This article provides an interesting analysis of the cost of SMS messages. While it is US based it equally applies to Australia.
Given the low cost of data transmission, the cost of SMS messages should be vanishingly small, yet the telco’s charge rates that are millions of times higher than comparable services. An SMS message costs 20 cents for a quarter of a kilobyte, yet you can get gigabytes of wireless internet data for tens of dollars (the gigabyte is a million times the size of a kilobyte).
The telco’s are truly ripping off consumers, the more interesting question though is – why are they getting away with it? I think the answer is that consumers do not think in kilobytes and gigabytes. They do not compare the technological capabilities of the alternate communication methods, but rather they consider the personal benefit they receive from the technology. The SMS is personally useful, so consumer are willing to pay for it. Who cares about some esoteric techie’s analysis of bandwidth?
And this all makes economic sense (that’s the difference between economics and engineering). The big elephant in the room is, however, why doesn’t competition drive down the cost? Why doesn’t some telco attract new customers by introducing low cost SMS?
Because they all know what a golden egg laying goose it is and none want to kill it off. It is a kind of zero sum game, you could start offering low cost SMS but the other firms could instantly match it, and they would all be instantly worse off.
As Adam Smith said:
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is im-possible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.
But you do not need to even meet together to arrive at an understanding. You do not need to discuss or debate, but if everyone in the industry knows what is happening, the outcome can still be as bad.
The ACCC goes after collusion cases, but it has to prove actually documented agreements to fix prices. But in this case, it is unlikely that any such documentation exists. But still surely there is a case for regulation?