Mobile Carriers Don't Want To Give Up SMS Without A Fight

from the what-a-racket dept

Apparently there was some tension at the Mobile World Congress—the world's largest mobile phone trade show—as the growing battle over text messaging took center stage. As you may know, SMS text-messaging is a rip-off, and a huge cash-cow for the mobile telecoms, who charge premium rates for a service that has an effective cost of zero (SMS messages are encoded into regular signals that cell towers have to send anyway). But they are losing a growing chunk of that income to data-based messaging services like BBM, iMessage, WhatsApp, Facebook Messenger and more. Naturally, they aren't happy, and they try to frame it as an unfair disruption of their business model:

Needless to say, mobile companies are not happy at the flood of free messaging services piggybacking on their networks. Telecom Italia chief executive Franco Bernabe told MWC that free messaging services are undercutting the ability of phone companies to invest in their networks. Paid texting, or SMS, has been a cash cow for phone companies which uses minimal network capacity.

The new players "have based their innovation in the mobile domain, without a deep understanding of the complex technical environment of our industry. This is increasingly creating significant problems to the overall service offered to the end user and driving additional investments for mobile operators," Bernabe said.

None of that makes a lick of sense. Bernabe is basically saying that everyone else has a responsibility to not build data apps that compete with telecom services, but unfortunately for him that's not how free markets work. Rather than seeing the huge opportunity that is the growing demand for wireless data access, the telecoms have decided to focus on the one thing that has stopped SMS from being completely replaced already: the lack of a single standard alternative. GMSA, a mobile industry group, has built a new cross-platform messaging service that they hope to get pre-installed on all cellphones and have become the standard for all text, photo and video messaging—though they haven't announced how much they plan to charge for the service. They claim that nine out of ten major device makers have signed up, with all eyes falling on Apple as the probable holdout: Apple is on a crusade to kill SMS messaging, and they likely would have succeeded by now if they weren't committed to their own walled-garden approach that pushes everyone towards iOS.

Of course, the same conference was also attended by the companies that have the telecoms so frightened. Joe Stipher, co-founder of messaging service Pinger, had a wiser perspective on the direction things are headed:

"Text messaging is free, and calling is going to be free," said Stipher, wearing jeans that contrasted with the dark suits favoured by thousands of mobile phone company executives attending the four-day 2012 Mobile World Congress that ended Thursday. "Data is going to be like electricity or water, not totally free, but do you worry about giving someone a glass of water at your home or letting them plug in? No."

I actually think that could be slightly better worded: in the future, there will be no more distinctions like "text" and "voice". Everything is just data anyway. But Stipher is absolutely right that bandwidth is becoming a generic utility, and that's something the telecoms have to accept. For some reason, they are terrified of becoming "dumb pipes"—they want to be "smart pipes" that charge premiums for different "kinds" of data, even though that's basically an imaginary concept. It's an odd attitude, because being a dumb pipe for something that everybody wants is a pretty good position, and if you accept it then you stand to make more money by letting people build whatever they want on top of what you provide. Truly, this would be the smart thing for a pipe to do, and Stipher has some fun with this by co-opting the term for himself. The carriers play along, using their own definition, and what results is an amusing portrayal of the mental disconnect that exists:

[Stipher] explained that "The carriers should be smart, reliable pipes" providing internet data access like utilities give reliable water and electricity, he said. "They need to focus on being good network operators."

[Rene] Obermann [chief executive of Germany's Deutsche Telekom] said carriers are at a crucial point at which they must "develop our own, innovative product suites" through cooperation with the smaller messaging companies. "The smart pipe will be one of the areas where (telecommunications companies) will show their innovation," he said.

Of course, Obermann's own company has a venture capital division that invested $7.5-million in Pinger, so maybe on some level he knows which way the winds are turning.



Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    Tim K (profile), Mar 2nd, 2012 @ 12:38pm

    Needless to say, mobile companies are not happy at the flood of free messaging services piggybacking on their networks.
    Last time I checked I was paying for the data these services are using, and still being throttled if I used too much of my 'unlimited' data

     

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  2.  
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    DannyB (profile), Mar 2nd, 2012 @ 12:41pm

    Felony interference with a business model

    I don't see what is so unfair about it.

    I pay for my mobile bandwidth.

