Text messaging is overpriced, say CU advocates

The nation's four big carriers have all raised their text-messaging rates in the last few years.
[ Photo courtesy of: kiwanja ]

Mystified as to why the cost of a text message from all the major cell-phone carriers rose to a hefty 20 cents apiece in recent years? This in spite of the continuing rise in popularity of messaging—and, presumably, its value as a competitive feature of cell-phone plans?

Joel Kelsey, an advocate with Consumers Union, the publisher of Consumer Reports, today called the price increases in text messaging “a failure of competition, because the increases are manifestly unnecessary to cover provider costs.”

Kelsey emphasized that text-message files are very small—with five hundred of them containing less data than a one-minute voice call, he says. Further, Kelsey points out, there’s been an “explosion of texting” in recent years, with carriers reporting up to a six-fold rise in text transmissions within just a few years.

“Carriers should be experiencing economies of scale and sharing that savings with consumers,” says Kelsey. Prices are discounted heavily for text messages bought in monthly bundles that typically run into the hundreds. But carriers have steadily, and in lockstep, raised the price of sending single texts.

As CU has noted, less than four years ago rates to send a text message were 10 cents per text at the nation's four big wireless carriers: AT&T, Sprint, T-Mobile, and Verizon Wireless. Each company then raised rates to 15 cents, then to 20 cents.

To CU, these text-message rates, along with exclusivity deals for certain cell phones, exemplify the need for “more oversight” into the wireless marketplace, to “determine if government intervention is necessary.”

You can view the testimony of Kelsey and others as part of a live webcast on the hearing, which is scheduled to begin at 2:30 pm today. —Paul Reynolds

[Update: Read Joel's testimony here (PDF) ]

Comments

[John Hamel]

I am 37 yo. I have had cell phones since 2000. I just upgraded my 16GB iPhone 3G to a 32GB iPhone 3GS. I have never ever texted anyone. I have received texts, and know how to use the system. I just don't see a reason for folks with email capable phones to need to use text messages, but to each their own. However, I wish that the cell company would allow me to turn off the text messaging feature. I do not like to have to pay extra for the unsolicited text messages I receive, and it bothers me that ATT does not allow me the control to turn off this feature. Although in a purely capitalist system of "Laissez-faire", the cell phone companies can charge whatever the market will bear, it is this kind of exploitative practice of not allowing customers to turn off this feature that ultimately lead to much needed government intervention.

[Sonya]

I think that the government should stay out of it! Texting is not a need or crucial to the lives on mankind. I don't care if text messaging only cost the providers nothing and charged consumers $10 per, it is up to the consumers to decided if they want to pay the current price. If you don't want the texting option, have your provider turn off that option. The government is attempting to micro manage every aspect of businesses and our lives - stay out!

I called/emailed my friends and told them all to only text me if it is emergency and that resolved the problem of me getting text messages quickly!

[Paul Eng]

To Rick:

Re: Carriers locking phones to networks.

Consumers Union is tackling that issue too! See:

Cell-phone exclusivity: Not good for consumers, say critics
http://blogs.consumerreports.org/electronics/2009/06/cellphone-smartphone-handsets-wireless-service-exclusivity-congressional-hearing-testimony-palm-pre-apple-iphone-sprint-veriz.html

--Paul Eng
Web Sr. Editor, Electronics

[Paul Eng]

To Smith:

You're absolutely right. We've corrected that small mistake.

Thanks for the catch!

-Paul Eng
Web Sr. Editor, Electronics

[K]

I have a large social circle of people who like to text inane stuff that is not relevant information. Originally, T-Mobile said there was nothing I could, I couldn't block texts because then they couldn't text me information. I said, what if I had people who wouldn't respect my wishes to not get texts because I had to pay for them and still the answer from T-Mobile was "too bad". Now, they allow me to block, but that also means that I can't send (and yes, I have been guilty of sending non-necessary texts too). I wish there was a selective block (like with my landline to block certain numbers) or even better like the first 10 texts free as someone suggested above or maybe they could just be counted as one of your minutes. My friends suggested that I get a text plan, but I I don't want to pay more for my service as I don't even use my 300 minutes a month as it is.

[Gary]

Cheap "individual" texts are generally not a driving force for consumers to switch carriers because if the consumer texts enough to care, they just buy a bulk plan. So for an individual carrier, raising the text costs does not cause customers to move to the competition. It doesn't even cost most of their customers any money, except for the occasional ones who get "bit" by the first phone bill, realize how much they text, and then buy the bulk plan. It's like when airlines started to realize that most consumers would not switch airlines if they charged for additional bags, so pretty soon every airline started doing it. Being the one that didn't charge wasn't helping grab market share.

It is certainly possible that I am wrong, and that the inflated price of texting has been decided by collusion among the carriers. If that is the case, I would guess that this kind of "price fixing" is illegal. I'm not entirely convinced that it happened, however.

And yes, supplying texting is cheap, and the profits gained from offering texting (even with bulk plans) are huge. But is it wrong? Lots of businesses depend on selling cheap things at a high markup to actually make a profit because competition has taken all the profit out of selling their primary product -- gas stations selling snacks, cable providers supplying pay-per-view movies, electronics stores selling monster cables and ink cartridges...

[Samantha]

Mr. Kelsey says this is a failure of competition. What will happen to competition if the government should intervene, which he thinks it should? Why can't we just let the companies charge whatever the market will bear? If you can't afford to text message, don't! Are we supposed to be entitled to text message?

[rick]

Kind of a naive look at it, they can charge what the market will bear. They price individual messages high to make the bundles look cheaper I'll bet. Hardly anyone using messages would not have a bundle.

