The True Cost of SMS Messages

nilbog writes "What's the actual cost of sending SMS messages? This article does the math and concludes that, for example, sending an amount of data that would cost $1 from your ISP would cost over $61 million if you were to send it over SMS. Why has the cost of bandwidth, infrastructure, and technology in general plummeted while the price of SMS messages have risen so egregiously? How can carriers continue to justify the high cost of their apparent super-premium data transmission?"

Adam Smith sez...

How can carriers continue to justify the high cost of their apparent super-premium data transmission?

It's all about what the market will bear. Add in the fact that text messages are typically used for brief communication snippets and you have a more complete picture. Some providers offer unlimited texting plans... consumers are willing to pay for the convenience.

Next up on Slashdot: Why do cars cost so much?

Re:Adam Smith sez...

This might be a cultural thing. In regions where mass transit is more frequently employed, such as Japan, people almost exclusively use text messages. Since the US is more car-centric, it makes more sense to talk while driving instead of trying to type a text message.

Re:Adam Smith sez...

it makes more sense to talk while driving instead of trying to type a text message

Just curious, have you watched people drive recently? Maybe it's just Connecticut drivers...

I wish it was the same in the UK

Why do so many people seem to have to phone someone just to shout "Hi. I'm on the train...yes the train ....now Its leaving the station.... bye".

And then on the intercity trips there is always someone next to you that obviously uses his phone for business but has that really loud ringtone of Abba singing "Waterloo". He always puts his phone back in his pocket after each call and then takes 20 seconds to get it out again when he's called two minutes later.

Re:I wish it was the same in the UK

Why do so many people seem to have to phone someone just to shout "Hi. I'm on the train...yes the train ....now Its leaving the station.... bye".

Because it gives their SO at home an idea of how long they'll be, so they know when to put the food on.

And then on the intercity trips there is always someone next to you that obviously uses his phone for business but has that really loud ringtone of Abba singing "Waterloo". He always puts his phone back in his pocket after each call and then takes 20 seconds to get it out again when he's called two minutes later.

Because:
a. Abba's "Waterloo" is more work appropriate than, say, Johnny Paycheck doing "Take this job and shove it" or Rage Against the Machine's "Killing (In the Name Of)".
b. If they leave it out, someone will grab it and jump off the train when it gets to the station.
Next?

Re:Adam Smith sez...

Many countries (in Europe at least) have banned talking while driving

Does this mean that I am going to have to stop talking back to my Sat Nav in a vain attempt to find out exactly what language Ken understands?

Re:Adam Smith sez...Hookers should be free.

I'm still waiting for the reason why sex costs so much?

Well, yer ugly, and you smell bad. Those are yer good points. Good lookin' blokes, what know how to talk with a bird, like what she's sayin', it's important like. We're the ones what get's it - and has 'em buyin' stuff fer us, too!

Bit a cologne... A blazer... Listenin' a bit more than talkin'. Goes a long way, mate. Sometimes into the next day!

Yer pal, Alfie.

Article text in lieu of mirror.

I just found out that AT&T (A-fee&fee?) is raising their text message pricing. When I first signed up for AT&T 6 or so years ago it cost 10 cents to send an SMS message, and it was free to receive them.

When AT&T switched to Cingular the price of sending a message dropped to 5 cents, but they started charging for incoming texts - also 5 cents. Assuming you send a message for every message you receive, this works out at about the same price as before.

AT&T came back online and phased out the CIngular brand name, and prices were again changed. This time to 15 cents each way.

More changes have taken place that I can't quite remember. At one point text messages were 10 cents either way, and at another point they even included MMS (multimedia messages) at the same price as SMS.

As of March SMS messages on AT&T will cost 20 cents and MMS will cost 30 cents - both to send a receive.

So let's do some math here, and figure out how much this simple transmission is actually costing us.

A standard SMS message contains up to 140 bytes (1120 bits) of data - this takes care of the 160 characters allowed in your text message. This might not make sense at first, until you realize that SMS uses 7 - not 8 - bit characters - leaving you with 128 possible character values instead of the normal 256. So 1120bits/7bits = 160 characters.

So our total message length is about a tenth of a kilobyte (.13671875 Kbytes). In terms that the iPod generation would understand - if you had an iPod with a tenth of a kilobyte you could fit 1/4000th of a song on it. I assume here and for the rest of this article that 1 song = 4 Megabytes.

