Facebook May Bust Up the SMS Profit Cartel

AndyAndyAndyAndy writes "Fortune had an interesting article recently about wireless providers and their exorbitant profit margins for SMS handling, especially when looking at modern data plans. 'Under the cell phone industry's peculiar pricing system, downloading data to your smartphone is amazingly cheap — unless the data in question happens to be a text message. In that case the price of a download jumps roughly 50,000-fold, from just a few pennies per megabyte of data to a whopping $1000 or so per megabyte.' A young little application called Beluga caught the attention of Facebook, which purchased the company a Thursday. The app aims to bring messaging under the umbrella of data plans, and features group messaging, picture and video messaging, and integration with other apps. The author argues that, if successful, Beluga (or whatever Facebook ends up calling it) could potentially be the Skype/Vonage or Netflix-type competitor to the old-school cellular carriers and their steep pricing plans."

Comments

Re:I'm getting old

[DeadCatX2]

"basically" nothing?

Every time your phone pings a cell phone tower, it transmits a packet of data to and from the tower. This packet of data has some spare space at the end. This bit of room is where the put the text message data.

Your phone is using the text message's bandwidth whether or not you're sending or receiving a text message.

Quite the racket they've got going, making you pay to make use of bandwidth that you're already consuming regardless of the use of text messages.

SMS uses the thin "control" pipe.

[Ungrounded Lightning]

I remember when SMS was free and was hidden in the advanced menu of a 3-line text display of a phone.

SMS messages go over the (VERY!) low bandwidth control channel used for communication between the cellphone and the tower, and from there over the call set-up channels among the towers, their controllers, and the rest of the telephone network. Using them to let cellphone handsets emulate a text pager (and a text pager message sender) was something of an afterthought, put into the GSM spec and then ported to others. Because they're on the control channel, they work even if the phone has no data service or is not data service capable.

Once they caught on and started having major traffic despite the small packet size, the telcos put a price tag on them, both to try to avoid channel saturation and as a handy revenue stream. (Yes even a large number of the little text messages wouldn't clog the channels. But a customer-deployed IP-over-SMS would have been trivial. Charging a few cents for every 140-byte packet killed that idea.)

Now that mobile data services has created a fat data pipe under the separate "payload" bandwidth, moving the services currently running on SMS makes great sense for the users. But now that SMS messages have become a major income stream, despite their extreme price, the carriers have no incentive to kill this surprise cash cow. So the innovation has to come from apps developers.