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

Google Voice and TextFree

[Mean Variance]

I've found the available workarounds are sufficient to the point that I could give a crap about texting fees. I use GoogleVoice and TextFree and they work great. My wife uses Virgin Mobile for $25/mo (that's it no extra taxes or garbage) and can text to her delight.

I'm getting old

[guruevi]

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

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.

Anything to stop the carriers..

[iONiUM]

Well, I can't believe I'm going to say this considering I am definitely not a fan of Facebook, but if this is what it would take to make them drop the completely outrageous SMS price tag, then I'd support it.. And, that's knowing full-well that Facebook is just doing this to increase platform adoption, since if you want to 'text', you'd have to be on FB..

That said, I doubt I'd use it, just because I don't have a Facebook account. But I'm hoping it would lower the SMS fees for myself. Competition is good, right?

facebook very untrustworthy

[rubycodez]

the way facebook sells and shares private data is too scary, wouldn't want them to have personal contacts or phone browser information

Re:What will they think of next?

[avgjoe62]

I hear they're working on extracting fibrous cellulose from trees that, when dried, you can create images on using nothing more than a graphite stick.

Re:Another retread

[blueg3]

So it's Google Voice, but without the other features.

Re:except

[trapnest]

That's not really the case, most of the dumbphone "IM" applications are really sending IMs over SMS.

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.

Re:SMS uses the thin "control" pipe.

[Ungrounded Lightning]

The US market is very peculiar, so you might be spot on there, but over here in the EU where there is competition, SMS are in most cases free, even though they do as you point out actually cost quite a bit to service, the competition here is just so fierce you can't charge anything meaningful for them.

I agree completely (with the caveat that, if a significant number of people started using IP-over-SMS to avoid data charges it wouldn't stay free AND unfettered for long.)

The US cellular market has been noncompetitive from the beginning, due to a failing of the FCC: They defined "competition" to exist when there were TWO cellular carriers in a given market, and initially allocated the spectrum in a way that made it essentially impossible for a third player to get in. They stayed that way for decades, while a small number of carriers became entrenched.

Market forces don't significantly drive down prices until there are THREE competitors (or the barriers to entry are so low that a new player is always a possibility that must be headed off.) At two players the market forces drive their prices toward each other but don't penalize that price point being high. The incentive is still to go for all the market will bear, creating a defacto cartel with no communication but price signals. Add a third player and the incentive shifts toward defecting and sucking market share from both of your competition. (Or at least that's how I understand it.)

These days we've got opportunity for more players (with more bands, plus service alternatives). And we are seeing some price and service pressure. But we've got a long way to go before somebody with a better idea can get funding from investors burned by the .com collapse and roll out a continent-wide service that would win the resulting price war and the ability of the entrenched players to turn up more/better services when it's in their interest to do so.

a shiny new Thursday

[amaupin]

A young little application called Beluga caught the attention of Facebook, which purchased the company a Thursday.

Nice. Wish someone would buy me a Thursday.