"The word 'no' is the way you keep your commitment to the people you have already said 'yes' to."

- Phil Schroeder
Texting: What I Didn't Know

Text messages cost the phone companies almost nothing. The reason it has to be small is because they hide the message inside a space they are using anyway.

TEXT messaging is a wonderful business to be in: about 2.5 trillion messages will have been sent from cellphones worldwide this year.

All four of the major carriers decided during the last three years to increase the pay-per-use price for messages to 20 cents from 10 cents.

Mr. Kohl’s letter of inquiry noted that “text messaging files are very small, as the size of text messages are generally limited to 160 characters per message, and therefore cost carriers very little to transmit.”

A better description might be “cost carriers very, very, very little to transmit.”

A text message initially travels wirelessly from a handset to the closest base-station tower and is then transferred through wired links to the digital pipes of the telephone network, and then, near its destination, converted back into a wireless signal to traverse the final leg, from tower to handset. In the wired portion of its journey, a file of such infinitesimal size is inconsequential.

Perhaps the costs for the wireless portion at either end are high — spectrum is finite, after all, and carriers pay dearly for the rights to use it.

But text messages are not just tiny; they are also free riders, tucked into what’s called a control channel, space reserved for operation of the wireless network.

That’s why a message is so limited in length: it must not exceed the length of the message used for internal communication between tower and handset to set up a call. The channel uses space whether or not a text message is inserted.

Professor Keshav said that once a carrier invests in the centralized storage equipment — storing a terabyte now costs only $100 and is dropping — and the staff to maintain it, its costs are basically covered. “Operating costs are relatively insensitive to volume,” he said. “It doesn’t cost the carrier much more to transmit a hundred million messages than a million.”

Once one understands that a text message travels wirelessly as a stowaway within a control channel, one sees the carriers’ pricing plans in an entirely new light. The most profitable plan for the carriers will be the one that collects the most revenue from the customer: unlimited messaging, for which AT&T and Sprint charge $20 a month and T-Mobile, $15.

Customers with unlimited plans, like diners bringing a healthy appetite to an all-you-can-eat cafeteria, might think they’re getting the best out of the arrangement. But the carriers, unlike the cafeteria owners, can provide unlimited quantities of “food” at virtually no cost to themselves — so long as it is served in bite-sized portions.

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Comments on "Texting: What I Didn't Know":
1. John - 05/19/2010 3:02 pm CDT

See this rundown on revenue per megabyte. Text messages are 100,000 more profitable per byte than residential internet traffic.

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