SMS is carried in the status/beacon messages that the phone and tower periodically exchange. This is why there is a character limit. Bandwidth cost is zero.
I think a better argument for the standard is simply that it's built into the protocol, and therefore unlikely to vanish anytime soon. Can't say the same for the trendy app of the week.
I have a cheap prepaid, still using SMS every day because I know I have unlimited use of it, to several countries even. Data is where they make their money