Saturday, December 27, 2008

Text Messaging Is Cheap?

Not sure if its the job of newspapers to spread or create conspiracy theories, but this article in the New York Times (which I love and read often) by Randall Stross is just half-baked. But it sells newspapers, so let's do it!

Mr. Stross figures out, with the help of experts, that the basic cost of text messaging alone is pretty low. A text message or SMS rides on the control channels that are used for communications between the cellphone and the base station and then go over wires from the base station to the core of the network. So we learn that, once the basic investment in the network is done... its all cream, he implies. Mr. Stross quotes another professor saying that the cost of transmitting 100 million messages is not much more than those for a million. 

Yeah, the basics about text messages are right. But are you going to build a network costing billions to send text messages? Ofcourse not, so to run a wireless network there are costs for voice minutes from initial spectrum cost of billions, tens of thousands of cell sites, cell site maintenance, equipment purchases, and many more. And now they are building faster data networks which also costs billions, and while these are growing fast - they don't make enough money. Recall the whining about the iPhone, in 2007, only having an EDGE (2.75G) connection. "Where's my 3G?" the press cried. And the $20 or $30, now, for the iPhone data connection is not enough to fund a nationwide network covering over 200 cities that, at inception, only has less than 10 million (data) customers. If we use his logic then software should only cost 50 cents - the cost of burning a CD with the software. 

Its strange to see an article by a business school professor/teacher in the country's most prominent newspaper to not even mention the entire economic picture of running a company. Text messaging is a cash cow, one that helps funds other parts of the business. If you really want to do cost accounting, then let's put the partial cost of towers, spectrum, SMS servers, employee costs, billing systems and lots of other things also on its account. Obviously, the operators are making good money on it, but they may be losing money in other parts of the business. But why should they open it up to scrutiny? Also if casual or non-plan texting (sounds like sex!) is a very low percentage of the revenue and number of total messages sent - then what's so wrong with charging higher for it?

I am not advocating that the senator or FCC or the responsible regulatory body or a journalist  should not query or check this; they should certainly probe it - but don't make it another conspiracy theory or another way we are cheated!

It really makes me believe that even the best guys want to use controversy and half-baked ideas to sell their product. This is similar to the way newspapers and magazines use/report numbers to make them sound more interesting but miss the point.

Disclosure: I have never worked for a mobile operator/carrier. I have worked as an engineer for an equipment manufacturer and understand some aspects of a cellphone networks' working and cost structure.