
What's in a SMS message? The real cost & just how badly you're being ripped off - vantech
http://www.techvibes.com/blog/whats-in-a-text-message-the-real-cost-of-sms-and-just-how-badly-wireless-carriers-are-ripping-you-off-2011-07-05
======
ghshephard
You see this type of article design pattern frequently: "You are being ripped
off - Product A costs Company B a maximum of C Dollars on the margin, and they
are charging you D Dollars, which is many orders of magnitude larger than C"

The common rebuttal is: "You are making the mistake of calculating on the
Margin, you forgot to calculate E Fixed Costs"

But, I think of it somewhat differently:

It is rarely the case that you _have_ to use Product A at Price D, but you
still do, which means it usually has more value to you than Price D - and is
it that unreasonable that Company B should charge it's customers what their
customers value product A at?

I know I would.

As a side note - I've managed to get most of the people I SMS with frequently
into using WhatsApp, and, once I see that I've sent less than 100 SMS messages
for at least three or four months, I'll shift it over to my Data Plan.

Apple will likewise have simliar impacts when they bring their SMS alternative
online.

So - the free market does respond to this in a semi predictable and reasonable
manner.

~~~
burke
I think the real problem here is all the regulatory and financial barriers to
competing in the telecomm arena. The free market has a hard time sorting
itself out when there are so few players.

I don't have a solution to propose, but this is my observation.

~~~
InclinedPlane
This.

However, there is a difference between bulk, wholesale costs and individual
retail costs, and prices. SMS is hardly the one and only example of high
markup goods in history. Indeed, there are a plethora of entire industries in
the same boat. Consider toys, many toys cost a few percent of their in-store
retail prices, but again those costs are in bulk at wholesale. The same
applies to batteries. And everyone knows about the huge markups in furniture
and mattresses. The best advice is to find alternatives or shop around. If you
just give in and accept the price that means you've declared you value the
good you receive higher than the price you're paying for it (and in many cases
SMS's are worth as much as people are paying).

~~~
epscylonb
Adam smith said that something is worth whatever a person at a particular time
is willing to pay for it, there is no consistent, inherrent value in any given
trade.

SMS is popular because it is ubiquitous, the mobile phone networks have priced
it at a point where the vast majority of users are happy to pay for it. There
is no law against high profit margins, nor should there be in my opinion. You
could argue there is a competition/monopoly/cartel issue here, but that wasn't
too apparent in the article.

And as others have said SMS will eventually go away due to the availability of
data plans. I wish all my friends had data plans and were on twitter, I would
never need to send an SMS again, until then I can afford it, especially since
I don't send very many.

~~~
wlesieutre
Get Google voice, and port your existing number for $20. It doesn't do MMS,
but MMS alone isn't worth the cost of keeping a texting plan.

------
forgotusername
This is just repeating the same old crap that is completely devoid of anything
but the most abstract high level concepts of how these things work.

I can't claim to be any expert, but I know at least that in GSM a handset must
be allocated a _dedicated_ control channel from a limited number of timeslots
in the current cell for the duration of an SMS transaction. This happens on
the receiving and transmitting ends. In order to establish said channel, the
handset is first woken up through paging, which places load on another shared
channel.

For each physical frequency, there are only something like 16-24 slots
available. For each physical station, there may only be handful of frequencies
in use, perhaps only one.

Installation of a base station is not cheap. In a busy metropolitan area with
even 100 teenagers getting upset because their SMS failed to go through the
first time they tried to send it (and repeatedly pumping send until it finally
works), at least make a guess at the math involved for infrastructure costs to
support this kind of thing. Don't forget to factor in the load it places on
the random paging channels shared with voice signalling (again, more
investment in physical frequencies to reduce error rates here).

In short, I wish someone who actually understood this stuff wrote some kind of
rebuttal, the rhetoric is clearly at least a few parts bullshit.

Don't try to imagine this using some analogy like tiny UDP packets being spat
out on a packet switched network, that's not what these networks look like.
Transaction time is on the order of seconds, which requires a "physical"
circuit to be setup beforehand.

