Text Messaging – The Bell & Telus Profit Grab

In the middle of the Rogers and Apple iPhone PR blitz and resulting Canadian consumer rebellion — as evidenced by www.ruinediphone.com’s  60,000-plus signatures — Bell and Telus announced they are going to begin charging for incoming text messages at 15 cents per message for customers not on bulk text messaging plans.  

By timing it this way the companies may have hoped to slip quietly under the iPhone PR and the Rogers iPhone plan pricing backlash. Instead the media positioned it as a continuation of the consumer backlash story, just as the Rogers plan story was beginning to crest.  

By introducing this additional charge, Bell and Telus will double their usage-based text messaging revenue with all the increased revenue coming in at 100 per cent profit. They currently collect 15 cents per message from the sender. With this change they will also collect 15 cents from the receiver. 

This is a doubling of the price for text messaging without any change in the cost or the usage. Consumers were understandably upset and the media fanned the anger by publishing reports about confused consumers who worried that their text messaging charges would increase by hundreds of dollars.  

Informing these heavy users that the additional charges could be mitigated by subscribing to bulk text messaging plans for $15 or so per month would not have made for the same sound bites.

Nonetheless, the release of the much anticipated iPhone, Roger’s mismanagement of the data plans and the Bell and Telus text messaging profit grab has further fueled the love/ hate relationship consumers have with their cell phone and cell phone carriers. 

While consumers are heavily attached to their cell phones, across the board feel that they are being unfairly gouged by the wireless carriers.  

This isn’t surprising, considering escalating System Access Fees, excessive long distance pricing, data pricing and the many small add-ons such as text packages and caller ID packages, all of which turn a $30 plan into a $60 bill every month. 

The new Rogers data plans as well as the new charges for incoming texts add to the already confusing array of packages, options, unknowns, and pricing that every cell user faces. Whether intentional or not, this confusion works to the benefit of the big three cellular carriers. 

When faced with the difficult task of comparing plans, options, and unknowns, consumer behavior dictates that, in general, consumers will avoid the stress by simplifying their decision. In this case, consumers simplify their shopping down to a brand, a phone, and a local minutes package, ignoring and passively accepting that they will be charged some unknown amount for everything else

Bell & Telus Incoming Text Messaging Charges

The story of Bell and Telus introducing a 15 cent charge for incoming text messages has been widely covered with the usual man-on-the-street interviews.

Hyperbole flies on either side.

The press finds lost soul txtrs that will see charges in the hundreds of dollars. Please someone tell these people that they can add unlimited texting to their plan for about $15/month.

Bell and Telus on the other hand defend the need to add the charge to cover the cost of delivering text messages. This logically implies that when they originally set text messaging charges, they mistakenly assumed that text messages were only sent but not received.   An insulting and disingenuous argument.  Similarly, their argument regarding increasing infrastructure costs driven by the popularity of texting is also weak.   A packet switched 160 Byte SMS message requires significantly less network resources than a 1 minute circuit switched voice call.   In the US market, CrunchGear did a simplified analysis of the price of text messages relative to the price of wireless data and came to the conclusion that AT&T is pricing text messages at $1,310/Megabyte.  A bit simplified but still illustrative of the big hole in the centre of the Bell and Telus ‘cost’ rationale for the incoming text charges.  All of a sudden, the Rogers iPhone data plans don’t look so bad.

As this story has played out, two thoughts stand out for me:

1.   How did two competitors decide to introduce an exactly equivalent new charge on exactly the same day?  Has no one noticed that this smells of collusion?  Is the competition bureau sleeping?  Industry Minister Prentice is upset with the charges but has not shown any concern about the circumstances: “While I have no desire to interfere with the day-to-day business decisions of two private companies, I do have a duty as minister of industry to protect the interests of the consuming public when necessary,” Prentice said in a statement.  Have Canadians become so desensitized to the oligopolistic behavior of the industry that we accept this as normal?

2.   Why now?  Why did Bell and Telus announce this now during a period of massive iPhone 2.0 PR and the consumer backlash against Rogers’ data plans?  Were they hoping that it would slip in under the other news?  If so, they’ve miscalculated in a big way.  If anything, with Rogers backing down on data plans, whether temporarily or not, the bubbling consumer anger has turned to point at Telus and Bell.  The heat comes off Rogers and soon stories about iPhone launch breakfasts, lineups, and excited early buyers will put the rose back into the Red.

The cell industry in Canada has been a circus the last few weeks.   As a result of all of this, in the short term at least, it seems that everyone loses.  Bell and Telus mess up their timing and damage their brands, Rogers damages its possible massive upside with the iPhone, and of course the consumer loses all around.  In the medium term, Bell and Telus will rake more margin, Rogers will adopt the same incoming text charge and rebuild its brand around back to school and holiday season iPhone sales.  The consumer will still be sitting in the nosebleed seats.  At least until late 2009, early 2010 when two to three new competitors enter most markets and the party starts.