Free texting apps hurt carriers' bottom line (BLOG)

An increasing number of apps that allow users to send messages to one another for free are whittling away at the profits of wireless carriers, reports The New York Times. And the problem is only expected to get worse with this week’s release of iMessage, Apple’s new free iOS-to-iOS messaging service.

Last year, the wireless industry as a whole made $20 billion off of more than 2 trillion text messages. Verizon Wireless alone brings in $7 billion a year in revenue, about 12 percent of its business, according to Stanford C. Bernstein analyst Craig Moffett.

“There’s a huge amount at stake here,” said Moffett. “They are undermining the core business model for an industry that makes most of its money from services that are high priced and low bandwidth, like texting.”

If you ask us, that “core business model” is more like a “giant rip off.” SMS text messages, which are a very small amount of data, cost wirless carriers about one third of a penny to send, according to University of Waterloo professor Srinivasan Keshav, who studies mobile technology. Compare that to the 10 to 20 cents carriers charge customers for text messages and you have a serious case of price gouging on your hands – a markup of more than 4,000 percent.

The proliferation of free texting services, which includes everything from apps like WhatsApp Messenger to Facebook Messenger to BlackBerry Messenger and even Twitter, will eventually force the wireless industry to change their ways – and, in a small way, they already are. AT&T, for example, will soon off customers a $20-per-month messaging plan, or the option to send messages for 20 cents apiece, sent and received. The company will no longer offer 1,000 text messages per month for $10.

Verizon, on the other hand, seems undeterred by increased competition, telling the Times that it sees free messaging services as merely “complimentary” to text messaging plans.