    I have a phone that can install apps.

    Apps are allowed to send and receive data over the internet.

    Building an instant messaging app is not breaking any law. In fact, it is a logical extension of similar apps that have been on desktop computers for years.

    Any developer could build such an app. In fact, the more difficult part is building (and paying for) a central server for routing the messages between users.

    So what's the prolem?

    SMS messages cost $8000 per kilobyte? Internet packets are a whole lot cheaper than that, even with data caps.

     

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  3.  
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    illuminaut (profile), Mar 2nd, 2012 @ 12:46pm

    But Stipher is absolutely right that bandwidth is becoming a generic utility, and that's something the telecoms have to accept.

    I'm sure they can see the trend, but that doesn't mean they can't try to exploit the status quo for as long as they can get away with. To be fair, the telecoms currently rely on the money they make from treating data differently based on what it's used for, and it will take time to build a sustainable business model around a new approach, so it makes sense that they're not ready to just give up their cash cow.

    None of this would be an issue for the consumer at all if true competition were allowed to exist.

     

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  4.  
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    :Lobo Santo (profile), Mar 2nd, 2012 @ 12:48pm

    Transit

    Sure, it's all just data--but some data has stringent requirements--like carrier pigeons, or virgins dressed in gold-gilded togas--there must be some logical, reasonable explanation whey the cellular networks are claiming the farcical nonsense it true. Right...?


    ;-P

     

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  5.  
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    sehlat (profile), Mar 2nd, 2012 @ 12:49pm

    The Telecoms' Fear In One Sentence

    Dumb pipes are cheap.

    And when you come down to it, their monopoly on those pipes is the ONLY thing they have to supply. They have no clue about value-added services and never have.

    It's a situation similar to the history of the railroads, which saw their business as railroads and not transportation.

    And yes, in the long run, the Great Cluebat of the Market will intersect with their skulls.

     

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  6.  
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    illuminaut (profile), Mar 2nd, 2012 @ 12:57pm

    Re: The Telecoms' Fear In One Sentence

    Except railroads never had a monopoly on transportation. If anything, it was car makers who created a quasi monopoly by buying up and dismantling tracks. Not really a fair comparison if free markets is the argument. As far as ignoring trends goes, yes the shoe may fit, but the thing to remember is that they're currently protected from the Great Cluebat of the Market and will be granted time to adapt. So we're probably talking about quite a long run.

     

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  7.  
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    Machin Shin (profile), Mar 2nd, 2012 @ 12:57pm

    Re:

    I question if it really takes that much time to build a sustainable business model. If one of the major cell companies dropped all this stupid counting minutes, data, and texts then they would be buried under the new subscribers jumping over from all the other carriers.

    Of course this requires them to totally drop ALL their stupid little fees and throttles. Sadly none of them want to stick their neck out and try because they know it will lead to the others attacking them and their network having to handle a surge.

     

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  8.  
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    illuminaut (profile), Mar 2nd, 2012 @ 1:01pm

    Re: Re:

    The carriers aren't sticking their neck out because they're not really competing - they're colluding.

     

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  9.  
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    Yakko Warner (profile), Mar 2nd, 2012 @ 1:03pm

    I don't have texting

    T-Mobile's contract family plans do not include texting, so I don't pay for it. They used to give you a dozen or so messages a month for free, then they threw those away and started charging a nickle, then a dime, and now twenty cents to send or receive every message. If I send a message to my wife, it costs me nearly as much as it would to write a letter and send it through the USPS. How does that make any sense?

     

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  10.  
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    jupiterkansas (profile), Mar 2nd, 2012 @ 1:05pm

    Re: Re: The Telecoms' Fear In One Sentence

    I think he means if the railroads had the foresight they would have gone into the automobile business too.

     

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  11.  
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    JeroenW (profile), Mar 2nd, 2012 @ 1:18pm

    not exactly new

    Over here a provider tried to block certain traffic streams like ping. Public outrage ensued and the block was quickly lifted.

    Next thing you noticed is that the prices for mobile data were increasing. These days 1 gig for 10 euros is considered a pretty good deal. Also people are finding that on existing contracts unlimited traffic is not unlimited anymore. Speeds are squeezed way down after the limit of 1Gb is reached in a month.