Yes, sending SMS would be practically free on the Internet, but that's
comparing apples to oranges.

~~~
pyre
The price of what unlimited text messages should cost aside, the ala carte
pricing of text messages (at least for US cell carriers) is _definitely_ price
gouging. It cost (at least at one point) ~25c to _receive_ a text message. And
I _have_ received spam text messages. This creates a perverse incentive to the
carrier to do nothing to block spammers on their SMS network.

Also, my wife has a pay-as-you-go plan and each text that she sends or
receives counts as a minute of talk time. I have a hard time believing that
setting up circuit from one end of the text to the other takes the same amount
of resources as a minute of talk time. Shouldn't a minute of talk time also
take up a circuit? Wouldn't a text occupy that circuit for a fraction of a
minute?

~~~
WA
This, by the way, is specific for the US. In Germany, and I believe in almost
any other European country, only the sender pays for SMS and calls. I spent a
year in the US and this was something I found quite irritating - being charged
for receiving a call.

~~~
kaitnieks
Wait, do you mean both the caller and the answerer pay for the call? Really,
aren't you confusing something?

~~~
sethg
Yes, really.

American cell-phone plans generally give you a fixed number of calling minutes
(plus various other bonuses, such as free calling on nights and weekends), and
once you go over the quota, you pay for receiving calls. I just checked out
the cheapest individual plan for Verizon in my area, and they charge 45¢ per
minute after your allowance is up.

I assume they set things up this way because cellphone numbers share the same
number space in North America as landline numbers, so if it costs more to
maintain a cellphone network, the operator cannot recover those extra costs
entirely from people calling into it.

------
kerryfalk
Cost != value.

To the consumer cost to the company providing the product/service is
irrelevant. What really matters is the value you extract for the price you
pay.

Some products need to be sold at a loss for anyone to consider purchasing
them, some are sold at a loss to get you to buy other products from the same
company, and some are sold with significant margins. None of these situations
really matter to the consumer, do they? All that matters is that I'm getting X
and am willing to pay Y. If I can pay .5Y, then that's great I just earned
myself a deal. I may not want to pay 1.5Y though.

So from a consumer perspective... I don't understand "how badly you're being
ripped off". As an entrepreneur though I read that and think, potential
opportunity. Any product/service that has extremely large margins has
potential for competition and profits. For a short time at least, until the
race to zero makes it less compelling to compete any longer.

~~~
kirvyteo
I agree. Part of the value is that it is a default application in every phone.
My previous startup provides an SMS gateway that sending 500K messages each
year to mostly SE Asia receivers (small amount compared to what other
providers do) Even now although data plans are getting cheaper and more
common, there are still a lot people NOT carrying IPhones, Androids, BB etc.
If you want a ubiquitous push notification mechanism, SMS is still the only
app. And maybe part of the reasons why the author is ranting about this is
because when I compare SMS rates across different countries, US users are
paying quite a premium for SMS as compared to Asia or SE Asia where I am
located.

~~~
pyre
Canadians are paying a premium too.

------
michaelfairley
"You've found market price when buyers complain but still pay." - pg

~~~
olihb
Only if you lower the price (within reason) and you don't get more
customers...

People were buying cars before Ford, but more people bought them when they got
cheaper.

~~~
dfox
Only when you lower the price and get more profit as you can easily get more
customers but actually lose money in process.

------
jfruh
I'm always amused when tech types (who tend to lean libertarian) act so
outraged when something they purchase doesn't correspond to costs + some
"fair" markup. (People seem particularly fixated on the prices of ebooks and
text messages, for some reason.) Do you want to question the basis of
capitalism and the free market? I'm all for it! But if you don't, don't
complain when companies charge what the market will bear. Don't hate the
players, hate the game.

~~~
jseliger
I think the objection here is to the cell phone market, which more resembles a
cross between an oligopoly and a cartel than a free market. You only have a
handful of players and giant barriers to entry, so it's not easy to send a
real signal about your unhappiness or choose an alternative.

