Why are text messaging prices still so high?

Harold Feld tries to answer the question: why are we paying so much money for text messaging?

Excerpt:

The cost charged to consumers for text messaging has absolutely nothing whatsoever to do with the actual cost of the service. Yet — as we are constantly reminded — the cell phone market has four national players and numerous regional players. This makes it squindoodles more competitive than, say, the broadband market in most places in the country where you can generally get two somewhat comparable services (cable and DSL) and a whole bunch of also rans that folks like to claim are competition . . .

As [Senator Herb] Kohl noted in his letter, the consistent ridiculously high prices for SMS txt messaging “is hardly consistent with the vigorous price competition we hope to see in a competitive marketplace.” . . .

Short answer: it is utterly consistent with the nature of the wireless market. But — and here’s the shocker — real world markets are often much, much more complicated than the followers of the Gods of the Marketplace like to believe. Cell phone companies charge outrageous prices for text messaging (and other services like ring tones) not because they conspire with one another, or even because they engage in conscious parallelism. Nor do they do so because they must as a result of actual costs. They do so because — to use that classic phrase — it is what the market will bear, and the structure of the market ensures there is no benefit to any cellular carrier to offer text msging plans at anything approaching cost plus reasonable profit.

. . .
In economic terms, this is an oligopoly. Washington regulators treat oligopolies as if they were the same as competitive markets, unless one can show evidence of actual collusion — in which case it becomes a question of price fixing. But in reality, it doesn’t always work out that way. Even absent collusion, the ability of players to engage in strategic planing can negate the anticipated benefits of competition. Applying this framework to the CMRS market, and the question of the price of text messaging goes from suspicious riddle to entirely predictable. Whether you regard this as a reasonable outcome or not has nothing to do with “competition” or “market failure” and everything to do with whether we make a policy choice to care about it or not.

. . .

Basically, it boils down to whether we think — in the language of Section 201 of the Communications Act — charging the oligopoly price constitutes an “unjust” or “unreasonable” charge or practice. That’s a policy decision, not a question of counting competitors. Yes, Section 201 dates back to the day of the regulated monopoly. But, as I hope I have demonstrated above, we do not face a binary choice between “enough competition” and “not enough competition.” We face the choice of what world we want to see. A monopolist may provide services at reasonable rates and practices even absent regulation (although I find this much less common than some here in Washington do). By the same token, even a market deemed “competitive” under modern antitrust sensibilities may not provide services at just and reasonable rates and practices without regulatory oversight.

Read more on Harold Feld’s blog.

- – - – - – - -

*Advertise now on Muniwireless.com. Download our 2009 Media Kit and contact us.

*Join the MuniWireless / Muni WiMAX Linked In Group for networking and discussions.

*Sign up for the MuniWireless / WiMAX newsletter.

*Register now for the Muniwireless – Freedom to Connect Event, March 30-31, 2009 Washington DC