AT&T, Verizon Deny Text-Message Price Fixing

By PCMag Staff

June 16, 2009

AT&T and Verizon on Tuesday denied that the two companies colluded to increase text message pricing, and insisted that text-by-text pricing plans are such a marginal part of their businesses that any attempt to do so would be totally counterproductive.

Over the last two years, the major cell phone providers have increased their per-text prices from 10 cents per message to 20 cents, a fact that caught the eye of Sen. Herb Kohl of Wisconsin, chairman of the Senate Judiciary Antitrust, Competition Policy and Consumer Rights subcommittee.

At a Tuesday hearing on the subject, Kohl acknowledged that most mobile customers pay for their text messages via packages – 200 messages a month for $5, for example – rather than on a per-text basis, but he was still concerned that rate hikes on texts might open the door to rate hikes on other mobile services.

"Will consumers continue to see similar price increases for this and many other wireless services that they have come to increasingly depend on, such as Internet connections and basic voice service?" Kohl asked. "The concentrated nature of today's cell phone market should make us wary of other challenges to competition in this industry."

Kohl first raised these issues in a 2008 letter to the major carriers – a letter that prompted several class-action suits alleging price fixing.

Randal S. Milch, executive vice president and general counsel for Verizon Communications, addressed these lawsuits and denied any wrongdoing.

"Verizon did not collude with its competitors," Milch said.

Any evidence to suggest otherwise is baseless, Milch added. "Market evidence shows fierce competition, not collusion, in text messaging and wireless generally," he said.

Carriers: Customers buying text bundles

Only one percent of text messages sent through Verizon's systems are from pay-per-use (PPU) customers, Milch said. "The other 99 percent of texts are covered by various bundles of services, where average price is less than a penny a text."

The average PPU Verizon customer sends 21 texts per month, while the average bundle customer sends almost 1,000 texts each month, Milch said.

Wayne W. Watts, senior executive vice president and general counsel for AT&T, reported similar figures. Less than 1 percent of AT&T customers use PPU, he said.

"AT&T sets the prices for all its products on a unilateral basis," Watts said. "There is no evidence that anyone at AT&T engages in anything inappropriate or illegal."

Even if there was collusion, it would be pointless, both companies said. When customers decide on AT&T or Verizon or any other provider, that providers' PPU rate is very low on the list of priorities, Milch said. They are looking at available handsets, voice plans, apps, and data plans – not single text rates.

"Focusing on this type of market – this less than 1 percent of all texts – and believing that this is going to drive the competitive needle, that was not our marketing judgment," Milch said. "So if we were to cut the price [on PPU], we don't think we'd attract anyone because if they're a heavy texter, they're on a plan. If they're a light text user, why would they change carriers on a pay-as-you-go plan?"

"We've focused our attention on the other 99 percent where we've made enormous strides to lower the prices," Watts said.

Watts claimed that it was unfair to single out the cell phone industry when many other competitors sold similar products for the same price. No one raises an eyebrow when Home Depot and Lowe's sell the same grill for $89 or when a basketball at Foot Locker and Champs Sports has the same price tag, he said.

"Does that mean they don't compete on other things?" he said. "Of course not."

Joel Kelsey, a policy analyst with Consumers Union, suggested that the cell phone companies have increased their PPU prices as a means to lure users into more lucrative two-year contracts.

"We're not alluding to any collusion, but we are saying that people don't need to sit in a room and come up with a plan to see the same harm exist in a marketplace," Kelsey said.

Kelsey also took issue with handset prices in the U.S., which he said were the highest of all developed nations. Watts took umbrage with this statement and said they are actually "cheaper than anywhere else in the world."

Watts pointed to the recently announced $99 iPhone. AT&T would not have supported that plan "if we didn't have the ability to recoup the cost of that subsidy," he said.

Cell phones companies pay about 0.3 cents for each text message that crosses their network, said Srinivasan Keshav, a computer science professor at Canada's University of Waterloo. In his estimation, current prices do not justify the costs, he said.

Milch responded that Verizon is not just paying for the text message to travel on its network, but it is also paying for network build-out, equipment, and spectrum. Furthermore, Verizon is not a regulated company that is required to charge for products based on cost.

Keshav agreed that Verizon was not required to do so, but said his figures had factored in things like infrastructure and spectrum costs.