Text messaging is a wonderful business to be in: about 2.5 trillion messages will have been sent from cell phones worldwide this year. The public assumes that the wireless carriers’ costs are far higher than they actually are, and profit margins are concealed by a heavy curtain.
Senator Herb Kohl, Democrat of Wisconsin and chairman of the U.S. Senate antitrust subcommittee, wanted to look behind the curtain. He was curious about the doubling of prices for text messages charged by the major American carriers from 2005 to 2008, during a time when the industry consolidated from six major companies to four.
So in September, Kohl sent a letter to Verizon Wireless, AT&T, Sprint and T-Mobile, inviting them to answer some basic questions about their text messaging costs and pricing.
All four of the major carriers decided during the past three years to increase the pay-per-use price for messages to 20 cents from 10 cents. The decision could not have come from a dearth of business: the total of 2.5 trillion sent messages this year, as estimated by the Gartner Group, is up 32 percent from 2007. Gartner expects 3.3 trillion messages to be sent in 2009.
The written responses to Kohl from AT&T, Sprint and T-Mobile speak at length about pricing plans without getting around to the costs of conveying text messages.
Attempts to speak with representatives of all three about their costs and pricing were unsuccessful.
The carriers will have other opportunities to tell us more about their pricing decisions: Twenty class-action lawsuits have been filed around the United States against AT&T and the other carriers, alleging price-fixing for text messaging services.
T-Mobile and AT&T contended in their responses to Kohl that the pay-per-use price of a message was relatively unimportant because most messaging was done as part of a package. With a $10 or $15…