If you divide 140 (the total number of bytes available to you) by 20 (the cost per message), you find that you are paying 1 cent for every 7 bytes of data. This leaves you with a cost of $1,497.97 for the 1024Kbytes contained in a single megabyte. iPod users: It would cost you $5,991.88 to transfer - not even to buy - a single song via SMS.

By comparison, I pay $50 a month for a soft bandwidth limit of 500 gigabytes through a local ISP. That comes out to 512,000 megabytes or 10,240 megabytes to the dollar. This allows me to transfer 2,560 songs for the same price as a Junior Bacon Cheeseburger off the value menu at Wendy's: $1. I will use this my standard measurement for the rest of this article.

So far I can make the following statements concerning the costs of bandwidth:

Cost to transfer 2560 songs:

From my ISP: $1
Via SMS messaging: $15,339,212.80

But wait, there's more!

When calculating SMS charges, most people don't take into consideration that the message is really being paid for twice! If I send a message to another AT&T user, I am paying to send it AND they're paying to receive it! This should probably be illegal, but that's for another discussion.

So how much does an SMS message actually cost? Not 20 cents - but 40 cents! This doubles all of my numbers above.

Furthermore, my above figures estimate that people actually use all 160 characters available to them. Say people on average actually only used half of that (which is still being generous) - then their price of data has again doubled from the numbers I gave above!

Making adjustments for both of the above statements, we realize that our above number isn't even close to correct! Corrected, the comparison looks more like this:

COSTS OF TRANSFERING 2,560 MP3s:

via my ISP: $1
via SMS: $61,356,851.20

Phew! THAT is premium data! It's no wonder that SMS texting alone is a 100 Billion dollar a year industry!

How big is that? Take all of hollywood movie box office revenues worldwide. Add all of the global music industry revenues. And add all of videogaming revenues around the world. Even all those three together, we don't reach 100 billion.

Let's even go more premium - how much would it cost to hand deliver data?

The U.S. Postal service is currently cha

Re:Article text in lieu of mirror.

If you do the comparison, do it right:
With your ISP you have a direct medium (usually cable) capable of high-speeds (in this case, even 1mbps is high speed). And data overhead is less than 50% (IP header compared to 140 characters of data) on a pre-established link.
With your cell, you have a shared medium (air) with a limited number of frequency bands. The overhead is not only the extra data transfered, but also (like a phone conversation) it has a separate line negociated to transfer.
If you would have smaller prices on SMS (let's say 10 times smaller), more and more users would use it. This would increase the providers load, and even if they could handle it, some cells could be limited by their bandwidth which is regulated by the FCC. This would increase the transmission times and even affect regular communications, which means more angry calls to tech support.

So providers probably justify it as a "crowd control" (something like use it only if you really have to).

Im Romania at least one of the ISPs had a 1st 3 seconds not charged. Needless to say, the consumers started making 1-word calls (call, say 1 word and hang up, then do the same for each other word). I've heard about 1000-page detailed phone bills which were less than 10$. After the 1st year, they cancelled it on ALL contracts, not just the new ones. I don't have to say how it was during phone "rush hour" when you wanted to make a regular call.

How can they justify the cost?

They can justify the cost because we continue to reward them with lots of our dollars.

It's easy...

SMS is the byproduct of the GSM standard. It was never designed to actually be a customer product. It was more or less thought to be some stderr of sort.

When SMS was introduced at the beginning of the 90ies in Europe, it was basicly free. There were SMS gateways all over the Internet. But then the carriers were recognizing the marketing potential of SMS, and slowly the prices per single message were rising until they reached 49 ct (in Germany at the end of the 90ies). Only when parents were stunned by the SMS cost of their children, protests started to mount, and then the diverse regulation offices in the different countries were trying to limit SMS prices, so there were actual plans which included for example 1000 short messages per month.

SMS is a prime example for the difference between price and cost of a product. The cost is nearly zero, but the pricing is expensive.

Re:It's easy...

What about actually reading the posting you are replying to?

I never said that GSM cost is zero. I said that the cost of SMS within GSM is zero, because SMS is just a part of GSM (its stderr channel). So if you deploy a huge GSM network to work as a provider of mobile voice services, you get the SMS service for free. When GSM first was deployed it was never thought to have SMS as a separate service. Thus the first huge SMS networks were paid for by voice users who weren't even using SMS. Then the providers which already had a complete SMS infrastructure in place saw that the usage of SMS started to grow and they could just print money by increasing the SMS prices.

