Text messaging, or SMS, has become one of the core elements of the mobile world. Smartphones or dumbphones, prepaid or postpaid, everyone texts. You may not watch videos or take pictures or check your email—or you may do all of that plus download apps on the daily. Either way, you text.
The question is, why do you pay so damn much to do it?
SMS has been called "possibly the greatest ongoing con job of American capitalism" by William Poundstone. Sound sensationalist? Hardly. William points out in his book, Priceless: The Myth of Fair Value, that "the so-called market price of a text message has nothing to do with bandwidth or any technological reality." And he's right. Indeed, the cost of SMS is determined by how much consumers can be persuaded to pay.
In essence, wireless carriers ask you: just how badly can we rip you off?
And the answer is, quite a bit.
A text message is a package of bandwidth—AKA data. We all know that data costs money; that's why some of us stick with our dumbphones and why some of us get heart attacks when our monthly wireless bill rolls in. But when we think of data, we think of data plans; 500 megabytes for $10, two gigabytes for $25, or what have you. Text messaging, as has become fairly standard, is about $5 for unlimited SMS.
And that's the magic of it. Five bucks doesn't seem like a lot of money, and unlimited sounds like a lot of texting. Overall, it seems like a worthwhile feature and as such has become a staple in virtually all modern cellphone plans. Even discount wireless carriers such as Wind Mobile charge this flat fee for unlimited text messages.
If those guys feel the price is right, it's gotta be a fair deal, right?
Texting your friend "Hey, what's up, Joe?" costs a wireless carrier roughly 1/1,000 of a penny. That is to say, sending roughly 1,000 text messages should cost, at wholesale pricing, about a single cent. If you send a lot of lengthier texts, it might round up to two cents. The number crunching at this point is simple: unless you're sending 500,000 text messages per month, your wireless carrier is profiting. Most people send under 1,000, and many send less than 100—all the while paying $5.00 per month.
Myriad people have pointed out the unfathomable markup of text messaging. In 2007, one suggest markup was 7,314 percent. In 2009, a markup of 4,900 was calculated. In 2010, in an article titled "America's Biggest Ripoff," the markup was believed to be around 6,500.
The trouble is that consumers don't have a clue about what a text message is really worth—or rather, how damn little a text messaging is really worth. A Simon-Kucher & Partners survey found that consumers believed a multimedia message or email containing photo(s) and/or video(s) was worth roughly 3 to 4 times what a basic text message was worth.
In reality, an MMS or email is anywhere from a thousand to a hundred thousand times more data than an SMS.
Now imagine the people coughing up as much as 20 cents for a single message on pay-as-you-go plans. They're practically throwing money at telcos. But as if this isn't ridiculous enough already, there's icing on the cake: SMS are piggybacked onto cellular networks. This means that text messages occupy, as William puts it, "otherwise unused space in a control channel used for network maintenance." So texting, most of the time, doesn't even cost your wireless carrier that fraction of a penny. It costs them, quite literally, nothing.
From the early 2000s until now, prices for individual text messages on pay-as-you-go plans have quadrupled from an average of 5 cents to 20 cents. This is obviously wildly misaligned with inflation. It is instead more in tune with the rapidly growing volume of text messages: a high-demand, ubiquitous service can be marketed to boast a perceived value that is some ways infinitely greater than its real value.
Now go text this article to your friends. 500,000 of them, if you can.