Text-Messaging Rates Come Under Scrutiny
online.wsj.com
online.wsj.com
And to all those libertarians here, no just market forces wont fix it, as in this case they are clearly broken. As long as the carriers have a lock on the data on your phone, and what applications you use on your phone.
This is a classic examples where some gov. regulation is required, by: 1. Forcing prices down. 2. Or forcing carriers to allow users to use their prefered SMS provider
EU has been using option 1., where it recently forced carriers to put caps on insanely "roaming data" pricing. (or better rip-off).
The internet equivalent of this would be that your ISP forces you to use only one kind of push email that they provide. Kinda outrageous, no?
But the spectrum is intensely regulated by authorities, frequencies are not just expensive, they are usually not available at all(:1) - because the authorities want to protect the investment of the early providers. Effectively, they made a deal that created a government sponsored monopoly, which, even if you can privately buy a share in it, is the opposite of free markets.
1: This is true for most of Europe, can't say for the US.
As a libertarian, I blame regulation for that.
But, also spectrum is finite, especially on what we can use with the current technologies. If everybody puts it's own high powered antenas, it would just make everbody's service unsuable. And taking out your competitor, ment to just place a bigger antena.
Also, high costs and barriers of entry don't just come b/c regulation. There is huge capital costs to build a infrastructure (towers, technology, etc.) Look at Wimax, (which has less regulations than cellular telephone) where two companies had to merge in order to make it feasable.
What I would like, is option 2. The goverment makes sure there is fair competition for services, and where a carrier shouldn't lock your devices, and not allow you have your own apps and services in your phone.
If you look a classical use of goverment regulation: Road traffic, traffic lights, rules etc. In the early days of the car, none existed, and it used to be every man for each own. Result was lots of accidents, traffic jams (deadlocks everywhere), making cities almost too chaotic. People driving without knowing how to really drive (accident rates where very high). Regulation brought some control to the chaos, where it made roads usable, traffic flowing, and make sure only people that know how to drive, drove.
But, regulation can also go too far, but making things expensive, excessive tickets that serve only to make revenue to cities and states. etc.
And yes, I have real life experience with this. I come from an ex-communist country, where twice in my life time goverment basically ceased to exist (once in 90-92, and once in 97). It was everybody on it's own, and it wasn't pretty.
I remember my favorite TV channel went off air, b/c one their competitors decided to erect a bigger antena, and use the same band.
Overegulation is bad, but under regulation is surely aweful. And I lived through it. Most of you probably just dream about it, and think it is cool, but it is not.
Obviously you're right too, we could come up with examples all day long, suffice it to say I think that a big part of texting costs is due to regulation driven high entry costs.
It was not "unregulated." If it was then I could have built my 1000 Watt 802.11b network to cover an entire city. There were rules and regulations on this spectrum, it was just not reserved for specific users.
(btw, I am also a libertarian :-)
While that quantity of potential information is substantially more than the available quantity, that's a different assertion than infinite spectrum.
And yes, this reply basically says that if we require angels to comply with physics, there is an upper bound on the number of angels on the head of a pin. So what?
If you can own, make exclusive use of and trade that ownership, it should deliver an efficient outcome - at least from an Economics lens.
Anyway, the "tragedy of the commons" problems you get with spectrum and such-like call for legal solutions, not regulatory ones. You need clear precedents and fair courts. But that's not the situation. We have monstrously complex regulation and federal intervention instead. The original justification for all the telecommunication regulation was that phone and telegraph lines are a "natural monopoly" and resources are wasted by allowing many competitors. I believe this original justification affects the current situation.
90% of people^ won't use a cell carrier that doesn't have nationwide coverage, so it's not like you can build these things on a shoestring. Witness the long slow rise of Cricket Wireless (http://www.mycricket.com), even though it offers flat rates without contracts.
^ Yes, I made up this number, but I'm sure it's not far off.
There was a similar problem back in the early-mid 1990s with internet and broadband. The market of the time often charged per minute or per data transfered. Especially when stepping up to ISDN or a T1. Everyone said this was crazy and a total rip off. And that without government intervention the phone companies would just continue to rip everyone off forever. Then cable came along and provided some serious competition and now everything is changed. (Though if uptime is THAT important customers can still pay per bandwidth on a T1...)
Internet worked itself out with the same high entry costs and regulation. Wireless will also work itself out.
