Are Text Messages an Antitrust Issue?

Are Text Messages an Antitrust Issue?

March 17, 2011
Originally published in The American Spectator

Text messages are expensive. Most carriers charge customers 20 cents for every text they send. But the tiny messages use up only a fraction of a penny's worth of bandwidth. Why do networks charge so much for something that costs so little?

Some people think it's an antitrust issue. The Senate Judiciary Committee's antitrust subcommittee even held a hearing on text messaging fees. Are service providers abusing their market power? After all, competitive markets tend to put downward pressure on prices. But phone companies are charging more for texts than ever before. And they've been raising their rates almost in lockstep.

Five years ago, the going rate was 10 cents per text message. Then Sprint raised the price to 15 cents. Competitors could have used their lower prices to lure away Sprint's customers. They didn't. They raised their prices to match Sprint's. The move to 20 cents per text followed a similar pattern. Suspicious.

So maybe this is an antitrust issue. But it could be something else, too. Maybe phone companies are unbundling texting from their other services. That way the only people who pay for text messages are the people who use them. If phone companies don't have to provide texting service for people who don't want it, they can keep costs down and charge lower prices.

But why 20 cents per message? Carriers offer unlimited texting for a flat rate, often $5 per month. If you send more than 25 text messages per month -- about one per day -- you're better off going with that flat rate. The 20-cent price may have been deliberately set to encourage daily texters to move to the flat rate.

That way the provider doesn't have to keep track of how many messages those customers send. That takes time and money that could be better spent on other things, like network upgrades. It also gives the company a more consistent and predictable revenue stream.

Why not just give all customers unlimited texting and charge a higher monthly bill? That would punish people who don't text, such as this writer. By eschewing the flat rate and tolerating a few texts per month from family and friends who haven't been properly trained, non-texters can save $50 or more per year.

The whole point of unbundling texting from other services is to keep costs down. If you don't use a service, you shouldn't have to pay for it. That's why there are different data plans, separate charges for insurance, and different warranties. Another advantage to unbundling is that companies can better keep track of which services are popular and which aren't. It helps them adapt to customers' wants more quickly.

That's also why airlines now charge for services they used to provide for free. Customers can pay for the services they use -- a glass of wine, perhaps -- and not pay for the services they don't use, such as a blanket and pillow. It saves money for customers and airlines alike. You get a cheaper ticket because the airline doesn't have to buy as many blankets.

So maybe outrageous texting prices are a creature of unbundling. But let's go back to the monopoly argument. It is suspicious that major providers raised their texting prices almost in unison. It could just be that companies copied their rivals' successful business strategy. But let's assume, for the sake of argument, that there is a texting oligopoly. Providers are taking unfair advantage of their customers. They're colluding.

They're also screwed. It turns out that a young company called Beluga makes a free texting application for smartphones. Few things are as temporary as monopoly (or oligopoly) power. Since Beluga bypasses the texting cartel, you can have unlimited texting without the $5 monthly fee. Think of it as Skype for the text messaging set.

Not a lot of people know about Beluga yet. But Facebook is in the process of buying the company, and is planning to integrate it into its service. Remember, Facebook has over half a billion users. The texting cartel is going down, even without the Department of Justice's involvement.

There are two lessons for trustbusters here. One is that if it looks like an antitrust issue, it probably isn't. And if it is, it's not long for this world. Competition is an ongoing, relentless process.