SMS costs in Canada are already disproportionately high versus the unrealistically high costs for SMS across the entire wireless industry. This article suggests that SMS costs are, in the aggregate, 4x higher than getting data from the Hubble space telescope. Global SMS revenues are larger than the Hollywood movie, music and video game industries combined.

The quote from the Telus spokesperson is hilarious:

“The growth in text messages has been nothing short of phenomenal,” wrote Telus spokeswoman Anne-Julie Gratton in an e-mail to The Globe and Mail, “This volume places tremendous demands on our network and we can’t afford to provide this service for free any more.”

The same article refers to the latest statistics from the Canadian Wireless Telecommunications Association that pegs the number of text messages sent in Canada at more than 45.3 million per day. According to recent reports from IEMR the number of wireless subscribers in Canada was 20.4 million in 2007, and wireless subscribers in the UK (which has roughly double the population of Canada) for the same year numbered 71.7 million. Sweden, with a third of the population of Canada’s has better than half as many subscribers. Canada is trending remarkably behind nearly every comparable western nation.

These stats are great, in that they illustrate the problem with subscriber growth that shareholders and analysts are presently appreciating. There’s clearly something wrong with the wireless business in Canada, and it’s not something that the recent spectrum auctions are likely to quickly address.

Allow me to translate Ms. Gratton’s TelecomSpeak in a way that more accurately reflects what went down in the boardroom:

“The growth in text messages has been nothing short of phenomenal,” said Telus’ Business Development Manager, “This is an unprecedented opportunity to exact greater revenue from the customer base without spending a penny on service development!”

The Canadian wireless market has been infantilised by the greed and short-sightedness of our wireless carriers and the mismanagement of our asleep-at-the-wheel regulators. Whereas (according to Wikipedia) the average user in the Philippines sends 10-12 text messages a day, doing some quick math from the stats above reveals that the average Canadian use of text messaging is far lower at 2-3 messages per day.

Still, this 45.3 million SMS messages per month business must be creating a stress on the Telus service network, you’d think. Right?

Well, if you send 45.3 million SMS messages all at the maximum size of 140 characters, you’ll get almost 6 Gigabytes in total storage volume – or, roughly the size of the hard drive I had on my IBM Thinkpad in 1999. That’s a lot of data to store (in 1972, that is). At the end of the day, this means that the entire Canadian SMS relay network has to be able to sustain about 144Kb/s of data transfer (thanks to Gersham for helping me with the math). My Mac Mini has a 1GB/s ethernet interface and is ultimately connected to a (for Canada anyway) smokin’ 30MB/s internet pipe this means that I could personally store-and-forward all of Canada’s SMS traffic myself via my Novus broadband in Yaletown, and it would have limited impact on my BitTorrenting.

SMS uses the signaling overlay path of wireless carrier networks, and from the wireless perspective SMS messages ride in the carrier byte packet. As such it costs the network exactly nothing and uses no bandwidth that isn’t already in use — traffic load is the same on the network even if no SMS messages are being transferred. The networks themselves need to invest in this infrastructure anyway, so there is perhaps an added provisioning and data processing impact created by SMS for wireless carrier network planners, but it is not substantial.

For TELUS to suggest that this traffic is in any way meaningfully impactful to their operating costs suggests that either they’re lying, or perhaps they should go back to operating mechanical switches.

This is a cash grab. Pure and simple. But then, you knew that…

-Ian.

—— http://www.nytimes.com/2002/11/18/technology/18CELL.html

November 18, 2002 Success of Cellphone Industry Hurts Service By SIMON ROMERO

Americans’ use of cellphones has increased so quickly that wireless networks are becoming overloaded, causing a growing number of customers to complain about calls that are inaudible or are cut off or are never connected in the first place.

And things could get worse before they get better, industry experts say, because even as cellphone companies are rolling out fancy features like digital photography and Internet-based games, they are hard-pressed to spend the money needed to improve basic service.

“This is a situation in which the wireless industry is a victim of its own success,” said James D. Schlichting, a deputy chief of the wireless communications bureau at the Federal Communications Commission.

Many of the industry’s service problems are a result of a huge growth of new customers. In 56 percent of the nation’s households, someone now subscribes to wireless phone service, more than double the percentage in 1995.

The surge in users is overwhelming the capacity to handle calls on wireless systems — whether because local transmitters are too few or too small, or because the local airwaves have become too crowded and carriers are unable to obtain larger swaths of radio frequencies.

The problems are compounded by basic economics. Customers have been attracted by the plunge in prices for wireless service. The average per-minute cost has dropped to 11 cents this year from 56 cents in 1995. For the phone companies that has meant a decline in average revenue per customer to $61 a month, from $74 in 1995.

And so, just when the wireless companies need to invest more money to accommodate all those new users, the companies are under increased financial strain.

As a result, the complaints are piling up.

The F.C.C. tracks only the few hundred complaints it receives each quarter — it recently reported fewer than in past years — but acknowledges that an increase in subscribers had worsened service problems. And surveys conducted for the industry itself show that complaints are rising.

“If I make 10 calls, at least three have to be redialed because they don’t go through,” said Orville Mills, who lives near Van Cortlandt Park in the Bronx and recently switched carriers to Sprint from T-Mobile. “The new services are just a distraction from not having the basics down.”

The percentage of all wireless subscribers who have called customer-service centers at least once in the last year to complain about service or because they had other problems has climbed to 61 percent, from 53 percent in 2000, according to J. D. Power & Associates, a company that measures customer satisfaction in many industries and sells it to the companies being scrutinized.

