RealTime IT News

Verizon Mulls Text Fee to Milk a Cash Cow

Companies using Verizon Wireless text messaging for marketing or alerts may find themselves soon confronted by a bigger bill, as the country's No. 2 mobile carrier is considering upping the fees they'll pay to use its network.

While a proposed, three-cent additional fee may seem small, the cost would come on top of current charges carriers usually charge for such services, ranging from less than a penny for standard-rate bulk messages to a few cents for premium messaging, according to industry experts.

As a result, a price hike could dramatically increase expenses for companies relying on mobile text for marketing, customer service or third-party notifications -- such as news updates, sports scores and other types of alerts users want to receive immediately on their phones. It may even impact campaign efforts in the presidential race, as both parties are relying on mobile messaging as part of their efforts.

"This is big," Lewis Ward, an analyst at IDC, told InternetNews.com. "Raising these fees flies in the face of what mature industries do," he said, adding that he expects the carrier to experience "blowback" that could cut into revenues and customer numbers.

The news may also spark further discussion of the costs associated with text messaging, which have lately come under fire. The planned increase follows shortly after lawmakers initiated hearings to determine why end-user costs for text messaging have doubled in the past three years.

Verizon Wireless spokespeople said the proposal had yet to be finalized and had been discussed as a means to help combat costs.

"We recently notified text messaging aggregators -- those for-profit companies that provide services to content providers to aggregate and bill for their text messaging programs -- that we are exploring ways to offset significantly increased costs for delivering billions upon billions of text messages each month," Verizon Wireless spokesman Jeffrey Nelson said in an e-mail to InternetNews.com.

"We are currently assessing how to best address the changing messaging marketplace, and are communicating with messaging aggregators, our valued content partners, our technology business partners and, importantly, our friends in the non-profit and public policy arenas," he added.

Although the company said it's facing rising costs, Verizon Wireless' business still seems to be going strong. The company posted impressive second-quarter earnings with earnings of $1.88 billion, a 58 cent-per- share jump from last year's second-quarter earnings of $1.68 billion. Revenue totaled $24.12 billion, up from $23.27 billion in the first quarter and a 3.7 percent increase compared with the second quarter of 2007.

Despite Nelson's statement, Ward sees the proposal designed to squeeze more from strong interest among consumers and businesses in mobile messaging. According to data from wireless industry association CTIA, the overall numbers of text messages sent and received annually has grown from 14.4 million in 2000 to 48.1 billion in 2007.

Verizon Wireless, in particular, is doing especially well in the space, Ward said. While the company has not broken out revenue from wireless bulk messaging, it has said messaging continues trending upward. For instance, during first quarter, Verizon Wireless customers sent or received more than 58 billion text messages, while in second quarter, that figure jumped to 70 billion.

"Its text message numbers are hitting the roof," he said. "It's a cash cow and so I think it's a new revenue stream they're tapping."

Verizon Wireless' Nelson suggested that considerations about raising prices for message senders may be overdue.

"We have not increased the per-message cost to aggregators since our messaging service began in 2003, and we have never envisioned a cost to consumers or content companies, but rather on content aggregators themselves," he said.

IDC's Ward agreed that some sort of fee increase could be appropriate, if only to deter spammers, but that three cents seems too high. He also doubted the need for Verizon to raise prices simply to cover the costs of its text messaging business.

"Text service doesn't put big demands on network bandwidth, and even big text service growth doesn't bring additional costs on infrastructure needs," he said. "This is a commodity at this point."

Ward also said that the fee increase could encourage customers to explore cheaper alternatives, like e-mail and instant messaging applications to reach customers. He added that doesn't expect companies using Verizon Wireless' text services to pass the new costs to recipients, as mobile device users are already paying for text service.

Requests for comment from AT&T, Sprint and T-Mobile on their current pricing for bulk text messaging were not returned by press time.

Update adds comments from Verizon Wireless.