The Consumerist: Why Are Text Messages Marked Up 7,314%?

Nasser of MyAdhan.com spotted this one on The Consumerist blog. I’ve cut and paste the whole story (I trust they don’t mind) as it’s rather fascinating. They’ve done the calculations…..

Link: Why Are Text Messages Marked Up 7314%? – Consumerist

Verizon and other cellphone companies mark up the cost of text messages by at least 7314% when compared to their rates for data transfer services.

Verizon’s max text message size is 160 characters. At 7 bits per character, that’s 1120 bits or 140 bytes. Without a text messaging plan, those 140 bytes run you $.15 (fifteen cents), according to Verizon’s website.

Compare that to the rate for data transfer (like when you would use your cellphone as modem). That rate is $.015 (one point five cents) every 1024 bytes.

That’s $.015 per data kilobyte versus $1.09 per text message kilobyte. In other words, a markup of 7314%. Other cellphone companies charge comparable rates.

Bytes are bytes. What makes a text-message byte so much more valuable than a straightup data byte?

Verizon didn’t return our requests for comment

Heh. Shocking. Why do people pay the rate? Because, well, they do. That’s all. There’s no discernable difference — as the text says, a byte is a byte.

It’s silly. And the more the likes of the Consumerist pick this up and run with it, the better, I reckon.

Incidentally, a ton on MyAdhan coming shortly…

,

  • Mike

    There are literally thousands of examples of this sort of thing: where specific utility is added to a basic resource and a premium charged.

    In the case of SMS, the MNO has to ‘add’ an SMSC, and negotiate/maintain literally hundreds of interconnect agreements with other MNO’s, to ensure global ‘carrier’grade’ service.

    As opposed to ‘internet-grade’ service.

    So a basic byte-for-byte comparison with dumb internet traffic is a bit unfair to say the least. I could argue that a Britney ringtone is only bytes, so why pay so much for it?

    The answer is in the utility it provides, and how much that utility adds to your enjoyment or saves you cash. Networks cost £££ to run – ‘keeping the lights on’ I like to call it. SMS is cheaper than voice for a lot of people, so they use it. If everyone migrated overnight to ‘something else’ and MNO’s lost SMS revenue (or voice revenue) then what will keep the lights on? Much higher subs? Advertising? The bills have to be paid, and investros given a return.

    Consumer groups tend to forget that. Customers will react to new services/technologies with their feet, but the MNO’s will still need to keep the lights on and pay a dividend. Nothing is ever free – even advertising. You have had to spend your time watching in order to ge tthat free SMS, or ringtone, or voice credit, or whatever.

    Cheers,

    Mike

  • Terence

    Interesting comparison, but not valid. SMSs aren’t sent through the data network. So, different cost structure. Not that I think I should be paying the current prices.

  • Terence

    Interesting comparison, but not valid. SMSs aren’t sent through the data network. So, different cost structure. Well, you probably know that. Anyway, not that I think I should be paying the current prices.

  • Mike

    If you think of the whole network as a ‘cost structure’ then it’s the same.

    Different core-handset signalling / air interface algorithim / coding / whatever, maybe, but it’s still using core, backhaul, radio, mains power, property lease, tower and licenced spectrum to deliver the end result. The bits required that cost to build, and maintain / lease are common to both SMS and internet data.

    And as I said, SMS needs an SMSC and a roaming/regulatory/legal department to keep the agreements with other MNO’s working.

    If you don’t want to pay the ‘current prices’, which part of the overall mobile economic equation do you want to change? Monthly sub? Fewe voice minutes? More expensive handset? less coverage?

    It’s called an ecosystem because it’s all interrelated, as far as investors are concerned.

    Cheers,

    Mike

  • shl

    I commented about this issue in the US in my blog here:

    http://wirelessdispatch.blogspot.com/2007/03/unlimited-messaging-and-arpu-impact.html

  • loopy

    Mike, you sound like an MNO permie.

    Having worked on the inside of several MNO’s myself, their are elements to your points which I would be glad to disagree with. Legal departments are not that big within the MNO’s, the MNO’s are not in a position to allocate legal costs as part of a business case for a single product such as SMS [it is more a base cost across the service].

    The ‘boxes’ needed to connect to the SS7 network [you call it SMSC] is no big mean feat in terms of its function and the amount of traffic [add more boxes - n scaling] it handles. Technology which in itself is not expensive to install ‘carrier grade’ [love that phrase - it sucks].

    All the operators have been coining it on SMS, that is why the IP messaging guys have a market now.

    The predominant product for Mobile Telco’s is voice. That is the main reason they paid for investment in infrastructure to sustain this basic service.

    Pricing on nearly every product within a mobile operator is high [interconnect being forced down recently by Ofcom]. Maintaining margins for investors is one thing, but providing value to customers is another.

    Are you in marketing or PR in your MNO Mike?

  • http://www.sendmytxt.co.uk Alex

    I heard a rumour a while back that the true cost to a MNO of a text is around 1p.. excluding interworking of course. But just mentioning IW is enough to open another can of worms.

  • http://www.itagg.com steve procter

    I dare say if you paid a bunch of consultants a couple of mil to come and spend a year actually costing sms out inside one of the networks then I am sure it will work out that there is a huge profit margin in it. Maybe not the 7000% but it will definitely be a good markup.

    But why not?

    Does anybody really have a problem with the cost of sms? 7000% is Sun Headline trash. Lots of headlines, but I don’t see a real person standing up in the street saying that text is draining him of all his hard earned cash. Roaming charges yes; text no.

    At the end of the day, every single Sun journalist is texting his mate over at The Mirror finding out which bar he’ll be in later. So whilst he writes this junk in the day, he is like all the rest of and us willing to pay whatever the current rate is. And the basic laws of economics therefore allow the supplier to charge for the demand.

    steve/itagg.com

  • Pingback: metaend » Blog Archive » Цената на един sms

Powered by WordPress. Designed by Woo Themes

Real Time Web Analytics

Clicky