Re: Cell-Phone Bills: Is Text-Messaging Too Expensive? - TIME

[David Farber <dave () farber net>]

Begin forwarded message:

From: Richard Perlman <rdp () yikes com>
Date: September 15, 2009 1:26:32 PM EDT
To: David Farber <dave () farber net>, ip <ip () v2 listbox com>
Subject: Re: [IP] Re: Cell-Phone Bills: Is Text-Messaging Too  
Expensive? - TIME

Dave:

For IP if you wish, some comments on wireless billing practices.

A little background:
The regular "wireline" phone companies used to have (and probably  
still do)
accounting requirements for "Settlements and Separations." Separations  
was
the process of determining the amount of investment in various  
categories of
the physical plant. Originally this was pretty much the Central Office,
local loop, and intra-CO facilities. After "divestiture" (1/1/84) this
changed to various permutations of: Local, Intra-LATA, Inter-LATA,
Intra-State, etc.  This information was mainly useful to determine
rate-of-return, since that rate was typically specified by the type of
investment. Thus, phone companies would "play games" by assigning more
investment to areas with higher allowed returned rates, local loop for
instance.

The Separations information was also used to help in the Settlement  
process.
This was how phone companies separated or divided revenues when more  
than
one company was involved in completing a call. Complex formulas based on
distance and cost (from Separations) were used to share revenues.

Now, most (if not all) of the major wireless carriers have their  
origins in
the wireline world. Even "independent Vodaphone can trace it's roots  
back to
Pactel Mobile, via AirTouch. So, I am wondering if these companies  
also have
processes like Settlements and Separations when it comes to sharing  
revenue
between wireless companies and between wireline and wireless companies.
Logically, if such processes do exist, they would apply to data services
(like SMS) as well as voice. Therefore, revenues might flow from the  
carrier
that originated the SMS to the one that delivered it, thereby  
offsetting the
costs of the delivering company, and probably covering the $0.03 cents  
of
incremental cost.

Perhaps an IP reader who has more recent involvement in the telco world
could comment.

As to the argument that SMS profit helps "subsidize" voice costs to  
sustain
overall profitability. That is, in my opinion, specious. The major Las  
Vegas
casino hotels were originally setup to have non-casino operations run  
at a
loss just to promote the casino: dirt-cheap food, rooms and shows were  
the
results. However, in the (long time past) 1970's the bean-counters  
figured
out that while the casino had a fairly well fixed rate-of-return (I.e.
Profit margin) the other functions were not so restricted. So, they  
moved to
a profit center model in which each hotel operation had to support its  
own
costs. To have a long-term income strategy that over-charges for SMS (if
that is really taking place) subsidize luring people in with cheap voice
would be, at best, dishonest and, in the end, probably a self- 
destructive
path for the carriers.

Richard

On 9/15/09 6:21 AM, "David Farber" <dave () farber net> wrote:

> Begin forwarded message:
>
> From: Brett Glass <brett () lariat net>
> Date: September 14, 2009 11:56:54 AM EDT
> To: dave () farber net, "ip" <ip () v2 listbox com>
> Subject: Re: [IP] Cell-Phone Bills: Is Text-Messaging Too Expensive? -
> TIME
>
> At 01:50 PM 9/13/2009, David Farber wrote:
>
> > Summing up, Keshav found that a text message doesn't cost providers
> > more than 0.3 cent."
>
> This isn't accurate. The cost of building out, operating, and
> maintaining the cellular network is tremendous (and is inflated by
> problems such as overcharges by the ILECs for leased lines to connect
> the towers -- also known as "special access"). What's more, due to the
> advent of cut rate and unlimited calling plans (in which the carriers
> actually lose money on some voice customers), this cost can't be
> supported by voice service alone.
>
> Without SMS charges, all of the major cellular carriers would lose
> money unless they substantially raised rates for other services.
>
> --Brett Glass
>
>
>
>
>
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