    All this contrasts quite nicely with an application landscape that pushes always online at every opportunity.

     

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  12.  
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    Bengie, Mar 2nd, 2012 @ 1:18pm

    Re: I don't have texting

    I remember some site breaking down the size of the message and the assumed price of $0.25/message. Turns out SMS is more expensive per byte than the Hubble telescope.

     

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  13.  
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    illuminaut (profile), Mar 2nd, 2012 @ 1:19pm

    Re: Re: Re: The Telecoms' Fear In One Sentence

    I understand, and I'm saying if the railroads had a monopoly on transportation they may not have gone the way of the dodo, or at least not as quickly. That's the part where the analogy doesn't fit. There is no urgent need to innovate when you have a monopoly.

     

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  14.  
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    Leigh Beadon (profile), Mar 2nd, 2012 @ 1:20pm

    Re: Re: I don't have texting

    Haha! That's awesome. Found the link - apparently it works out to about 350 british pounds per megabyte:

    http://www.theregister.co.uk/2008/05/14/txts_r_v_pricey/

     

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  15.  
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    Anonymous Coward, Mar 2nd, 2012 @ 1:21pm

    so how long before the mobile operators lobbyists come crawling out of the wood work, doing their damnedest to get some thick politician to introduce another bill, this time to protect their business from collapsing, whilst stopping an innovative company from doing the same thing as the big boys but for next to nothing. i suppose you could say they are trying to get away from 'free speech'

     

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  16.  
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    illuminaut (profile), Mar 2nd, 2012 @ 1:24pm

    Re: not exactly new

    Yes, but do they increase the prices for mobile data because of market forces or because they can get away with it?

    I think it may be a mixture of both, but I suspect a lot of it is just the latter.

     

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  17.  
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    Doug, Mar 2nd, 2012 @ 1:27pm

    Not quite free

    Just to clear up a misconception, SMS is not entirely free. The bandwidth used by SMS is free, but it is non-trivial and non-free for the carriers to store the SMS until it can be delivered and to manage routing the information to your phone. And they aren't overcharging -- they're charging what the market will bear, which is exactly what free market economics says they should charge.

    Now that the technical part is done, on to my regularly scheduled rant.

    SMS messaging has been a cash cow for them, since they can charge far more than it costs to implement the service. To give the carriers the benefit of the doubt, I must admit that it is possible that some of their SMS profits may have been invested into expanding the network, and perhaps the profits from SMS were used to allow them to keep the prices low on other services.

    That said, they seem be making one of the classic blunders, which is to assume that a cash cow will live forever. That is perfectly contrary to the laws of the free market. In a free market, any highly profitable scheme will attract competition. That's how today's luxury becomes tomorrow's commodity and next week's trash. A box of Cinnamon was once unobtainable, then superbly expensive, then expensive, and now cheap.

    Cell service will inevitably become a commodity, and finally will be superceded by the next great thing. The only question is how long it will take. Eventually your cellular service bill will look like this:

    1. Monthly service and regulatory fees: $8.00
    2. High priority data: 264MB x $.05: $13.20
    3. Bulk data: 4234 x $.005: $21.17
    4. Monthly phone service: $3.00
    5. Equipment payment: $8.00
    6. Phone-based purchases: $34.23

    So they charge a standard monthly fee for account maintenance. High-priority data (phone calls or real-time video games) is charged at a higher rate than bulk data (web browsing, Netflix). Phone service (i.e. the phone number) is an optional part of the package, and may even be provided by a separate company (e.g. Skype, Google Voice, or Vonage). If you buy a phone from the carrier, you can pay up front or be charged a monthly fee to pay them back for it (again, optional). And finally, you can bill things to your cellular account if you want, and that will show up on the cellular service bill.

    (Ideally, they cell carriers will also share towers and spectrum as a kind of co-op or joint venture, though I can't be certain of that ever happening. The current redundancy of service and waste of spectrum is ugly, but the carriers don't seem to want to work together to reduce costs since it would also even the playing field and force them to compete on costs instead of competing on coverage and lock-in.)

     

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  18.  
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    Don, Mar 2nd, 2012 @ 1:39pm

    Re: Felony interference with a business model

    The issue is that they expect most mobile users to use only a fraction of their paid bandwidth and are most likely scared that users may start to use more of their own paid bandwidth.

