Operators deny charges of text message price-fixing

Representatives for Verizon Communications and AT&T appeared on Capitol Hill Tuesday to deny accusations that mobile operators colluded in setting prices for text messages. The carriers were invited to testify before the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights in the wake of a series of private class-action lawsuits alleging the operators fixed their SMS prices--the lawsuits followed on the heels of an Oct. 2008 letter mailed to the CEOs of AT&T, Verizon Wireless, Sprint Nextel and T-Mobile USA by Senate Judiciary antitrust subcommittee Chairman Herb Kohl (D-Wisc.), citing his concerns over a 10-cent increase in the cost of text messages over the last several years. "Some industry experts contend that these increased rates do not appear to be justified by any increases in the costs associated with text messaging services, but may instead be a reflection of a decrease in competition, and an increase in market power, among your four companies," Kohl wrote.

Verizon executive vice president and general counsel Randal Milch said Tuesday in written testimony that there are more differences in text messaging prices between wireless competitors than there are similarities: "Let me respectfully suggest that since the evidence shows that text-messaging prices have been decreasing rapidly, not increasing, text-messaging pricing trends show--consistent with all other market evidence--that competition in the wireless industry remains vibrant," he said. According to Milch, U.S. wireless consumers enjoy the lowest overall prices per minute of the 26 member countries in the Organization for Economic Cooperation and Development, use the most minutes per month and benefit from the most competitive market of any of those countries. "Wireless innovation is breathtaking, investment has been massive, and prices have relentlessly decreased overall," Milch said, noting that most Verizon Wireless customers "pay less than a penny per message," a reduction of almost two-thirds since 2006.

Both Verizon and AT&T argued that volume plans have lowered subscribers' per-message cost. "The faulty notion that prices for text messaging have risen derives from an unduly narrow interest in the trend of a single pricing option for text messaging services, the pay-per-use option, when the vast majority of AT&T's customers do not choose that option," said AT&T general counsel Wayne Watts. According to Watts, none of the lawsuits allege any specific time, place or individuals involved in the supposed conspiracy, adding that most of the lawsuits cite Kohl's letter as the basis for the collusion charges. "The allegations in the complaints are patently false," Watts said.

Kohl--who chaired the Senate hearing--remained skeptical, calling witnesses including Srinivasan Keshav, a computer science professor from the University of Waterloo in Canada, who testified that the actual cost of a text message to the wireless carriers is 0.3 cent per message and contended there is no cost justification for text price increases. Kohl also called the operator executives' responses "pretty hard to believe."

For more on the Senate hearing:
- read this Wall Street Journal article

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