Don't Shoot The iMessager: Why Cell Phone Networks May Soon Have To Shrink Your Bill

Tomorrow Apple is due to launch its iOS 5 update to the iPhone, iPad, and iPod Touch's systems, bringing iMessage with it. Because of this, and other new tech, how your cell phone provider charges you for your service may be close to radically changing—powered not by internal company decisions, but by smartphone advances.

Tomorrow Apple is due to launch its iOS 5 update to the iPhone, iPad, and iPod Touch's systems, bringing iMessage along with a host of other changes. iMessage is Apple's own cross-device short message service—roughly equivalent to an SMS but not going through a cell phone network's own SMS data channel, and traveling instead as simple 3G data. In other words, it sidesteps a cell network's lucrative revenue-generating system. And the networks are worried—by this, yes, but also by serious imminent changes to how we use phones.

As the New York Times notes, iMessage is being perceived as a direct threat to SMS network revenues. This is for two reasons: First, it uses the iPhone's 3G radio data channel rather than the 3G channel for traditional SMS's, which is actually a part of the way phones repeatedly chat to nearby cell phone towers. Second, it's almost totally free for customers to use, which is always going to attract customers. It also works in exactly the same way when you're using it over Wi-Fi, creating a seamless chat channel that'll definitely encourage iPhone owners to use it. 

It is, of course, rather similar to the hugely popular BlackBerry Messenger app, beloved of text-happy teens the world over—because BBM also uses the smartphone's data channel to send the messages. But with the iPhone's iconic status only growing, and early hot-selling indications suggesting that the iPhone 4S alone may sell 25 million units by the end of the year, (with iCloud and iMessage aboard as a free system, rather than the previously paid MobileMe equivalent), iMessage is instantly going to be in the hands of millions and millions of users. 

In one way, iMessage and BBM are obvious technologies. When you download a web page your smartphone sucks megabytes of data from the cloud, and the data burden of tiny 160 characters of a typical SMS are vanishingly small in comparison. SMS's, in comparison, are sent and received by your phone when it does its usual "hello" handshaking with cell phone towers—they're merely a tiny extra chunk of data that the phone sends when it identifies itself to the network (and their existence was almost an afterthought). 

The trick is that phone networks have grown savvy to texting habits, and have decided to monetize it. And why shouldn't they? It costs them almost nothing to transmit texts through their grids, and the infrastructure is practically zero. This has caused huge controversy over the years, because it's seen as a way for networks to nickel and dime customers with attractive-sounding "SMS packages," which incrementally boost monthly fees. As the Times notes, more than 2 trillion SMS's are sent in the U.S. every year (and it's worth noting the habit caught on in the U.S. much more slowly than it did in Europe) and that Verizon, the biggest network, makes $7 billion, or around 12% of its revenues, from texting. If consumers leap to using nearly free alternatives, all that revenue is lost, because although an iMessage-style "SMS" does eat into a customer's data plan bandwidth, the burden is so small they'd have to be a world-record texter to notice significant munching of their data plan. In other words, it's much harder to monetize.

And that's not all that's happening. T-Mobile just upgraded its relatively new Bobsled system, which at first allowed merely free VoIP calls between Facebook users. Now there's a bunch of mobile apps that let users do the same trick on the go, and it also works between regular cell phone numbers. Some analysis suggests that T-Mobile is taking a big gamble here, in effect giving away free calls that'll cannibalize its regular voice data use at the expense of eating user's data bandwidth—and perhaps T-Mobile's doing it in the U.S. because it's not getting the iPhone. 

The thing is, Bobsled is merely a taste of the future, and is similar to Google Voice, Skype, and other voice-over-data systems. These new tech alternatives are so much more convenient, and cross-device-portable than a simple "voice plan" on a traditional cell phone contract that they're definitely the future.

Add all this together, and the conclusion is clear: Right now your cell phone company is happily charging you by the second for voice calls, by the SMS for texts, and by the MB for mobile data use—at each point finding tiny ways to extract money from consumers (the connection fee for a call, and the relatively high cost of an SMS versus it's transport fees are examples of this). But as we all shift to using more data-only functions—and use smartphones more than ever—then cell phone firms will likely see revenue growth from voice calls and SMS's stutter and possibly fail. 

Then they'll have to get even slicker with how they charge you for your mobile data to fill up the gap. Will consumers stand for it? Will industry regulators let nickel-and-diming on data tariffs run uncontrolled? Will networks actually find it harder to recover this piecemeal revenue stream from a much more straightforward data charge? By this time next year the answers will be revealing themselves—and bottom lines will be feeling the results.

[Image: Flickr user Tricia Wang]

Chat about this news with Kit Eaton on Twitter and Fast Company too.

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3 Comments

  • Roselle Ignacio

    LOL, does everyone remember when we used to text with beepers? Remember that?---when we would text 7 characters at a time, in numbers, no less.  My, oh my, how iPhones and other smartphones have revolutionized how we text.

    That being said, I think it's ridiculous cell phone companies charge $20 a month for texting.  What kind of deal is that?  I don't think sending text messages takes up that much bandwidth, so why so expensive?

    Here's an excerpt from a recent article I read at ABC:
    "According to Joel Kelsey of Consumers Union, text messaging uses less
    data than almost any other service on a wireless network.  'The text
    message is a free rider inside the so-called "control channel" or space
    that is already being used to operate the wireless network.  In other
    words a text message does not use up any extra spectrum…'  But Kelsey
    says since 2003 the price of text messaging has quadrupled for some
    carriers."

    For more on that article, here's the link: http://abcnews.go.com/blogs/he...

    Anyhow...I am currently getting the new iPhone 4S and have downgraded my plan to the cheapest amount possible.  I'm lucky enough to always have WIFI, so I don't really use much of data plan, so I chose the 200MB $15 Data Plan instead of the 2GB $25 plan.

    Also, I didn't get a text messaging plan either.  I get free text messages from using Google Voice.  The only caveat is that I can't get picture text messages yet.  But heck, who cares if it saves me $20 a month.

    After taxes and surcharges, my bill comes to be around $69.99 which is modest for having a new iPhone 4S, I think.

  • Ryan Paredez

    I agree with you Mel, these companies are making a killing off us. They know texting is the 'new thing,' I myself text quite a lot every month. It's just all about making money in the end. These 3rd part apps do come in handy and I use them a lot as well. A bit off topic, but the merger of Tmobile and ATT, I think is a terrible idea.

  • Mel James

    "...and have decided to monetize it. And why shouldn't they?"Maybe because they're all colluding on the ridiculous price!
    Why would't one of the majors offer a radically cheaper texting plan to take marketshare?

    The sooner all phone companies (landline sharks included) are compelled to get more "straightforward" on charges the better.