     

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  19.  
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    illuminaut (profile), Mar 2nd, 2012 @ 1:43pm

    Re: Not quite free

    Insightful, but I don't think the wireless market is as free a market as you make it sound and not all the rules of the free market apply.

     

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  20.  
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    Bengie, Mar 2nd, 2012 @ 1:43pm

    Re: Re: Re: I don't have texting

    Worse than I remembered.

    "putting text messaging anywhere from four to 42 times as expensive as talking to the Hubble."

     

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  21.  
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    PRMan, Mar 2nd, 2012 @ 1:50pm

    Re: Re:

    If one of the major cell companies dropped all this stupid counting minutes, data, and texts then they would be buried under the new subscribers jumping over from all the other carriers.


    Sprint has unlimited everything.

    They don't count minutes unless you are calling a land line. (Yes, all cell-to-cell calls are free.)
    They don't count data.
    They don't count text.

    Last I checked, while they are seeing many new subscribers, it's not exactly as you propose, where they are so flooded they can't sign them all up.

     

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  22.  
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    hothmonster, Mar 2nd, 2012 @ 1:51pm

    So they were making tons of money doing something that cost them next to nothing and someone finally stepped in to do it for free? So let see, is that the free market or PIRATES!

     

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  23.  
    identicon
    hothmonster, Mar 2nd, 2012 @ 1:55pm

    Re: Re: Re:

    No because while that is a huge draw. I really think my service with verizon is better, compared to friends who use sprint. I know sprint uses verizon networks if you have no sprint service but sprint has decent coverage and I don't think their network really competes. I am grandfathered into an old everything unlimited plan with verizon but if they don't let me stay that way when I get my new phone I will be heading to sprint.

    However this is making me drag my feet about getting a new phone.

     

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  24.  
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    el_segfaulto (profile), Mar 2nd, 2012 @ 2:03pm

    Re: Re: Felony interference with a business model

    Doubtful at best. I could send novels utilizing the amount of bandwidth that it would take to load this webpage. When used with compression, text files are light sneeezes in the hurricane of teh intarwebs.

     

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  25.  
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    Anonymous Coward, Mar 2nd, 2012 @ 2:03pm

    Re: Re: Re: Re: The Telecoms' Fear In One Sentence

    I can hear the arguments now "the car is going to kill our industry! think of the chinese slave labor!"

     

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  26.  
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    el_segfaulto (profile), Mar 2nd, 2012 @ 2:03pm

    Re: Transit

    They hired the same marketing team as Monster Cable?

     

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  27.  
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    Anonymous Coward, Mar 2nd, 2012 @ 2:40pm

    Re: Re: Re:

    Beyond Sprint there are several regional carriers who have offered this for years, Cricket, Boost (prepaid), MetroPCS, etc..

    Everyone seems to think that people actually care what service they use. In reality people are lazy they stick with the status quo until they get a huge bill or are inconvenienced in some way.

    I personally have an "unlimited" data plan, but I have never even come close to approaching 2GB (I had 1GB one month in the 4 years I have had unlimited data, the rest of the time I average about 600MB). I am a heavy data user but I use WiFi when I can because I know the traffic on the cellphone infrastructure affects ofter mobile users. I am a good steward of mobile data etiquiet, unlike some of these jackasses who use their wireless phone as a mobile hotspot and hog the radio spectrum.

     

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  28.  
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    inconsistency (profile), Mar 2nd, 2012 @ 3:12pm

    No idea...

    In Australia, we have been charged >$1,785/MB for SMS messaging (@ 25c/160 character message, which is actually only 140 bytes - SMS uses a 7-bit byte, at least on the GSM network)

    I actually work for a major carrier, and in a testimony to the clueless-ness, we were recently told about all these 'over-the-top' 'players' making money from our network without having to pay a cent.

    Now, leaving aside, for a minute, that it is actually the end-user paying to use the network in the form of their monthly bill, so the powers that be seem to be saying they want 2 bites of the same cherry, the real hilarity comes from the fact that, during the presentation, the names of a whole bunch of these 'freeloaders' was mentioned.

    I know of several people in that audience who were taking down the names of these aps so that they can start using them!!

