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.

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