Cellular carriers always claim to operate in a competitive business. After all, they say, there are four major providers (AT&T, Verizon, Sprint and T-Mobile) and dozens of smaller ones — all vying for the same customers.
True, but the measure of an industry’s competitiveness isn’t the number of players. It’s the profit margins of commodity products. If a market is truly competitive, companies can only charge customers slightly more than the cost of providing services.
By this measure, the cellular industry doesn’t look particularly competitive. The best illustration of this is text messages, which cost the carriers next to nothing but cost their customers dearly.
How bad is the situation? Text messages, known in the industry as SMS service, generated about $100 billion for the industry last year. And because the cost of transferring information via SMS was about 15 million times more — yes, 15 MILLION TIMES MORE — than the cost of transferring it through a home Internet connection, those revenues were almost pure profit.
But it was not profitable enough, apparently. Verizon Wireless has already raised its text message prices and, according to Broadband Reports, AT&T is about to do the same. Starting March 30, users who exceed the number of text messages on their plans will pay 20 cents apiece for the extras, up from 5 cents now. Wow.
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