    In a classic example of misunderstanding human nature, they are actually advertising to their staff the very companies and applications that they are complaining about

     

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  29.  
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    John Fenderson (profile), Mar 2nd, 2012 @ 3:39pm

    Re: Not quite free

    And they aren't overcharging -- they're charging what the market will bear, which is exactly what free market economics says they should charge.


    Those two things -- overcharging and "what the market will bear" are not mutually exclusive.

     

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  30.  
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    Josef Anvil (profile), Mar 3rd, 2012 @ 3:13am

    Re: Not quite free

    "..they're charging what the market will bear, which is exactly what free market economics says they should charge."

    That's not entirely correct, nor is it how Telco's price their product. It's more correct to say that they are charging what the market will bear, which is exactly what free "marketing" economics says they should charge.

    The switch to IP based networks from circuit switched networks effectively struck fear into the hearts of Telco operators because it dramatically reduced the cost of their product. The good news for the Telcos is that consumers don't care about the technical details of how devices/services work, but rather that they work. Bearing that in mind, the Telcos felt no need to inform customers that their networks were now IP based and therefore the services were much cheaper to deliver, so they held onto their pricing schemes as long as possible.

    Even when faced with competition from VoIP providers, the Telcos still held on as long as they could and ran marketing campaigns against VoIP providers which bashed the services, even as they slowly rolled out their own VoIP products. Mobile operators, which in the US are mostly owned by fixed operators, and have merged their networks, have been quietly milking the system for as long as they can. The US wireless market is completely against the concept of CPP (calling party pays), and complain that they couldn't profit if only one party pays. Boohoo.

    Sms has always been a cash cow for mobile, but fortunately the Telcos are not the RIAA/MPAA and tend to fight their regulatory battles against other players in their space rather than against their customers. With the exception of demonizing customers who tether (steal/pirate), the Telcos tend to allow the market to shift since they know how much profit they've already made by the time the consumer figures out they have been overpaying for years.

     

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  31.  
    identicon
    Andrew D. Todd, Mar 4th, 2012 @ 8:36pm

    Re: Re: The Telecoms' Fear In One Sentence (to: illuminaut #6)

    I beg to correct you. The railroads did, and still do, practice monopolies, when they have the knowledge and leverage to do so. The difference was that the most premium railroad traffics tended to be anonymous to the railroad, in the sense that the railroad did not have need-to-know for the contents and ultimate destination. This inherently tended to limit the railroad's scope for discrimination.

    Imagine that in the year 1925, you took a first-class sleeper car from New York to Chicago. The sleeping car porter might have done some rudimentary valeting services, like shining your shoes, and ironing your suit, but since you would have been wearing a suit and tie like every other businessman, there was no great information in that. When you arrived at Chicago Union Station, you left your suitcase in the Left-Luggage Office, but took your briefcase with you. At the station entrance, you hailed a cab, and it was only when you were inside that the cabdriver asked you: "where to, sir?" The New York Central Railroad had no way to know whether you were going to visit the Corn Exchange, or the McCormick Harvester Company, or the University of Chicago, or Al Capone.

    Alternatively, suppose that it was the year 1921, that you were a Chicago meat-packing baron, and your Polish workers were on strike. Your response might be to take a trip down to a rural county in Georgia. Once there, you entered into negotiations with the local sheriff for contract labor, in the form of African-American field hands. Money changed hands, and the process was only incrementally different from buying slaves. You then rented a special train from the railroad, probably consisting of railroad dormitory cars, or maybe just boxcars. The railroad hauled this train up north to Chicago, and then hauled it out to your meatpacking plant. The train crossed from railroad property to your property without going over public property, and you housed your strikebreakers in a warehouse on the premises, in order to keep them isolated from the strikers. This was a form of business travel which the railroad knew all about.

    Now, let up consider sending things instead of people.

