Facebook May Bust Up the SMS Profit Cartel

AndyAndyAndyAndy writes "Fortune had an interesting article recently about wireless providers and their exorbitant profit margins for SMS handling, especially when looking at modern data plans. 'Under the cell phone industry's peculiar pricing system, downloading data to your smartphone is amazingly cheap — unless the data in question happens to be a text message. In that case the price of a download jumps roughly 50,000-fold, from just a few pennies per megabyte of data to a whopping $1000 or so per megabyte.' A young little application called Beluga caught the attention of Facebook, which purchased the company a Thursday. The app aims to bring messaging under the umbrella of data plans, and features group messaging, picture and video messaging, and integration with other apps. The author argues that, if successful, Beluga (or whatever Facebook ends up calling it) could potentially be the Skype/Vonage or Netflix-type competitor to the old-school cellular carriers and their steep pricing plans."

Voice Data

[Lord_Jeremy]

Cell phone networks use digital voice protocols, of course. Essentially, your audio is being streamed as a (compressed) data file over a data network. The GSM-EFR audio codec has a bitrate of 12.2 kbps. Obviously more modern phones probably use a higher-bitrate codec. That means for one minute of audio 60 * 12.2 kb or approx. 750000 bits of data is sent. One AT&T text message costs $0.20. The maximum size of an SMS message is 1120 bits (140 characters). That means in the data space of one minute of voice you could send 700 messages. At 20 cents each that's $140. Now I'm pretty sure that there aren't any cell phone plans (excluding sat phones) that cost $140 per minute of speech.

Re:I'm getting old

[DeadCatX2]

"basically" nothing?

Every time your phone pings a cell phone tower, it transmits a packet of data to and from the tower. This packet of data has some spare space at the end. This bit of room is where the put the text message data.

Your phone is using the text message's bandwidth whether or not you're sending or receiving a text message.

Quite the racket they've got going, making you pay to make use of bandwidth that you're already consuming regardless of the use of text messages.

SMS uses the thin "control" pipe.

[Ungrounded Lightning]

I remember when SMS was free and was hidden in the advanced menu of a 3-line text display of a phone.

SMS messages go over the (VERY!) low bandwidth control channel used for communication between the cellphone and the tower, and from there over the call set-up channels among the towers, their controllers, and the rest of the telephone network. Using them to let cellphone handsets emulate a text pager (and a text pager message sender) was something of an afterthought, put into the GSM spec and then ported to others. Because they're on the control channel, they work even if the phone has no data service or is not data service capable.

Once they caught on and started having major traffic despite the small packet size, the telcos put a price tag on them, both to try to avoid channel saturation and as a handy revenue stream. (Yes even a large number of the little text messages wouldn't clog the channels. But a customer-deployed IP-over-SMS would have been trivial. Charging a few cents for every 140-byte packet killed that idea.)

Now that mobile data services has created a fat data pipe under the separate "payload" bandwidth, moving the services currently running on SMS makes great sense for the users. But now that SMS messages have become a major income stream, despite their extreme price, the carriers have no incentive to kill this surprise cash cow. So the innovation has to come from apps developers.

Re:I'm getting old

[jquirke]

This is simply a myth. The sending of text messages consumes network resources that cost money. How much they cost is a different question - and I am not disagreeing with you that the markup may be exhorbitant, but I do have to correct your claim.

In GSM, sending a text message still predominantly operates over an SDCCH [wikipedia.org] (standalone dedicated control channel), which requires a full paging (for network originated) or random access cycle, encryption setup messages, authentication messages. The whole process can take around 5 seconds (don't believe me? put your phone on top of an old radio so you can hear the radio transmission activity..)

Where your claim is correct is during a call - the SMS uses the SACCH (slow associated CCH) which places minimal additional load on the network, but the majority of SMSes occur when the phone is not in a call.

Some GSM networks allow the text message to be send as a packet of data over GPRS/EDGE which greatly reduces radio-link (Um link) signalling burden.