~~~
krschultz
A "free market" doesn't necessarily lead to a bunch of competitors. Everyone
has this picture of a free market with 20 competitors and low prices, but a
free market doesn't always work out that way. A couple of years ago we had a
bunch of cell phone companies to choose from, but they keep merging because
the infrastructure costs kill the small players. A small part of that is
regulation, but most of it is just the intrinsic cost of building and
maintaining a telecom network.

~~~
tomjen3
Maybe not, but there will be very low barriers to entry.

G+ could be created by anybody who had the dollars to buy enough servers (and
the engineering capability to build it), it did not require a government
license.

------
jws
Not that the telcos aren't plundering the citizens, but the SMS messages do
travel in a special channel that let's you get them in a timely manner without
killing your battery. It has rather small bandwidth compared to the entire
cell, and that scarcity for premium functionality should cost more.

That said, AT&T takes so long to deliver a text between my family that they
may as well just poll infrequently in the regular channels.

~~~
sliverstorm
Scarcity? What? Text messages are sent using idle channels that are not busy
at the moment. It's only a scarce resource in the case that the available
channels become saturated, in which case the provider has no qualms about
simply dropping your text message.

~~~
jws
Text messages are sent in the signaling channel, this is the channel that
tells your cell phone it has a call and other stuff interesting only to
telephones. The advantage here is your phone is always listening to that
channel.

SMS is sent during idle spots in that channel, but it is a very limited
channel and you couldn't run large amounts of data through it, there just
isn't enough idle time.

 _Scarce idle time_ sounds oxymoronic, but it is only _idle_ in the sense that
it isn't connecting and disconnecting phone calls.

~~~
dfox
In many installations it was very well possible to take down entire cell by
mobile terminated short message traffic, which is fact that is highly
inconsistent with this "idle channel theory". The GSM signaling infrastructure
is not especially suited to reordering and queuing of signaling frames. The
scarce resource here is time on PCH (MT case) or RACH (MO case, which is more
significant as contention there can waste resources even more), actual data
transfer transaction is relatively expensive (and not-so well designed), but
comparable in resource consumption to initial allocation of used SDCCH. By the
way, it's interesting to note that source and destination addresses of SMS can
be larger than it's payload.

------
numlocked
As a group of software developers, I suspect there won't be much sympathy
found here. You shouldn't price at cost+, but rather at value+. Many of us
work on SaaS solutions, which have little to no marginal cost, yet we charge
for the service.

~~~
pyre
But what are the fixed costs of SMS? It's traveling over a network that was
initially built to carry voice traffic, and is currently expanding to carry
data traffic. How much of the network was built specifically for SMS? It
really seems like it was something shoehorned into existing infrastructure. I
have a hard time coming up with the fixed costs of SMS (at the carrier level;
You could always add the cost of phone makers to build in support, but that's
not the carrier's job).

~~~
chappar
Unlike voice, SMS will be stored in a server and in case your mobile is
switched off you will still get the message, when you switch on your phone.
So, there will be bit extra cost for maintaining these servers.

------
zobzu
when ive got my first mobile phone, in the 90's, SMS were actually free. one
day they decided they could ask money for it. the rest is history.

I wonder how much really cost internet data traffic however.

~~~
jonhohle
They first started charging for sending, receiving remained free for several
years (I used my phone as a pager from 2001-2003). Then they started charging
both sides of the transaction.

It would be nice if they at least only charged different accounts. Texting
anyone on my family plan means I pay for both sides.

------
DanI-S
If SMS was always free, but plans cost $5 more than they do now, would anyone
even notice or complain?

~~~
angus77
??? You think nobody would complain if their phone bill went up?!

------
noselasd
I guess it all depends on who you are. Some international carriers I've worked
with, handling SMSs is a net loss to them - but they have to do it(as a side
offer to gain customers for services they do make money on, mostly voice
traffic, and because they're lawfully bound to do it as they're operating a
country's international SS7 border gateway).

