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Summary:

Wireless carriers have had a busy two days in Congress, today getting grilled over exclusivity agreements and yesterday over the high cost of texting. In reading Ars Technica’s coverage of the texting hearings, I was struck by the attention paid to the cost of sending a […]

iStock_000000550399XSmallWireless carriers have had a busy two days in Congress, today getting grilled over exclusivity agreements and yesterday over the high cost of texting. In reading Ars Technica’s coverage of the texting hearings, I was struck by the attention paid to the cost of sending a text on a per-megabyte basis. We’ve looked at per-byte costs when writing about tiered broadband, and when looking at the value of different wireless plans. From the Ars story:

The whole kerfuffle started last fall, when the head of the antitrust subcommitee, Senator Herb Kohl (D-WI), sent a letter to the CEOs of Verizon, AT&T, Sprint, and T-Mobile asking why text prices for all four companies had doubled from 10¢ to 20¢ shortly after mergers reduced the number of major mobile carriers from six to four. At that price, SMS messages effectively cost over $1,300 per megabyte to send—far more expensive than charges for mobile data.

This represents a shift in thinking that will dog all broadband providers — both wired and wireless — especially as they try to find ways to boosting their revenue by providing more services over their broadband pipes. This shift came about as ISPs implemented (or tried to implement) usage-based plans for wireless and wired broadband access. As they’ve rolled out those plans, media and analysts have done the math to figure out exactly how much different services cost consumers on a per-byte basis. And once you train someone that downloading a 2 GB video costs $2 in overage fees, then they rightly wonder why sending a text message that consumes a mere 160 bytes (you can cram 13 million text messages into 2 GB) costs 20 cents.

Right now carriers are trying to have it both ways, which isn’t going to work. Take monthly broadband access: Unlimited broadband for a set dollar amount per month is a service, but once carriers started seeing usage go up, some of them moved to implement usage-based pricing plans that changed broadband into a metered utility. But consumers, who were being charged per gigabyte, wanted to understand the costs associated with providing that broadband on the same per-gigabyte basis. So far, carriers have been reluctant to disclose that information, and are thus facing both consumer ire and potential regulatory scrutiny.

Savvy carriers should leave monthly broadband access alone (maybe it will be a loss leader) and concentrate on creating services like texting, or providing wireless access to send photos from cameras for a set fee. If carriers can find ways to sell services over their pipes, they may not find themselves in Congressional crosshairs, being forced to defend the profit margins for transmitting a miniscule amount of data. But if they want to make consumers pay per byte, then they’d better have an answer for folks who want to know why delivering the bytes that make up a text message are so much more expensive than the bytes that make up a video.

  1. Chirayu Patel Wednesday, June 17, 2009

    “Right now carriers are trying to have it both ways, which isn’t going to work. Take monthly broadband access: Unlimited broadband for a set dollar amount per month is a service, but once carriers started seeing usage go up, some of them moved to implement usage-based pricing plans that changed broadband into a metered utility.”

    The distinction between service and utility is not quite right. Bandwidth provided in any form – metered or not – is a utility. Services, as you rightly put later, would include texting, photo hosting, etc.

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  2. You’ll find that in Australia it has always been the case that Broadband and ADSL2+ has been metered from the get-go. I think that America has it too good if they’re complaining over 20cent text fees when its 25c here to send a text and always has been.

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    1. I’m an American, but I lived in Syndey (Bondi Junction) for 7 months. This was in 2003. I was shocked at how expensive even just metered dial-up was there.

      However, ISPs here in America need to get their act together. They’ve set consumers’ expectations, and now are trying to change the game to make even more money. They don’t want to become ‘dumb pipes’… which is unfortunate for them as a business, but it’s happening weather they like it or not… and I’m sure they don’t like it.

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  3. Text messaging uses some of the “extra” bandwidth in the signalling links for controlling voice calls and is a very different thing technically from wireless broadband delivered by EVDO or other similar technologies. That being said, the carriers’ pricing schemes for texting is designed to incent users to purchase fixed monthly plans with a significantly lower average cost per text message (assuming that they use all the allotted messages each month).

    The customers that I assume have really have lost out are those that send and receive relatively small amount of text messages. Those that send large amounts have received significant discounts ( I assume they are on unlimited plans or plans with large allotments of messages for a fixed price).

    The distribution of revenues by monthly messages sent is what I would like to see – not just the average prices per text across all users from a carrier. Not that any carrier is sharing that kind of information.

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  4. I’m thinking specifically fixed broadband service rather than cellular, but the conclusion I’ve come to over time is that operators should be selling a service, with the caveat that a per-usage model may be necessary/appropriate above a certain threshold. It’s a very slippery proposition in determining what that threshold is, but I don’t think it’s unreasonable for there to be one.

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    1. Stacey Higginbotham Thursday, June 18, 2009

      Mari, I think that what Comcast is doing with a high cap is fairly reasonable if they do keep moving that cap upwards as average usage rates increase. The ISP needs to disclose that cap as well. However, a usage-based model will hamper the rush of new services. If people still paid by the hour to be online, do you think telecommuting or all-night WoW sessions would be prevalent today?

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  5. does anyone see a connection between FCC auctions, fewer & larger carriers, oligopolist cartel pricing, and anticompetetive behavior? Then Congress cries foul and shakes the big guys down for more cash. But leaves the structure intact…

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