[Editor’s Note: We want your thoughts on this controversial development. Should operators be allowed to raise SMS service fees? Give us your opinion in the comments section of this story on our Web site and we’ll highlight the best responses in an upcoming follow-up story.]
With Verizon Wireless apparently weighing the possibility of charging a 3-cent-per-message fee to SMS aggregators, text messaging business models may be in for a reevaluation as well.
Here’s the back story: an email from Verizon’s billing provider OpenMarket detailing the new fee began circulating among aggregators and content providers this week, setting off a flood of media coverage and criticism against Verizon. Verizon officials denied its decision was final, while admitting it does plan to reassess the fees it charges aggregators, in part to better reflect network costs. Verizon said it has not increased per-message fees to third-party providers since its SMS service launched in 2003.
This is a big deal to SMS such as mBlox and VeriSign, as well as the content companies that leverage those aggregators to deliver SMS text alerts, promotions and interactive voting notifications. Some examples would be TV shows like American Idol, which conduct SMS voting; SMS-based “answer” services like ChaCha or Google Answers; and Web-based messaging services like Twitter. Such services, which rely on relatively low-cost SMS to augment their existing content distribution, would be hard-pressed to swallow such a large potential fee increase.
SMS is a huge business. At the CTIA show earlier this year, the trade group said that operators at that time were delivering more than 75 billion text messages every month.
Because of Verizon’s non-committal response, uncertainty in the SMS market will rein – at least for the time being. The larger question is if Verizon ups its rates, will other operators follow their lead? As for content providers, they may have little choice but to raise rates to end-users, putting into question existing business models that factor current SMS rates into their equation. With ubiquitous access SMS’s key selling point, no content provider would likely be willing to simply abandon one third of the nation’s wireless customers in order to avoid Verizon’s would-be charges. But could their business models hold up?
For operators, the timing of such proposed rate hikes could be a challenge. Already, Web access on mobile devices is rising, potentially offering a messaging alternative to SMS. Further, the government is looking closely at SMS rates already – rate hikes will only draw more attention. Last month, Senate Judiciary antitrust subcommittee Chairman Herb Kohl (D-Wis.) sent a letter to mobile operators raising concerns about recent text messaging price increases.
We want your opinion: are service providers within their rights – and is it good business – to be raising SMS rates to third party providers? Let us know what you think in the comments section below.
My standard free market answer would be that vendors should be allowed to set prices since competitive alternatives will discipline any excess. After all, the network providers invested billions to enable the service and I’m not aware of anyone extracting excess profits today. But SMS is a strange market structure, since third party intermediaries must offer “ubiquitous access” requiring them to deal with each wireless carrier. The alternative would be for the carriers to sell directly to the content providers, but then exclusivity, discriminatory pricing and other imperfections of the video and internet markets would become manifest in SMS marketing. If Verizon isn’t careful, they may create an argument for public utility-type price regulation of the SMS wholesale market.