Smart Data Pricing

Chapter 9Telecommunication Pricing: Smart Versus Dumb Pipes*

ATANU LAHIRI

9.1 Introduction

Discriminatory pricing of telecommunication services today is reminiscent of practices that date back to the eighteenth century, when navigation tolls varied from one cargo type to another—the toll for a ton of sand was not the same as that for a ton of timber [3]. Similarly, consumers of wireless services are now paying different per-byte prices for traffic generated by different services, such as voice calls, SMS (short message service) text messages, picture mails, and mobile Internet [2]. For instance, if one assumes a data rate of 100 KB/min of voice, and 100 bytes per SMS text, a price of cents/min of voice turns out to be equivalent to $1/MB, whereas a price of 20 cents per SMS text amounts to a whopping $2000/MB [1].

Such discriminatory pricing, particularly the pricing of text messages, has recently come under tremendous opposition from consumers—to the extent that even the US Senate felt compelled to examine its legality and economic impacts [4]. Experts testifying at a hearing at the US Senate Judiciary Committee argued that the average price of an SMS text message far exceeded the marginal cost of the wireless path [5], with no apparent economic justifications. Even the Wall Street Journal, which is known for its dislike for regulations on corporations, voiced opposition to ...