Also, telco equipment isn't cheap. All those tens of thousands radio towers,
exchanges, cables cost arms and legs. They have to make that money somewhere.
Though, I've no doubt someone's getting far richer on your SMSs than what
would be sensible. Entering this market is a huge barrier - you need expensive
equipment, you need licenses, you need interconnection arrangement with other
carriers, and you often need to build up a physical network. Thus, few actors
and little competition.

Here's btw. a screenshot decoded SMS message captured on a SS7 network for
your pleasure :-) <http://imgur.com/E0qKv>

------
bxc
I think the main rage people get here is when they get data on their phone and
so can make a much more of a "like-for-like" comparison between various means
of delivering 132 characters delivered to/from a mobile device.

I mean of the user experience, not of the very different backend networks in
place.

------
GrooveStomp
And that's why I'm on a $10/mo unlimited data plan, which naturally includes
text messaging as "data".

~~~
zobzu
what carrier/country?

~~~
aikinai
I'm not the parent, but if you were grandfathred in (or I've heard there are
tricks to get it from scratch) T-Mobile has a $5 unlimited data plan (in the
US). It doesn't include texting, but you can just use Google Voice.

~~~
pyre
Talking about this? [http://www.fiercewireless.com/story/t-mobile-usa-closes-
data...](http://www.fiercewireless.com/story/t-mobile-usa-closes-data-plan-
loophole/2007-03-05)

Looks like that's no longer an option.

~~~
aikinai
Sorry for the late reply. Yes, that is the plan I'm talking about, but the
article is incorrect. They never closed the loophole; they completely opened
it.

Anyone with the $5 plan actually has free access to any data connection;
T-Mobile doesn't even try to separate it from the other data plans. The only
problem is they don't officially offer it anymore.

I've heard some people have managed to convince customer service reps to turn
it on from scratch by calling with their SIM in a feature phone and saying
they want an old cheap data plan that would support their old cheap phone for
doing simple online tasks.

------
corin_

      the cost of SMS is determined by how much consumers can be persuaded to pay
    

Correct, that's what happens in a free market. Since when are businesses
supposed to price according to the cost of what they are selling? Their job is
to make a profit, and the best way to do that is to find the balance between
the highest cost and getting as many people as possible to pay that price.

Not to mention that SMS messages being more expensive than they could be is
hardly a new fact, and indeed is written about often enough that it has been
on HN multiple times in the last year alone.

~~~
lukeschlather
Wireless is in no way a free market. It is tightly regulated with monopolies
granted to the highest bidder.

~~~
rapind
Exactly. I'm all for a free market in this space. With margins this high,
everyone would get into it.

------
Derbasti
Did you know that data being sent as a text message is several orders of
magnitude more expensive than sending data to the hubble space telescope
(about $8 per Mb)?

------
pwaring
"prices for individual text messages on pay-as-you-go plans have quadrupled
from an average of 5 cents to 20 cents"

Really? In the UK they've stayed static at about 10-12p for at least ten years
(for a 'standard' text on a PAYG plan, assuming no extras which give you
reduced rates on texts to certain people etc.). We're also not charged for
receiving standard texts (there can be a charge for premium ones, but not
everyone can send those).

~~~
Swannie
Yes. In the UK, as with most of the world, we embraced text messaging (12years
ago I was txting every day). In the USA, this took a lot longer, with phones
often note supporting SMS.

------
tsotha
Who pays by the text? Don't most plans include a large number of free SMS
messages?

Besides, this guy's analysis is very flawed. For one thing, SMS messages don't
take the same path as data. They can't, since so many people (still) don't
have smart phones. Also, the idea that because one kilobyte costs x that one
byte ought to cost x/1024 completely ignores setup and fixed costs.

~~~
pyre
What are the fixed costs for SMS? Aren't they using infrastructure that was
setup for the voice network? Can you really call the cost of setting up a new
cell tower a 'fixed cost' of SMS (i.e. doesn't it also carry data and voice)?

~~~
tsotha
Well, the money has to come from somewhere. You say SMS uses infrastructure
that was set up for the voice network. But you could just as easily have said
voice uses infrastructure that was set up for the SMS network, which would
make SMS a bargain and voice overpriced.

Mobile carriers put enormous amounts of money into their infrastructure.
Billions and billions, on top of the tens of billions they paid for spectrum.
And they're not charities, so one way or another all that's going to get
billed to customers, whether it's voice minutes, SMS, data, or plans with bulk
minutes/messages/MB.

