WASHINGTON - U.S. Senator Herb Kohl examined today the state of competition in the cell phone industry and the causes of rising text message prices during a Congressional hearing in the Senate Judiciary Antitrust, Competition Policy and Consumer Rights subcommittee.  This hearing follows a sharp increase in the price of text messaging and will examine whether this is evidence of lack of competition in a market which has become more concentrated.  Four national carriers control over 90% of the cell phone market.  AT&T and Verizon combine to have a market share of  60%, and consumers’ choices have become more limited following multiple mergers. American consumers now pay more for wireless phone service than most other developed nations, an average of $506 per year in 2007.

The use of text messaging has drastically increased. In 2008, more than one trillion text messages were sent, an increase of more than 250% from the year before. As the popularity of text messages has grown, so has the price charged on a per message basis. From 2006 to 2008, the price of sending and receiving a text message among the four largest cell phone carriers increased by 100%, from 10 to 20 cents per message. The four companies increased their text messaging prices in two steps, first from 10 to 15 cents, and then from 15 to 20 cents, within weeks or even days of each other.  The lockstep price increases occurred despite the fact that the cost to the phone companies to carry text messages is minimal, estimated to be less than a penny per message, and has not increased.

“These sharp price increases raise concerns. Are these price increases the result of a lack of competition in a highly concentrated market? Will consumers continue to see similar price increases for this and many other wireless services that they have come to increasingly depend on, such as internet connections and basic voice service?  The concentrated nature of today’s cell phone market should make us wary of other challenges to competition in this industry,” Kohl said. “For example, smaller competitors raise serious questions about practices that prevent them from being able to fairly compete. These range from exclusive deals that deny competitors access to the most in-demand cell phones, to limitations on the ability of new competitors to roam on other providers’ networks, to difficulties in obtaining needed spectrum.  It is imperative that we work to remove undue barriers to competition to ensure consumers the best rates and services.” 

The hearing included testimony from Randal Milch, Executive Vice President and General Counsel for Verizon Communications Inc.; Wayne Watts, Sr. Executive Vice President and General Counsel for AT&T Management Services, Inc.; Joel Kelsey, Policy Analyst for Consumers Union; Laurie Itkin, Director of Government Affairs for Cricket Communications, Inc.; and Srinivasan Keshav Professor and Canada Research Chair in Tetherless Computing School of Computer Science at the University of Waterloo.

Kohl chairs the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights.                                                     

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