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Posts Tagged ‘telcos’

This Is Why Sms Is Expensive, And Google Is Trying To Solve This Problem

August 19th, 2009

A few days ago I posed the question, “why is sms so expensive?“. In a related opinion article on the Wall Street Journal, Why AT&T Killed Google Voice, Andy Kessler explains how Google voice is bringing real competition to the market.

With Google Voice, you have one Google phone number that callers use to reach you, and you pick up whichever phone—office, home or cellular—rings. You can screen calls, listen in before answering, record calls, read transcripts of your voicemails, and do free conference calls. Domestic calls and texting are free, and international calls to Europe are two cents a minute. In other words, a unified voice system, something a real phone company should have offered years ago.

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As any parent of teenagers knows, text messages are 20 cents each, or $5,000 per megabyte. After the first month and a $320 bill, we all pony up $10 a month for unlimited texting plans. Same for Internet access. With my iPhone, I pay $30 a month for unlimited data service (actually, one gigabyte per month). Is it worth that? The à la carte price for other not-so-smart phones is $5 per megabyte (one-thousandth of a gigabyte) per month. So we buy monthly plans. Margins in AT&T’s Wireless segment are an embarrassingly high 25%.

The trick in any communications and media business is to own a pipe between you and your customers so you can charge what you like. Cellphone companies don’t have wired pipes, but by owning spectrum they do have a pipe and pricing power.

Aren’t there phone competitors to knock down the price? Hardly. Verizon Wireless, T-Mobile and others all joined AT&T in bidding huge amounts for wireless spectrum in FCC auctions, some $70-plus billion since the mid-1990s. That all gets passed along to you and me in the form of higher fees and friendly oligopolies that don’t much compete on price. Google Voice is the new competition.

AT&T has an exclusive deal with apple in the US, and this, Mr. Kessler leads us to believe, is part of the reason why Apple rejected the Google Voice iPhone App.

There should be more companies like Google.

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Why Is SMS So Expensive?

August 16th, 2009

It’s a 160 character string of information. Why does it cost me 25c to send? 160 bytes of data at 25c is $1638.40 per MB! A decent wireless data plan in Sydney costs about 2.5c per MB, so an sms message costs 65,536 times as much as a Internet message of the same size!

Ok, I’m not being fair here. There are sms headers involved that make the message more than 160 bytes. There will be packet losses along the way that might require retransmission, but even so, it certainly will still be more than 50,000 times as expensive per MB.

The major advantage of sms is that it uses a push protocol rather than the pull protocol used in email. This means that when Jannet sends an sms to Margaret, she can be sure that Margaret will receive the message and find out about her wonderful new pair of shoes. In a push protocol, Janet’s message gets sent to an sms server that will keep trying to send the message to Margaret until Margaret’s phone receives the message and notifies Margaret with that annoying message ring-tone that you hate. If she was using a pull protocol, then the message will still be stored on a server, but Jannet will have to wait until Margaret logs into the server and checks for the message.

This surely isn’t 50,000 times as valuable as normal Internet messages. Most modern phone can be programmed to check for messages periodically and automatically. To Margaret, a phone that can do that will be no different from a phone that gets notified of a new message by a server. In fact, a third party can easily set up a server that can offer a push message service at a far lower price than sms. There are already iPhone applications that do this.

Sms is way overpriced. Telcos are not making an effort to make it cheaper because the majority of consumers don’t know that it can be cheaper and are happy to pay the higher price. As soon as smart phones become more common and push message services become more prominent, sms will be dead.

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Tags: economics phone technology telcos