~~~
pyre

      > Well, the money has to come from somewhere. You say SMS
      > uses infrastructure that was set up for the voice
      > network. But you could just as easily have said voice
      > uses infrastructure that was set up for the SMS
      > network, which would make SMS a bargain and voice
      > overpriced.
    

The primary motivation for rolling out the cell networks was to provide voice
coverage, or else SMS wouldn't be a hack on to the GSM protocol and we won't
have things like a 140 character limit. Also, implementing things like E911
take a lot more money than sending 140 characters of text through some control
channels, even if it _is_ a switched connection.

This is hardly a "you say tom-ay-to; I say tom-ah-to" sort of situation. Using
your logic we can attribute the roll out of phone lines as a 'fixed cost' of
dial-up networking, but I doubt you'll find many supporters in the idea that
all those lines were laid for the expressed purpose of dial-up and that analog
voice calls are just 'piggy-backing' on the dial-up lines.

    
    
      > And they're not charities
    

Where did I claim that they are not allowed to make a profit? I was just
generally curious as to what fixed costs could be attributed directly to SMS,
seeing as the majority of the infrastructure was rolled out for voice or data.

~~~
tsotha
_The primary motivation for rolling out the cell networks was to provide voice
coverage, or else SMS wouldn't be a hack on to the GSM protocol and we won't
have things like a 140 character limit._

Before there was voice, there was paging. I'm not super familiar with GSM, but
I know for CDMA the reason SMS messages have a small fixed size is they used
to go out over the paging channel. I don't think that's the case any more for
CDMA. I'm kind of surprised it is for GSM.

In any case, the point is there's no objective way to untangle costs in an
item that has a large implementation cost but provides more than one service.

------
tylerneylon
A deep problem seems to be a high barrier-to-entry for would-be competing
carriers. If it was easy to start a business that charged rates people were
happier with, someone would do it, and make a good deal of money. As things
currently are, there's no real incentive for carriers to change -- they get
away with it because consumers don't have a choice.

~~~
tsotha
That barrier is impossibly high, at least in the US, because there's a
constrained resource involved: spectrum. I suspect it's quite literally
impossible to start a nationwide carrier at this point without congressional
action to reallocate frequency bands from some other use.

------
dlsspy
Wow. I feel violated.

 _grabs water bottle_

~~~
burgerbrain
Water bottles are great. Way better than those absurdly overpriced bottles of
water!

(Odd how one ordering of the two words seems to imply to me a sort of reusable
bottle made of heavy plastic or metal while the other ordering implies those
cheap plastic bottles of water that often times cost as much as the reusable
ones anyway).

~~~
dlsspy
Heh. I didn't read it that way. I thought you meant a block of ice with a hole
in it.

My sigg has been beaten near death. Horribly dented, etc... I'll keep using it
as long as it keeps holding water. Then I'll get a new one and take _it_
snowboarding for a while.

------
vyrotek
I hate being ripped off just as much as the next guy...

But, I don't think showing the cost of SMS is the right way to fix the market.
Guess what, there are a lot of things in this world that you buy with
ridiculous mark ups.

~~~
burgerbrain
What exactly is the harm in informing people?

------
pistoriusp
Most of my friends are now using app phones. So we communicate with apps
rather than SMS.

Most of the time when I get a SMS it's when someone is trying to sell me
something I don't want.

~~~
billybob
Isn't that infuriating? The carrier is literally selling you spam: they charge
you to receive that spam message. They could provide a whitelisting service,
which would be technically simple to implement and would solve the problem
completely. But they have incentive not to.

~~~
pistoriusp
I'm in South Africa, so we've never had to pay to receive text messages, just
to send. But it's crazy expensive.

------
ThomPete
The number I heard being said by people in the industry is SMS 150000 times
and voice 1500 times.

------
aroon
How much something costs is not the same as how much it is worth.

