4,900% markup on some text messages, researcher estimates
Last Updated: Thursday, June 18, 2009 | 5:34 PM ET
CBC News
It costs a cellphone company a mere third of a cent to transmit a text message that it charges customers as much as 15 cents to send, estimates a University of Waterloo professor.
"Some people think it's not a big deal," Srinivasan Keshav told CBC Radio's The Current Thursday. "But others might think that the markup of 5,000 per cent is a bit excessive."
Two days earlier, Keshav testified as much to the U.S. Senate Subcommittee on Anti-Trust, Competition Policy and Consumer Rights, which was examining text messaging rates and competition among wireless carriers.
According to the Canadian Wireless Telecommunications Association, which represents the cellphone industry, Canadians send 77 million text messages a day. Like carriers in the U.S., most Canadian wireless providers charge 15 cents for each text message for customers who don't have a text messaging plan. However, most wireless users do have a text messaging plan that offers cheaper rates, Keshav said.
Keshav, who holds a Canada Research Chair in tetherless computing and has studied cellphone networks for the past five years, was asked by the U.S. Senate committee to:
- Estimate the cost to the carriers of delivering a text message.
- Give his opinion about whether recent increases in the price of text messages for customers without a text messaging plan were justified.
Keshav estimated that the cost of carrying the text message, based on the network equipment required and the billing costs, was "very unlikely" to exceed a third of a cent.
He told the committee he did not think price increase were justified, as they would only be reasonable if they were intended to decrease network congestion. Such congestion is unlikely being caused by text messages, given the number of messages transmitted compared to the number of available cell towers, he said.
Bulk pricing 'typical': Telus
But Telus spokesman Jim Johannsson defended the markup charged to customers without text plans as being similar to practices use by companies that sell other commodities.
"It's in line with bulk pricing that's used elsewhere in the world," he told The Current Thursday from Edmonton. "It's pretty typical."
He also challenged the accuracy of Keshav's estimates, saying they left out some big costs such as the cost of running secure data centres that the company needs for data storage.
Johannsson added that about 90 per cent of Canadian cellphone customers have a service bundle that includes text messaging. For Telus customers, prices range from $3 a month for 30 outgoing and unlimited incoming messages or $15 a month for unlimited text messaging. Customers whose plans don't include text messaging are typically people who don't use text messaging much, such as those over the age of 50, he said.
