AT&T's Text Message Racket
The vast array of great sites and business services that continue to pop up online like mushrooms after a rain proves what human ingenuity and entrepreneurial spirit can accomplish in an open and free marketplace.
On the other hand, the cell phone market is a fine example of what happens when companies take steps to reduce competition and ensure that they lock in their customers: An SMS data transfer charge of $1310.72 per megabyte, according to some number-crunching from CrunchGear.
To arrive at that number, Nicholas Deleon starts with the 20 cents charged per message if you don't have a text message plan and multiplies it by the 160-byte maximum size of an SMS message. Crazy, huh?
The transfer rate of course becomes much cheaper if you sign up for a 200- or 1500-message plan, for $5 or $15, respectively. But even then, the cost of traffic is out of whack.
For example, suppose that you have the $15 plan, and you somehow send your maximum 1500 messages a month (roughly 50 per day), and suppose that each message is the maximum length (160 characters, or 160 bytes).
That computes to a total of 240,000 bytes for $15. Now imagine paying for Internet service that charges $15 to download a 234KB file.
I won't pretend to know the details of the SMS network architecture, but I doubt the cost of its routers, switches, and cables is so much greater than those used for other networks that the difference in cost is justified. But the iPhone deal makes plain how the cell phone services can get away with it: If you want Apple's hot toy, and you want to send text messages, you have no other choice.
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