    First class mail traveled in mail cars which were hauled by the railroads, but crewed by postal employees. Railroad employees were not allowed to look at or touch letters. By 1870, the Post office had started carrying parcel post, for collection at the post office, at the rate of a [gold backed] penny per ounce (sixteen cents per pound, or about an hour's average wage), up to a limit of four pounds. In 1913, this was brought into conformity with international [ie. German] standards, by increasing the limit to eleven pounds at eight cents per pound. Rural Free Delivery had begun in 1896. The parcel express companies such as Wells-Fargo and American Express, of course, conformed broadly to postal standards by force of competition. By contrast, railroad freight rates in 1909, quoted in a Sears catalog, ranged from about twenty cents per hundred pounds (Chicago to Indiana) up to nearly four dollars per hundred pounds (Chicago to Arizona or California). Varying rates applied according to the class of merchandise. What this worked out to was that if you were buying a cast-iron stove or a horse buggy by mail-order, the railroad would know all about it; If you were buying a Winchester rifle, they probably would not know about it, and they would certainly not know what books you bought, or what newspapers you subscribed to.
    (1900 and 1909 Sears Catalogs, reprint editions; James H. Bruns, _Motorized Mail_, 1997).

    The kind of traffic the railroad really know about was the kind of traffic which was so heavy that the railroad had to deliver it to an industrial siding adjoining the place of use. The railroad knew all about coal, for example, and was prone to play favorites between different coal mines, and steel mills which used coal.

    Times have changed somewhat in the railroad business. There is much less passenger traffic. What there is, is in the form of Amtrak, with a government agency buying transit rights for its trains. If someone wants to ship migrant farm workers in large quantities, he uses a bus, probably an old school bus. A large section of the railroad's business is inter-modal freight, in which the railroad ships containers and truck trailers for shipping lines and parcel services without knowing what is inside them. However, there is a core of the old railroad business, involving things like coal, feed grain, and iron ore. These kind of products can only stand a rail fare of thirty to fifty dollars a ton, over a thousand-mile haul. Given the weight limits on trucks, the railroad is still the only game in town.

    The knowledgeableness of the internet and telecommunications runs a bit differently. Monopolistic ISP's know that small quantities of data going to and from Amazon are likely to involve a good bit of money-- and they want their percentage. Of course, a customer can resort to encryption, virtual private networking, and address cloaking, but the ISP would be attempting to sabotage such techniques, Great Firewall of China fashion. However, what makes the telecommunications network really knowledgeable is an application which is very time sensitive, where it becomes a problem if packets get routed indirectly, or an application which requires an unusually good subscriber loop. Videoconferencing, in short.

     

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  32.  
    identicon
    Adam, Mar 5th, 2012 @ 2:27am

    Re: Not quite free

    Ideally, they cell carriers will also share towers and spectrum as a kind of co-op or joint venture

    Carriers have looked into sharing networks, but there are two big problems with it:
    a) it removes a big differentiating point for them (i.e. they'd no longer offer the best coverage)
    b) there are problems with antitrust regulation (big carriers working together and making life impossible for start-ups).

    It's a wonderful idea, just not compatible with how the mobile market is set up or regulated at the moment.

     

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  33.  
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    Bay Area Jobs, Mar 5th, 2012 @ 2:59am

    About time

    Consumers really need to demand that SMS be dropped from their monthly bills.

    It's ridiculous to charge $20 for 1500 messages.

     

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  34.  
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    DannyB (profile), Mar 5th, 2012 @ 6:05am

    Re: Re: Felony interference with a business model

    Do the math.

    If I sent FIFTY THOUSAND text messages (over 1 per minute continuously) and each text was the full 160 characters, this is only about 8 Megabytes in a month of 30.6 days. That's a drop in the ocean of a 200 MB or 2 GB data plan.

     

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  35.  
    identicon
    Anonymous Coward, Mar 5th, 2012 @ 8:20am

    Re: Re: Re: Felony interference with a business model

    To be fair, 200 MB is more of a bucket than an ocean if you're talking about an 8 MB 'drop.'

     

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  36.  
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    Infostack (profile), Mar 6th, 2012 @ 8:40am

    Carriers need to rethink their business models, quickly

    2007 is to the carriers what 1987 was to IBM. Only when Gerstner came along and reoriented it from a vertically integrated monopoly in mainframe processing to a horizontally oriented dataprocessing solutions provider of vertically complete solutions did it begin to rebound. All the carriers have to go through a similar transformation. http://bit.ly/AzWLF3

     

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  37.  
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    stevef (profile), Mar 7th, 2012 @ 2:24pm

    SMS

    About the carriers not wanting to lose the SMS revenue, the correct explanation is that screwing the consumer is a great American tradition. Now, you don't want to mess with tradition, do you?

     

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