~~~
pyre
True, but people tend to get a little irritated when the price is jacked up by
what amounts to a government-sanctioned cartel. "Voting with your money" has
little to no effect.

------
aneth
I suppose 37 Signals and Adobe are ripping off their customers as well because
their marginal cost is close to zero and they are charging... more than zero.

Actually, I agree SMS is a ripoff, but the marginal cost isn't why. It's a
ripoff because it's something people want and there is no other way for them
to get it, which is an effective monopoly. With Google Voice and other
competitors gaining adoption on smarter phones, I expect this to change.

~~~
CognitiveLens
This. Let's remove all of the technical arguments and just put it this way:
even if the telcos were using magic to transmit messages, which is
theoretically free, I would still be willing to pay them $5-$10/month for them
to perform that magic, because contacting my friends through texts is worth
that to me - I have no cheaper way of getting that exact service and
ultimately it's worth what they are charging, to me.

The monopoly argument does resonate, however, and I agree that introducing
competition is a great advance.

Do people feel that self-sustaining websites are a ripoff because the creators
no longer have to put in any time or effort to earn revenue?

------
trezor
Crosspost of my post on reddit on why these analyses are flawed (from
[http://www.reddit.com/r/technology/comments/hu4l1/apples_ime...](http://www.reddit.com/r/technology/comments/hu4l1/apples_imessage_in_ios_5_works_transparently_text/c1yh3l3)
):

SMS is "expensive" anywhere in the world when counting $s/byte, it's not just
the US. The reason is that you cannot simply do price comparison based on
data-rates: it's a flawed top-level down approach ignoring very real concerns
and constraints.

The reason for SMS being relatively expensive per byte is that it's actually a
hack which allows us to send data over the global GSM control channel, not a
regular phone-allocated voice/data-channel. This makes it's main carrier a
very bandwidth constrained channel and SMS is second class traffic sent on a
as-available basis, but with queued on demand push-reception for the
recipient.

Your data-traffic however has a dedicated channel, realtime priority, and
realtime constraints, and it would need to go trough a intermediate service
which can queue it if the receiver is not there. And the recipient would have
to have an always on data-connection polling for incoming messages, draining
your battery, much like Email push-notification does on modern smartphones.

In other words: Data and SMS are fundamentally different services, operating
with fundamentally different channels and technologies. Your OSI-minded
application-level analysis is incomplete.

True, this might not make much difference to the end-user of the service
provided, but there are technical reasons for why SMS and data is treated and
priced differently.

As long as SMS is a defined standard as it is now, and that standard involves
piping shit trough the GSM control channel and not using data (something you
don't want when roaming abroad), the fact that they are priced differently is
perfectly reasonable. If the price-difference itself is reasonable is another
debate all together.

------
drivebyacct2
Why do people keep texting? Everyone I know uses a smartphone that could be
utilizing free data via Google Voice, not to mention there is iMessage,
Huddles and other cross platform alternatives that are cheaper and
technologically superior to SMS.

~~~
noselasd
Chicken and egg problem ? None of my friends are using any of the smartphone
bundled programs/services. Thus I can't send them messages by other than SMS.

Once you go down the path of using one of these other services, there's a
standarization problem. I'd go nuts after a while if I had to juggle Google
Talk, MSN, Huddles, or even fiddle with setup to make the multi protocol
messaging applications play nice.

SMS is ubiquitous, and just works.

~~~
drivebyacct2
Sure you can, Google Voice or one of its competitors (important since Voice is
US-only).

------
vacri
Sensationalist crap. If the costs to to the company to send a thousand text
messages is a penny and they're charging $5 for it, then they're getting a
50,000% profit. You'd think that investors would be car-bombing each other for
returns like that.

'Greatest ongoing con job'? Really? When the US housing con job was exposed,
the world economy tumbled. SMS con job exposed... people shrug and go on.

I find it somewhat ironic that on a site dedicated to "find a niche and
exploit it", there comes this article screaming 'bloody murder!' about
business providing a service for a price above the bare bones wholesale cost.