I think the cell marketplace is plenty competitive with services, I don't see an issue. I'd rather see the government get out of taxing us up the wazoo for phone and cell services!

Also what I see as the big consumer issue is locking phones to networks, when in fact the cell tech standards were developed to allow easy use of equipment anywhere!

How can a business lock something you own? They force people to become "criminals" when they "illegally" lock phones for the sake of switching carriers. Very nasty.

[Al]

All talk and no action. Consumer reports should provide a phone number of someone such as the FCC where consumers can complain about the high cost of cellphone usage.

[Nathan]

Text messages are actually essentially free to the carriers. The channel that the phone calls operate on has a small section cut out for information such as caller ID and other necessary utility type data. There was a small amount of extra capacity that wasn't being used (this is why there is such a strange character limit of 160 characters. Usually these types of things are based on a power of 2, like 128 or 256 or 512, etc) that the carriers decided to use for this purpose.

There is no technical or infrastructure reason for the price to keep going up. The implementation is nearly 20 years old, and it utilizes nearly completely unused bandwidth on the carrier's network.

Also, in my opinion, it's just wrong to charge customers to receive text messages, then force them to call the company to get the charge dropped if the message was unwanted. If I want to send a message to another phone on my account, it'll cost me double, one for me sending it, and one for them receiving it. If that isn't gouging, I don't know what is!

[Greg]

I'm quite honestly getting tired of all the hooplah made about "rising text messaging rates". For people who actually *use* the service, rates have nosedived in the past 10 years. I remember about 7 years ago paying $10/month for 300 text messages with ATTWS. The price of packages is significantly less. Yes, the cost of pay per use has gone up, but it is always universally billed as "text messaging is getting more expensive!"

Honestly, with most carriers having packages starting at 3-5 bucks, is anyone really being harmed by an extra 10 cents per message on PPU?

I digress. My real issue are the constant calls for government intervention on this. Seriously? I understand the consumer in all of us wanting to pay less for things, but government mandating prices on things? I thought we lived in a capitalist society. Any macroeconomics or microeconomics class will teach you that prices fluctuate based on what the market will bear. The point of these companies is to turn a profit, and the market has shown that *obviously* it will bear the cost. And if everyone stops using it, then the price will drop.

My point is, it is not our government's role to force companies to charge less money for something just because people don't want to pay what the company charges. These are for-profit companies, not non-profit charities. What they are doing, regardless of whether I like it or not, is both smart business and logical.

@ihatethetextcosts: The systems aren't taxed by the SMS load. They aren't trying to provide a free convenience for people who use it sparingly. It's an optional service they offer, and they are up-front about the rates. You have the option of having the service removed, but if one chooses to use it, they have every right, and a fiduciary responsibility to their corporate parents, to bill for its use.

@TW: The specific itemized fees are available from most carriers on inquiry. Taxes generally aren't, but are simply pass-throughs on what the government is charging them. However, some research will turn up the specific tax rates that they are billed.

Disclaimer: I have no connection to any cell phone carriers, and no reason to support them. However, I am against forced government intervention in things that constitutionally they have no right to legislate.

[Smith]

In the photo caption: carriers have all "risen" their rates? Perhaps you mean "raised."

[ihatethetextcosts]

All I can say is that the high cost keeps me from doing ANY texting whatsoever. I would love it if the first, say, 10 texts per month were free. I refuse to pay 20 or 25 cents per text (whatever Verizon is charging now), and I hate it when I get the occasional junk text. No, I don't want to turn it off completely. When I signed my original contract it was only TWO cents to receive. That's a huge inflation.

Anyway, if the providers allowed the first few texts per month to be free, this would appease customers who don't text much, and might lead to more texting vs. regular phone calls, which would only help to ease their systems.

[Ken]

I never like to side with a big corporation, but I would assume that maybe these carriers need to charge more, maybe because their revenues from phone calls are dropping. It seems texting is getting more popular these days, to the point of replacing phone calls. So if everyone chooses the plan with the least amount of minutes, the carriers probably need to get their profit somewhere else. Plus, the cost of minutes seems to have gone down recently. My old Verizon plan had 400 minutes and now I have 700 for the same price. And for $5, a 200 message per month add-on means each text message only costs me 2.5 cents. I can't complain :-)

[TW]

@Adam: I guess they can't really raise the cost of phone minutes so you your text messages cover the bill.

Over the years, the cost of minutes has gone up. The AT&T plan that I'm on (haven't changed in almost 10 years) costs me $27 per month - including taxes and fees and taxes and fees.... I get 325 minutes per month, and I have a bank of over 11,000 rollover minutes.

Show me a current plan from one of the major carriers that matches that cost. The cheapest I've been able to find recently is upwards of $40, not including taxes and fees.

Personally, I'm not concerned with the cost of texts. What irks me about phone carriers (cell and home phones) is they advertise the base price, but it's impossible to have them pin down (before you get your first bill) how much extra in taxes and fees they'll decide to tack on. Why does this not have to be spelled out up front? Or, better yet, just included in the overall price?

[Marsha Fielding]

What things are priced sometimes has less to do with the underlying costs than what people are willing to pay.

[Adam]

I've had the same worries over the years. I used to pay $0.05-$0.10 per text message through AT&T and it's more than double that now.

I spoke with my Brother In-Law who works for a smaller cell company, US Cellar, as to why the cost of text messages are going up considering they are very small. He indicated that they were basically covering the infrastructure of their growing system. I guess they can't really raise the cost of phone minutes so you your text messages cover the bill.

Seeing how each company tends to raise the rates within MONTHS of each other leads to believe that the rates are not really fair and that the consumers are probably being unfairly over charged.