Price of Text Messaging

June 16, 2009

What in the world?

Got home from work and saw a piece on ABC News about cell phone execs testifying to the Senate about the prices of text messaging. 

Bad enough the Senate wastes its time on this.  Even worse how ABC News presented the story. 

First, ABC News never mentioned that text messaging is an optional service that users voluntarily and willingly pay to use.  Rather, the cell phone companies “gouge” consumers, because it only costs $0.01 to send a text message vs. the $0.20 “typical” price.  Not once was it mentioned that customers don’t need to use the service.

ABC didn’t mention the fixed costs of building the network to support text messaging, the percentage of text messages that are built-in to service plans and generate no additional revenue and, most importantly, never considering the service in terms of its value to customers.  

They pointed to all the cell phone companies raising prices on text messaging within a short time frame, alluding to collusion, but never considering that it might have been a response to the high demand (Econ 101: High demand drives up price). 

Which, brings us back to the customers’ value.  Customers are perfectly willing to pay the going rate, which means they find value in the service at current rates.



If ABC News thinks there’s such a fat margin in text messaging, maybe it should get into the business to increase supply and drive down costs.


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