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You’re being gouged for text messaging

As if you needed to read that title to know that your wireless carrier is making boatloads off SMS charges. Apparently, though, some people think that the rise in text messaging costs over the past two years has been “business as usual.” The demand has increased, so that means higher prices right? Not so fast. Randall Stross of the New York Times walks us through text messaging, focusing on the insane profits wireless companies reap from the poor consumer.

Since 2005 text messaging rates from the four major carriers has increased from 10 cents to 20 cents. Yet carriers write this off as if it’s no big deal. You can get a bundle, they say. That makes messaging even cheaper than 10 cents a text if you use it right. Then one of them like, oh, say, T-Mobile, goes onto say that their “average revenue per text message, which takes into account the revenue for all text messages, has declined by more than 50 percent since 2005.” Yeah, well, when your total volume of text messages rises to 2.5 trillion in 2008 — and 3.3 trillion in 2009 — it’s not like they’re missing the money.

The poor part about a text messaging bundle is that, like a contract plan, you have to use your allotment to its fullest to reap the greatest benefit. Most people do not, so the carrier rakes in the profits. This is just one of the tactics the big carriers are allowed to employ because they were issued an artificial monopoly by the government.

Srinivasan Keshav, a professor of computer science at the University of Waterloo, in Ontario, puts things into perspective: “Operating costs are relatively insensitive to volume…It doesn’t cost the carrier much more to transmit a hundred million messages than a million.”

So, essentially, here’s what’s happening. Demand for text messaging has risen. Regular consumers assume that supply has stayed the same, therefore there is a great demand for an old supply level, meaning higher prices. However, supply has risen with demand. It’s no more expensive for the company to transmit its current volume of text message than it was to transmit 2006’s text messages. Yet wireless companies don’t have to be up front about that. Even after Senator Herb Kohl implored the carriers to submit answers to questions regarding text messages, we still haven’t seen any up front statements on the matter.

This is the danger of the government issuing monopolies. The consumer gets hurt in the end while the company is free to charge whatever it wants for a product. The worst part is that apparently wireless carriers don’t even have to be up front about why they’re upping rates. They just do it, and because there are so few alternatives people are stuck with it.

Remember, though, wireless is in its infancy. Let’s hope we get past these early issues now so that we can move on and innovate.