The level of such calls is higher than for many other consumer-service providers, including land-line telephone companies, cable-television operators and stockbrokers, according to Power. About 30 percent of the calls to customer-service centers were complaints related to dropped calls, bad reception or calls not going through, up from 19 percent in 2000. Other reasons included complaints and questions about billing, equipment and services.

The author of the study, Kirk Parsons, said the wireless companies are aware of the problem. He said he expected complaints to grow as the companies add new services, contributing to stress on the networks and subscribers’ confusion.

“It’s important to remember that cellphones are glorified radios,” said Travis Larson, a spokesman for the Cellular Telecommunications and Internet Association, the wireless industry’s main trade group. “They’re subject to interference from a lot of things, from building walls to sunspots to the weather. There will always be a trade-off between mobility and call quality.”

Meanwhile, the stock prices of AT&T Wireless Services and Sprint PCS, the two largest stand-alone publicly traded carriers, are down more than 45 percent this year on investor concern about revenues. And the two largest carriers, Verizon Wireless and Cingular Wireless, which are controlled by regional Bell companies, are struggling to find and pay for additional swaths of airwaves to carry calls.

The industry received something of a financial reprieve last Thursday from the Federal Communications Commission, which ruled that wireless companies would not have to pay the $16 billion they had offered for additional airwave licenses during a bidding process that is now being contested. The licenses had been seized by the F.C.C. from NextWave Communications and auctioned after NextWave filed for bankruptcy protection. But the licenses, and the airwave capacity they represent, are tied up by NextWave’s appeal of that seizure, which is now pending before the Supreme Court.

Another industry problem is the sheer technical complexity of sending and receiving wireless calls. Unlike conventional telephone systems, in which every customer is hardwired to the network, wireless systems rely on a delicate mesh of thousands of antenna towers — which often face resistance from local governments — and cellular relay stations.

The stations can easily be flooded by an increase in calling volumes. That vulnerability became clear in the hours after the Sept. 11 terrorist attacks in New York and Washington, when the local wireless networks were effectively shut down by the surge of attempted calls.

Various new companies are trying to develop towers and other forms of transmission technologies that could handle such surges. But so far carriers remain reliant on systems that, in some ways, still resemble radio communications networks that were first developed in World War II.

Because of brisk demand, financial problems at wireless carriers are not as severe as those in other areas of telecommunications, where large companies like WorldCom and Global Crossing have sought bankruptcy protection. Even so, some investors think the only way to ensure industry stability will be to winnow the competing wireless players. Instead of six nationwide carriers, they say, a more economically feasible number might be three or four.

“Consolidation among wireless companies can’t fix these problems, but it can make them less severe,” said Frank J. Governali, an analyst at Goldman, Sachs.

For months, investors have been waiting for mergers that would shrink the number of large competitors. No deals have yet materialized, though, partly because of technical obstacles. Unlike nations in Europe and Asia with higher wireless usage rates, the United States does not have a single wireless technical standard that would make it easy for carriers with different systems to combine operations.

Verizon and Sprint, for instance, employ an American-designed standard called code division multiple access, or C.D.M.A. Meanwhile, AT&T Wireless, Cingular Wireless and T-Mobile, formerly known as VoiceStream, use the global system for mobile communications, or G.S.M. format, common in Europe and Asia. Another large American carrier, Nextel, uses its own technology, called Iden.

Carriers have also resisted measures that would make the industry more consumer-friendly. In response to industry lobbying, for example, the F.C.C. has postponed until next fall a deadline for companies to start allowing “number portability” — letting customers keep their cellphone numbers even when they switch providers. The companies are reluctant to implement the measure, fearing it will create new costs while also encouraging customer defections.

“I’ve had the same number for three years,” said Sarah Vanderslice, a student at the Benjamin N. Cardozo School of Law in New York who subscribes to Sprint’s service. “The fear of losing it is the only thing that keeps me from dropping my cellular company.”

The F.C.C. has also repeatedly extended the industry’s deadlines for improving emergency-call abilities for wireless phones. Calls from cellphones are still much more difficult for emergency officials to pinpoint than calls from land-line phones. And the issue has become more pressing as the number of emergency calls from cellphones has grown to the current rate of more than 30 percent of 911 calls.

“The wireless industry is in need of a stricter taskmaster,” said David Heim, the managing editor of Consumer Reports magazine, which publishes an annual feature each year on cellular service problems. Although the F.C.C. has jurisdiction on certain operational matters, the wireless industry remains largely unregulated.

But few people expect the Bush administration’s F.C.C. to try to exert significant new authority. And even a former F.C.C. chairman from the Clinton years says that, in the main, it would be prudent to avoid more regulation.

“We have a robustly competitive wireless industry,” said Reed E. Hundt, the former F.C.C. chairman, who is now a senior adviser on information technologies for the management consultant firm McKinsey & Company. “Younger people recognize this in opting for wireless over wire line and putting up with some flaws in exchange for freedom of movement.”

Like their counterparts in Europe, carriers in the United States are hoping new services like text messaging and transmission of digital photos will eventually generate the additional revenue they need to put their finances on stronger footing. But aside from a small but loyal following of mainly younger subscribers that exchange text messages, none of the new services have attracted a large number of users.

And anyone who expects competitive market forces to quickly improve cellphones may be overly optimistic, some experts say. They note that the conventional wired telephone system has been evolving for more than a century and became widely dependable only in recent decades.

“Don’t hold your breath,” said Jeffrey Kagan, an independent telecommunications analyst in Atlanta. “Service and the economic evolution of wireless are works in progress — it might be years before customers are truly satisfied.”