Why Text Messages Cost Cellular Companies Virtually Nothing

Whether you calculate it at 4,900%, 6,500% or 7,314%, the markup on text messages is huge. But maybe the number is really closer to infinity percent markup, as William Poundstone writes in his book Priceless: The Myth of Fair Value.

“Unlike e-mail, Internet, and voice data, text messages are piggybacked onto the cellular network,” Poundstone writes. “They occupy otherwise unused space in a control channel used for network maintenance.”

This is why he calls text messages “possibly the greatest ongoing con job of American capitalism.”

Rebutting such claims, a spokesman for Candian wireless company Telus told CBC in 2009 that the calculations leave out the costs of running the secure data centers the cellphone companies need for data storage.

Either way, in this case, fair market value is determined by what the market will bear. But with all the major carriers pricing similarly and with the barriers to entry into the market so high and with consumers locked into long-term contracts that are difficult to leave, the market has little choice but to grin and bear it.

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