When GSM was introduced in the U.S., the SMS facility was already been known to the providers as a big cash cow, and the calculations were already taking that in account.

But still the cost to send an short message is much lower than the cost to send a phone conversation with about the same price. Here in Austria the charge for 1 min of mobile phone conversation is often 1 ct (up to 5 ct/min for prepaid plans). So for the cost of a single short message (19 ct) I can have a conversation for about 19 minutes. Which one will be more expensive to transmit for the provider?

Re:It's easy...

actually, thats bull, as the firmware that routes GSM in the networks is also used for SMS, actually, SMS uses the same channel your mobile uses to announce itself to the base stations and exchanges status information with. other services like reversed billing were developed later, and you pay for an SMSC because it adds convenience to you, not because you are technically not able to do it yourself... they make the contracts with all the providers, reserve those nice short numbers in all networks and give you a convenient web service or other interface to talk to... and for that you pay. I too used SMS when it first emerged in Europe for zilch... billing it would have cost them more than just letting you use it in those days, at least so they thought before they saw what ridiculous prices they could charge and get away with. When they finally started billing it was 23 cent for the first 100 messages, and 2.3 cent for every message more ... imagine, after it got up to 39 cent for every message... for them it's like printing money. Surely with the added services they developed ON TOP of SMS, like the afore mentioned reversed billing, premium SMS and so on they have slightly increased their costs for the service itself, but basic SMS started as an accidental byproduct of GSM Oh, i worked two years in a business that developed and distributed mobile applications, so this is not theoretical stuff.

How can you justify still using SMS?

Just use
T-Mobile: [e-mail]
Virgin Mobile: [e-mail]
Cingular: [e-mail]
Sprint: [e-mail]
Verizon: [e-mail]
Nextel: [e-mail]

Just buy the cheapest data-plan and it's still better if you're a heavy user.

Re:How can you justify still using SMS?

All of the US cellular providers charge not just per message sent, but per message received. Using an SMS e-mail gateway may save you sending fees, but it won't save you on the receiving cost.

That's what happens without net neutrality

Cellular air links don't have "net neutrality". The pricing for voice, web browsing, SMS, video, and non-Web data connections is totally different. That's what it's like without net neutrality.

Even more rediculous..

Having to pay to send and receive SMS.

Imagine if the postal service did that: I have to pay to mail you a letter, and then you have to pay to receive it. Better yet, you have no choice but to receive it and the postal service will bill you for it. Imagine all that spam you get in your mailbox costing 10c each. This is how SMS is charged on most US carriers.

With the ludicrous fees associated with SMS (dollars per byte), if I pay several cents for a 160 character message it ought to get delivered without charges on the other end (including that persons bundled SMS "allowance").

I know!

I know the true cost of SMS messages!

I made a paper for the univeristy some years ago. The marginal cost of a SMS is 0.

They do have a little cost/opportunity. As a matter of fact SMS messages are sent on the control channel. Initially SMS were implemented in the GSM standard as a control system, just like the ICMP protocol of the IP stack. Then NOKIA though to implement a actual instant message function using SMS. The Contol channel is the channel that your mobile listens to in order to receive calls. So for receiving a SMS a control signal is sent. Since bandwidht is somehow limited on these channels it could happen that in a situation of massive usage of texting the control channel gets saturated and normal voice protocol initiation is disrupted. To prevent this carriers nowadays apply a kind of QoS delaying SMSs until there is no risk of congestion. So we can state that the marginal cost is 0 and the cost/opportunity is also 0

Another story is for the MMSs. Their cost/opportunity is even lower since they run almost enterely on GPRS thus using most bandwidht on normal data channels. Thus a MMS with pictures sounds and maybe video SHOULD cost less than a SMS.

So you wonder, why do I pay so much for a SMS or a MMS or even a Call: after the debts for the initial hardware infrastructure have been paid by the carrier you are still paying because of market segmentation (You won't change the carrier on the fly) and a little monopoly (Almost impossible to start a new carrier from 0).

I hope ou liked the summary!

some convenient fallacies here

While I am no fan of AT&T, and certainly agree that the cost of an SMS is outrageous by any standard, but the article contains several fallacies.

