment was what cast that interface in stone — to the extent that this claim is even true. Call-waiting, caller-id, and lots of other services were yet to find cracks in those concrete specs.

    Perhaps you've heard of backwards compatibility? Switch your wireline phone (assuming you still have one) to pulse dial for a few minutes, and contemplate a second form of concrete embodied in that interface spec. Then imagine a third, or fourth.

  • dm

    …or call your phone company and switch over to the DSL concrete spec, if you're close enough to the central office.

  • http://bennett.com/blog Richard Bennett

    The telco interface spec, per law, is still the same old 3Khz analog channel that it ever was. GSM cell phones have three radios, each for a different generation of technology, to preserve a standard interface. CDMA, because it's not constrained by law, only needs one radio to do the same amount of work. The facts don't argue for standardizing the phone/network interface while the underlying technology is changing.

  • dm

    So? It's a technical standard as well as a legal one, and it's not as closed as you seem to think (the same hardware can have 56K modems plugged into it (the advent of 56K modems had to wait for someone other than Western Electric to develop them, don't forget), after all, the same hardware supports call-waiting, caller-id, and other services that didn't exist at the time. And the same copper wires seem to support DSL.

    The IP protocol dates from around the same time, don't forget. It wasn't legislated, but it hasn't changed despite the hardware and software revolution that's gone on around it.

    Bringing GSM phones in is a bit of a non-sequitur, I think?

  • dm

    So? It's a technical standard as well as a legal one, and it's not as closed as you seem to think (the same hardware can have 56K modems plugged into it (the advent of 56K modems had to wait for someone other than Western Electric to develop them, don't forget), after all, the same hardware supports call-waiting, caller-id, and other services that didn't exist at the time. And the same copper wires seem to support DSL.

    The IP protocol dates from around the same time, don't forget. It wasn't legislated, but it hasn't changed despite the hardware and software revolution that's gone on around it.

    Bringing GSM phones in is a bit of a non-sequitur, I think?

  • http://www.laptopbatteryclub.com/ laptop battery

    Hope to be better. Better means more features.

  • http://www.laptopbatteryclub.com/ laptop battery

    Hope to be better. Better means more features.

Previous post:

Next post: