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Text-message fees recommended for antitrust scrutiny

Prices at Verizon, AT&T, Sprint and T-Mobile have risen sharply and around the same time, Sen. Herb Kohl says. Companies deny any collusion.

June 17, 2009|Kristina Sherry

WASHINGTON — The chairman of a Senate panel on antitrust issues on Tuesday called on the Federal Communications Commission and the Justice Department to scrutinize competitiveness in the cellphone industry, pointing to a 100% increase in some text messaging charges by four companies that control most of the market.

Sen. Herb Kohl (D-Wisconsin) said that from 2006 to 2008, the price charged by the four biggest carriers for sending and receiving such messages rose from 10 cents to 20 cents.

And the increases seemed to occur in "lock step" -- first from 10 cents to 15 cents and then from 15 cents to 20 cents, with each set of increases occurring within a period of months or even weeks, said Kohl, chairman of the Senate Judiciary Committee's subcommittee on antitrust, competition policy and consumer rights.

"Are these price increases the result of a lack of competition in a highly concentrated market?" Kohl asked.

As a result of consolidation in recent years, four companies -- Verizon Communications Inc., AT&T Inc., Sprint Nextel Corp. and T-Mobile USA Inc. -- control 90% of the cellphone market, with Verizon and AT&T accounting for 60% between them.

Appearing before Kohl's subcommittee at a hearing Tuesday, executives from AT&T and Verizon said per-minute rates applied only to the 1% of text messages not covered by package plans. The price of messages covered by plans declined, the companies said.

For example, AT&T's package plans include 200 messages a month for $5 -- 2.5 cents a message if all 200 messages are used -- and unlimited text messaging for $30 a month.

Randal Milch, executive vice president and general counsel at Verizon, denied that there was collusion among carriers, citing as evidence the existence of different pricing offered for prepaid plans.

Milch said that under such plans, Verizon charges between a penny and 20 cents a text message, depending on the plan; AT&T charges 20 cents a message; Sprint charges 10 cents a message or includes all messages at no extra charge; and T-Mobile charges 5 cents an incoming message and 10 cents an outgoing message.

Joel Kelsey, a policy analyst for Consumers Union, which publishes Consumer Reports, expressed concern that rising pay-per-use fees were pushing customers into the package plans.

Since 2005, Kelsey said, every carrier has at least doubled its price for text messaging even though "it would take 600 text messages to equal one minute of voice." He said the increases had come despite estimates that the cost to phone companies to carry a message was only about a third of a penny.

Kelsey suggested that the congressional Government Accountability Office look at the barriers consumers face when they want to switch cellphone services.

Kohl asked why neither AT&T nor Verizon had resisted price increases in order to undercut competition, as competing businesses normally do.

Wayne Watts, executive vice president and general counsel at AT&T, said text messaging was just one of many variables consumers consider when selecting a package.

"There are many, many places where each carrier hangs its hat to differentiate itself from other carriers," Watts said.

Milch said he doubted that Verizon could draw customers based on text-message plans. "If we were to cut the price, we don't think we'd attract anybody to our market," he said.

Last September, Kohl sent a letter to the four big carriers expressing concerns about the price increases.

More than 1 trillion text messages were sent in the U.S. in 2008.


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