How Vodacom, MTN and Cell C make big money at our expense.

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I just came across an interesting article on the New York Times where Randall Stross decided to investigate the actual costs a text message has for a cellular network operator. Finally someone did the research I’d been too lazy to do for a while.

As I suspected, a text/sms message is basically free. They are sent to the nearest tower over a control channel – a channel that exists in order for the phone to communicate with the network, and so stuffing that channel with a message bears very little overhead, if any. This also explains the stupid 160 character limit that texts are subject to.

So yeah, another blatant rip-off. Go ahead, send your R10 messages to 35050 now!

[Article Link: New York Times]

[Update: A slightly more in-depth technical discussion by Tom Limoncelli at EverythingSysadmin.com]

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13 Comments

  1. Eish, I’d never even considered this. Which is why companies can get away with ripping us off I guess, because most people just don’t think to question.

  2. umm dont agree. Your assumption is that all the network operators have paid off their hardware, there are no people managing that hardware, no leasing of land and no software charges, the hardware does not break and it uses free energy. If that is all true then yes the transmission is free.

  3. I hear your point Jay, but all of those costs should be factored in on the cost of running the primary product which is network activation and airtime(voice). SMS is a bolt-on service which coincidentally happens to open up another massive revenue stream, but the revenue does not *need* to be that large, and the cost of the SMS service is close to zero if you view it from the perspective as being an inadvertent “hack” of the technology, if you will.

    Either way, with the likes of Vodacom making a net profit after tax of R8 billion, isn’t it time they started actually competing with (undercutting) the other operators?

    Also interesting – Vodacom’s total asset value is R34 billion, with liabilities around R22 billion. Their total group revenue (for one year!) is R48 billion. Those towers, software and tracts of land are not looking that expensive with those sort of turnover and profit figures.

    (All figures and opinions based on Vodacom’s March 2008 earnings report combined with my relatively puerile understanding of accounting)

    1. cost of running the primary product is an expense. in other words, its a consequential cost of producing the product, expenses are common to every company. now sms is a product, confusingly it does not bear any production costs because its a basic communication instructions given to a computer, it is not manufactured as we would traditionally think.
      its like renting a room and charging for both rent and the use of oxygen in that room.
      now you can charge as little as nothing to R1 000 and claim it represent value of oxygen

  4. It was documented some time ago that SMS and Text messaging was the most expensive form of data communication, hence the rise of Mxit and the like….will endeavour to find the article…and report back..
    Think of it, a message sent using other data forms cost’s as little as R0.01 yes that’s 1c when doing a % calculation on R0.68 for an SMS gets interesting.

  5. Totally agree with the comments, the issue is that network operators fix the price between each other so one operator could bring the price right down within its own network. Yet must still charge a premium to other networks. The other issue is that suppose SMS was really cheap, even for free.

    Would people still make as many calls?
    Would the operator still make a profit?

    Something I found on wikipedia
    Commercially SMS is a massive industry in 2006 worth over 81 billion dollars globally.[14] SMS has an average global price of 0.11 USD and maintains a near 90% profit margin.

  6. Just a quick question, Does international SMS incur termination charges? I mean if u are a south african MTN subscriber and you send an SMS to US, does MTN pay to the receiving network or its free on their part ?

  7. Hi Jackson, from a few quick searches on Google, it certainly seems as though termination charges for SMS are pretty standard nowadays.

  8. Shaun, I agree with you completely. Cell phone companies have been milking us for sometime now. But that will soon come to an end. There are social networking sites such as wadja which allow their members to send a limited number of free SMS texts. I am sure we will see more of such sites as we go along.

    In a related development, with the advent of faster Internet speeds, PC to PC calls will become the order of the day. These calls are basically free. Calls from PCs to landlines and cell phone are also much cheaper even in domestic situations. In the near future, people will be making calls from cell phones only in times of emergency.

  9. Clement, do you have a link for wadja? You’re right, slowly but surely the consolidation of services and better Interwebs connections in Africa is gonna hopefully force telecoms companies to re-think their strategies.

  10. Shaun, I wanted to include the link for wadja in my first comment but I withheld it because I feared that you would construe it as spam. Now that you have asked for it. Here it is:http://www.wadja.com. Once you join it, feel free to add me as a friend. My user id is nyirendac. Facebook seems to be sacred of wadja. They have banned the word “wadja” from their system.

  11. Wadja looks great from a social mobile offering, a more web2mobile connect interface for smart phones Dashwire
    [http://www.dashwire.com/] is a great start.

    More along the free SMS and to add free so called calling look at
    Fring [http://www.fring.com/]whilst primaraly offering “Skype over Mobile” ie free calls it could be considered and used effectively for free SMS’s.

    The Giant that is Twitter [http://www.twitter.com]although primarily form micro blogging, could be set up and used as a free group SMS medium.

    Corporates looking for an in house free SMS service could try Yammer [https://www.yammer.com] one requires the same domain name e-mail address to join a network, where by keeping all data private.

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