Government intervention may speed up the process, in this case, but that is (as others have pointed out) only because there is such regulation and high entry costs.
I'm all for the senate putting some pressure on the industry. They should bring the issue to the public. But I don't know if this necessarily requires additional regulation.
As for the phone companies screwing the customers - they will get what's coming. Just wait for there to be another option. Everyone will flood to this alternative and the phone companies will immediately adjust their business model and pricing to compete. And I imagine most people will be so bitter they'll abandon the telcos over issues such as this.
VoIP over Wimax and Wifi, with GSM as backup .. IM replacing SMS. The future is almost here, and I think a platform like Android will help it along.
I don't know which subsidies you are referring to though. Since telcos, cable and wireless were/are all subsidized at different times to "build out their networks". Either way it's a good point. To me it's just proof that competition is more effective than government support. Even with the government subsidizing entrenched old technologies, the competition still wins out.
1. Misleading pricing that never matches the advertised rates
2. Unexplained and unrefunded outages
3. Misleading services that have built in caps that aren't explicitly stated in company literature or advertising
4. For consumers, only able to choose between 1-4 providers, based on your location
5. Normal hold times of 30 to 60 minutes
Oh wait, that's how the internet is if you're stuck with Comcast, RCN, et al in the States. It's almost uncanny how much the internet providers, wireless providers and the RIAA/Big Labels have in common including their share prices.
Yep, I don't really believe that it costs the telcos $1000/MB to handle SMS.
http://mobilejones.com/2007/07/27/you-might-be-paying-1000-p...
http://mobile.slashdot.org/comments.pl?sid=433536&cid=22...
That said, I can't wait to see the BS they come up for this one.
That said, they're still overpriced. They should cost less than a minute of phone conversation. Really, they should cost probably around the equivalent of 1 second of phone conversation. So, you should be able to send 60 messages for, say, 10cents. That would come to $10-11/MB by your logic which is high if you don't count the cost of building/tearing down the connection.
Of course I share unlimited text with a "family" plan that me and 5 friends are on. But the opt-out for texts still exists last I checked.
It's interesting that typically as new technologies become more popular and are adopted by more and more people the costs tend to decrease. In this case however the prices have gone up. Seems counter intuitive.
Real rates include those ridiculous fees they add on at the very end each month - and no those fancy sounding names aren't all government taxes and ridiculousness - just clever suit trickery. Excluding sales tax, grocery stores aren't allowed to lie about their prices, why are cell phone carriers?
I'd pay a premium and tell my friends.
My favorite bogus "fee" is AT&T's "Cost recovery fee". In their explanation, they explicity state that :
This fee is not a tax or charge required by the government.
"Cost recovery" used to be known as the "cost of doing business" and was included in the monthly price.
This is just a deceptive way to add a few extra dollars without raising the nominal price.
It's a regulatory fee that AT&T gets hit with, so they pass it on to customers. Other than the fact that I'd prefer they absorb the cost, I don't see how it's unethical in any way.
"Mr. Kohl's letter noted that each company appears to have changed text-messaging rates at nearly the same time, with identical prices. 'This conduct is hardly consistent with the vigorous price competition we hope to see in a competitive marketplace,' he said."
He worked out the cost of obtaining a megabyte of data from Hubble and compared that with the 5p cost of sending a text.
He said: "The bottom line is texting is at least 4 times more expensive than transmitting data from Hubble, and is likely to be substantially more than that.
The maximum size for a text message is 160 characters, which takes 140 bytes because there are only 7 bits per character in the text messaging system, and we assume the average price for a text message is 5p. There are 1,048,576 bytes in a megabyte, so that's 1 million/140 = 7490 text messages to transmit one megabyte. At 5p each, that's £374.49 per MB - or about 4.4 times more expensive than the ‘most pessimistic’ estimate for Hubble Space Telescope transmission costs."
There's no charge for receiving one, because that would be just silly.
Finally I found something that's cheaper here than in America! Sure compensates for the cars you get at 1/3 of the price over here..
Out of curiosity, are we talking about text messages because of the iPhone 3G? :)
Anyway, there's no source of money in the world that Congress won't overspend...
Pulled from: http://www.marketoracle.co.uk/Article419.html
I thought this line was a bit staggering "...the average cost of a text message is $0.10. Last year, mobile telephone operators pulled in $50 billion in revenues just from text messaging."
$50 billion, that's a nice racket!