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Text Messaging Rates Questioned

Dec 29, 2008 | Parker Waichman LLP

Consumers may be getting scammed when it comes to cell phone text messaging rates, according to a new report in The New York Times.  As the Times article points out, cell phone carries incur virtually no costs when customers send text messages, yet text messaging rates have doubled over the past several years.

Since 2005, customers of Verizon Wireless, AT&T, Sprint and T-Mobile have seen their text messaging rates jump from 10 cents a message in 2005 to 20 cents a message.  The latest price hikes came just one year after all the major carriers raised individual text messaging rates from 10 cents a message to 15 cents per message. Sprint was the first carrier to increase the text message rate to 20 cents in the Fall of 2007, and all of its three main competitors quickly followed suit.

These cell phone text messaging hikes occurred during a consolidation of the industry, which reduced the number of national wireless carriers in the U.S. to four from six. Verizon Wireless, AT&T, Sprint and T-Mobile also increased their text messaging rates at nearly the same time, with identical price increases.  Consumer advocates have suspected that these carriers have engaged in illegal price fixing.

These text message rate increases also do not appear to be justified by the cost of transmittal.  Because text messages are generally limited to 160 characters per message, they are very small data files - generally a fraction of the size of a typical email.  Therefore, they cost carriers very little to transmit.  One website calculated that at the rate of 20 cents per message, cell phone carries were charging the equivalent of $1300 per megabyte to transmit a cell phone text message.

The text messaging rate controversy came to the fore earlier this year, when Sen. Herb Kohl, a Wisconsin Democrat, sent a letter to the four major carriers asking about the rate increases.  The senator wrote that he was concerned with the size of the increases, their timing and the fact that they appeared to be the result of a lack of competition in the market.  He asked the companies to provide  information on cost, technical, or any other factors that justify a 100 percent increase in the cost of text messaging from 2005 to 2008.

According to The New York Times article, the carriers have responded, but their responses do not address the actual cost of transmitting text messages, and how rates reflect those costs.  What's more, Verizon has even forbidden Sen. Kohl to publicly release their response, the Times said. One reason they are so elusive on this point might be the fact that it costs the carriers little to nothing to transmit such messages.

According to the Times:  "Text messages are not just tiny; they are also free riders, tucked into what’s called a control channel, space reserved for operation of the wireless network.

That’s why a message is so limited in length: it must not exceed the length of the message used for internal communication between tower and handset to set up a call. The channel uses space whether or not a text message is inserted."

The bottom line is that text messaging is virtually a cost-free proposition for cell phone carriers.  And, with text messaging up 32 percent since 2007, it is obviously a very lucrative business for these companies.  As the Times points out, even when customers opt to purchase unlimited messaging plans - which cell phone carries claim can lower costs to as little as a penny a message - the companies still stand to make a killing.

But it seems consumers are finally starting to catch on to the carriers' text messaging shenanigans.  According to the Times, since Sen. Kohl's letter  was made public, 20 class-action lawsuits have been filed around the country against the major cell phone carriers.  They all allege price-fixing for text messaging.



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