• The most common fallacy is mistaking the marginal cost of sending one SMS with the total cost. The marginal cost is basically zero, which is the point of the article. However, AT&T pays for a bunch of items that at a first approximation don't vary with the number of SMS sent through the network. There are many ways to account for these costs and there are entire university classes which deal with this type of calculations. However, when your network costs few billion dollars, a billion here, a billion there, soon we are talking about real money. The same applies to marketing costs, customer support, etc.

• The author conveniently forgets that there is also a termination fee that a provider pays when messages originating from one network (e.g. AT&T) are delivered to phones on a different network (e.g. T-Mobile). So, some messages cost more, raising the overall average. Same apply for roaming charges, if any.

• The author also miscalculates the number of bytes necessary to send an SMS conveniently forgetting the envelope, i.e. phone number of the sender, subject, time, etc. I am sure that his ISP doesn't subtract overhead from the 500GB of data he pays for.

• Also, the author takes an average of 80 characters for the cost of SMS and compares them with the max number of words/characters you can send via US mail. An unfair comparison.

All in all, all fallacies skew the numbers towards the point that the author is trying to make, which is quite unethical. It is also stupid because a fair comparison would totally support his point, just with slightly less astounding numbers.

Re:Offer and demand

There is probably some air on the prices, but not as much as the author of the article makes you think. Development, maintenance and hardware costs must be covered (service providers don't get the system for free). Then there is support you need to provide for customers. And billing. And marketing consumes some money also. And obviously managers need to get paid.

And have you ever wondered how is it possible that simple text messages can jam the system every New Year? Sending 10 byte sms 1000000 times isn't equal to sending 10x1000000 bytes of data using data transfer. Every time you send an sms, the system needs to open a connection and it consumes a lot more resources.

A LOT of air on the prices

There is probably some air on the prices, but not as much as the author of the article makes you think.

I work in a SW company and once talked to a representative of a GSM provider over the lunch in a pause of a workshop. He told me (and he didn't tell me it's a trade secret) that the entire SMS messaging in their network was handled by one single Sun workstation.

IIRC it had cost about a million Euro (most of which was the price of SW) and just sits there, generating a revenue of roughly a million Euro per day. Maintenance costs: almost zero. Network load: almost zero, because messages are transmitted only in pauses between calls. Modulo New Year, nationwide televoting or football world cup, of course, where the assumption of a few messages between a few calls is no longer valid.

Re:A LOT of air on the prices

This is just the SMC. In order to handle SMS it relies on capability in the network and the price is driven by the network capability, not by the system which uses it.

Unless the phone can do SMS over GPRS, each SMS message eats signalling capacity and travels along an SS7 link. After that it once again eats signalling capacity and competes with the rest of the signalling traffic for a place in the sun on the beacon channel. This is probably the most expensive way to encapsulate data known to man. You use mostly serial links, reliable transfer everywhere, transaction safe forwarding on every step and so on. It is not surprising that it is hideously expensive. When the protocol was designed nobody had the slightest idea how popular it will be and now it is a commodity so everyone is afraid to break it while trying to optimise it.

So the hideous price of GSM SMS is here to stay until we switch to 3G.

Re:A LOT of air on the prices

It is even easier where I live. I just type "pub 15" and receiver immediately understands that it means a hectic beer drinking festival at the pub starting 15 minutes from now, put on your clothes and get your ass to the pub. So the compression rate is enormous! It also helps that there is only one pub in the town...

Air interface bottleneck plus infrastructure costs

You've got it right there.
The reason that the real cost is actually quite high is the fact that the GSM air interface is miniscule compared to the demands of the all the people using the system in each cell.
If an SMS were free, the air interface would get clogged up.
So it's quite sensible to economize the use of the interface using price to depress demand.
From memory (from my work with Detecon/D-1 in Bonn, Germany) in 1991/92, the SMS data goes over something called an SDCCH channel, which uses 1/8 of the bandwidth of a normal 13 kbit/sec voice channel (or half-rate 6.5 kbit/sec). The SDCCH channel is devoted to one user for a few seconds during the transaction. Potentially you can have 64 SDCCH channels open on a single physical frequency (using TDMA) at one time. But there are also bottlenecks in the signalling system (control channels).

Additionally you require the whole infrastructure for storing and delivering the SMSes. Store-and-forward has complexities that connection-oriented traffic does not.

Re:As the four other posters...

It's even more dangerous to be reading text messages while driving(or anything other than sitting down),

Some of us like to live dangerously. On the rare occasions when I get text messages, I read them standing up.