Verizon Wireless considers extra text fee

The blogosphere has been up in arms over the past 24 hours as news spread that Verizon Wireless is planning to increase the per-message fee it charges companies that send text alerts.

On Thursday RCR WirelessN News published a story citing a letter that OpenMarket, a direct to consumer messaging service that sends alerts for companies like Google or Orbitz, was sending to its clients explaining that it would have to tack on an additional three cents for every text message that is terminated on Verizon Wireless network.

"Effective Nov. 1, 2008, Verizon will assess a transaction fee of $0.03 for every MT message processed on its network," the letter said. "Please note that these message fees will apply to standard rate and premium programs. Transaction fees will not apply to Free-2-End-User, Mobile Giving or Non-Profit organizational programs."

OpenMarket went on to say in its letter that it planned to pass on the charges to its clients.

"Pursuant to your Commercial Services Agreement with OpenMarket (including former Simplewire Agreements) concerning Third-Party/Operator Fees, in the event message fees are assessed by Verizon for any of your programs, these fees will be passed on to your company at cost."

The letter ignited a firestorm of criticism from bloggers all over the Web who complained that this steep fee hike would kill services like ChaCha, which allows anyone to text a question to a number from their cell phone and receive an answer relatively quickly.

Others said it would likely discourage brands like ESPN from using SMS text messaging.

"Three cents may not sound like a lot, but think about how much profit ESPN generates for sending you the latest Red Sox score," Brennon Slattery of PC World writes. "Nothing. Raising the fee may eventually discourage companies from participating in the convenient service."

My colleague Sam Diaz at ZDNet said he'd stop using Twitter if the charge was passed along to him.

"Certainly, as someone who updates my own Twitter account somewhat regularly, I'm not inclined to start paying for users to receive my notifications via SMS. If that were the case, I'd just stop using Twitter."

But Jeffrey Nelson, a Verizon Wireless spokesman, said the price hike has not been finalized. Still, he acknowledged that Verizon Wireless has been discussing ways to offset increased costs associated with heavy volumes of SMS text messaging on its network.

"We are currently assessing how to best address the changing messaging marketplace, and are communicating with messaging aggregators, our valued content partners, our technology business partners and, importantly, our friends in the nonprofit and public policy arenas," he said in an e-mail. "To that end, we recently notified text messaging aggregators--those for-profit companies that provide services to content providers to aggregate and bill for their text messaging programs--that we are exploring ways to offset significantly increased costs for delivering billions upon billions of text messages each month."

Even the mere thought that Verizon is considering upping rates on text messaging is enough to get people worked up, especially since Verizon and the other three major wireless operators in the U.S. have increased the price of sending and receiving texts for consumers by 100 percent over the past two years. Rates have gone from 10 cents a message to 20 cents per message.

These price hikes come as the volume of text messages has also increased. Last month, the wireless industry association CTIA reported that 75 billion SMS text messages were sent in June, averaging about 2.5 billion messages a day. This represents an increase of 160 percent over the 28.8 billion messages reported in June 2007.

Even though text volumes have increased, I'm still not sure why Verizon would have to increase rates to cover the cost of delivering the service. SMS text messages cost carriers very little to transmit. In fact, SMS uses a pathway or control channel that already exists in cellular networks to establish communications between cell towers and handsets. Devices are constantly in communication with cell towers to let them know where they are, and the SMS messages are simply delivered along with this normal course of communication.

Given that the carriers haven't had to do anything extra to enable SMS, I'm not sure why increased volumes would necessitate raising rates to cover increased costs. Right now it seems like SMS is nearly 100 percent profit. So Verizon could use some of those existing profits to invest in some kind of expansion of the service.

That said, Verizon notes it hasn't increased per-message costs to aggregators since the messaging service began in 2003. Nelson made it clear that nonprofits and political organizations would not be charged extra to send text. And he emphasized that Verizon is still reviewing all its alternatives.

"Specific information in one proposal, which would impose a small per-message fee on for-profit content aggregators for commercial messages, has been mistakenly characterized as a final decision to implement," he said. "That draft was intended to stimulate internal business discussions and in no way should have been released to the public and represented as a final document."