Wednesday, December 31, 2008


Short-changing with short messages

We don’t care. We don’t have to. We’re the phone company.

— Lily Tomlin, as “Ernestine”

Lily Tomlin created the character of Ernestine, the telephone company operator,[1] in the late 1960s, for the TV comedy show Rowan and Martin’s Laugh-In, and later took the character to Saturday Night Live. In those days of a phone company monopoly, Ernestine epitomized the monopolistic attitude.

Since the court-ordered breakup of AT&T in 1984, a lot has changed, regardless of whether you think Judge Greene made a wise decision or a foolish one. And independent of the great divestiture, wireless service has pressed new wrinkles into things.

But some things haven’t changed: the phone companies, however many and whatever their services, want to maximize their income from services... not always having the best interests of their customers in mind in the process, as Randall Stross points out in this New York Times column:

Text messaging is a wonderful business to be in: about 2.5 trillion messages will have been sent from cellphones worldwide this year. The public assumes that the wireless carriers’ costs are far higher than they actually are, and profit margins are concealed by a heavy curtain.

The thing that’s insidious here is that the carriers are actually raising the price of text messaging in order to get people to use more text messaging, paradoxical though that might seem. By hiking the prices of individual messages, they’re pushing people toward the packages — packages that include some number of text messages in the base price, or packages that cover unlimited text messages.

If you’re paying 10 cents a message, you can send five messages a day for about 15 bucks a month. But you don’t, because you’re aware of the cost of each message. At 20 cents a message, the cost is enough that they can draw you to an “unlimited text message plan” for, say, 20 bucks a month. They make more money. Maybe you send more text messages than before, maybe you don’t... but here’s the trick: it doesn’t matter. Their cost for letting you send five messages a day, or ten, or fifty, is minuscule, particularly when compared with the extra money they’ve made by selling you the unlimited-message plan.

And, of course, if you don’t take the up-sale, they get to charge you 20 cents a message or more... including charging you for messages that your friends (with unlimited text plans) send to you (which you probably answer, at 20 cents per reply).

Of course, this stuff has been going on for ages with other services — it was a factor in the lawsuit that led to the 1984 divestiture. The phone companies have always been slow to take what improved technology saves them and pass it on to their customers. Expensive switching and other limited resources made “long distance” more costly than “local” or “regional” calling. Yet long after improvements in the infrastructure wiped out those differences, we were still paying premium per-minute rates to call 100 miles away into the next state, simply because they could charge us — we were used to it. Eventually, unlimited-calling plans took over.

Similarly, we paid extra monthly fees for Touch-Tone (DTMF) service, long after it was no more expensive for them to provide than pulse dialing. It was only when they wanted to get people off of dial service that they abolished the extra fee.

We might say that it’s a free-market system, and they can charge what the market will bear. But it’s unethical to take advantage of consumer ignorance and limited-provider status to overcharge for services. Caveat emptor fails when the emptor has little choice and less information on which to base it.

So, three cheers for Senator Kohl, for his wanting to look under the hood and get some details about the engine, here. If some scrutiny and oversight can get the pricing corrected, we might see as a secondary result new text-messaging services that can make up the lost income to the carriers and add value to the consumers.

[1] For those too young: In the Old Days, before automated switching, “direct dialing”, which we take for granted now, wasn’t available. When one picked up a telephone, one got an “operator”, a woman (always a woman, back then), who would connect one’s call, physically moving plugs on a switchboard to do local routing and to set up downstream switching. Even when mechanically automated switching was common, operators were still there to assist with calls, to handle “long distance” connections, and to provide information and directory assistance. With the advent of electronic, computer-controlled switching, operators were needed less and less over time, and now even the directory assistance functions have been automated — and everything else has been replaced by the menu-driven (and often off-shored) “customer service” departments.

1 comment:

Thomas J. Brown said...

A friend of mine lived in Japan for 3 years and was amazed at how lousy mobile plans are in the states. In Japan, unlimited text messaging is free and comes with every single plan. Mobile phones also have their own area code, but that's another story.