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Free Texts Pose Threat to Carriers

http://www.nytimes.com/2011/10/10/technology/paying-to-text-is-becoming-passe-companies-fret.html?_r=2
This article talks about the recent rapid development of free electronic text messaging and the threat it poses on the traditional text messaging services.

In game theory, people will always select the strategy with the highest payoff. And the payoff equals to the difference between the valuation and the price people have to pay for it.

So when the valuations of the product, in this case, text messaging, are the same, the free text messages with a price of zero will sure beat the traditional text messaging services.

But why do people still use phones over these free stuffs?
There are mainly three reasons:
First of all, the immaturity of the free text messaging harms people’s valuation of it. For most people, now it is still more convenient to messaging using a phone than using a PC or Mac. And also most of the free messaging applications have their own drawbacks. For example, Google Talk clarifies on its own webpage that it is not a telephone service and cannot be used for emergency dialing. Hence, all those drawbacks reduce people’s valuation of these free apps. On the other hand, people have been using phones to contact each other for decades. Such familiarity is also an advantage of phones which undoubtedly add to its valuation.

Secondly, the usability of these free apps also poses a limitation on the popularization of them. For example, the IMessage which is developed by Apple Inc. can work only on IPhones, IPod touches and IPads now. And BlackBerry Message can be only used on BlackBerry phones. In contrast, the traditional text messaging works on all kinds of devices. Whether you have a BlackBerry, an IPhone, a Nokia or an Android, you can use the texting service.

Thirdly, the “free texts” indicated in the article is not really free. It requires the users to have the Internet connection. So users still have to pay for a data plan to get access. Hence, the choice people make will now base upon which network, the cellular networks or the internet networks is cheaper. In this article, it is calculated that At 20 cents and 160 characters per message, users spend $1500 dollars to send a megabyte of the text traffic over the cellular network. On the contrary, on a $25-a-month, two-gigabyte data plan, users send the same amount of texts by paying 1.25 cents. So from this perspective, the payoff of the free texts wins greatly over the traditional messaging. This is also the main reason why the popularization of the free apps has such a great momentum at present.

From the development of the free communication apps and the expansion of phone functions, we know that the trend of communication tool is to combine traditional phone services with the Internet applications. There is a term called technological convergence which “refers to those previously separate technologies such as telephone features, data and video that now share resources and interact with each other synergistically”(Wikipedia). So maybe one day in the future, the cellular network and the Internet network will combine together and people only need to have one device which can satisfy all needs. If that happens, people’s payoff will absolutely be increased significantly.

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