that are concerned they are receiving unsolicited text messages, and they are being forced to pay for these text messages they did not want. these situations would never happen with cricket. cricket has never charged its consumers a penny to receive an incoming text message. cricket believes the best regulator of prices is a competitive marketplace. despite their rapid growth, we are still a very small carrier in comparison to the four largest carriers who control 90% of the market. the question is how do we create a robust competitive environment nationwide so all consumers can benefit from innovation of new entrants like cricket. what is preventing that from occurring? we think there are two policy issues that need to be addressed. they are a spectrum constraints and running policy.

first of all, we need more spectrum. the wireless industry needs more spectrum and every panelist would agree on that point. the problem is that the two carriers to my right have won the lion's share and have gobbled up smaller competitors. cricket shares the concerns you articulate it in your letter to the ceo's of the four largest carriers. you stated your concern regarding consolidation and increased market. -- increase market power by the major carriers. it gives carriers the ability to engage in anti-competitive practices such as we are facing with running. no wireless carrier has the biggest coverage. we all have to use each other's networks to provide seamless coverage. cricket's experience is the rates that carriers charge for

roaming minutes is directly correlated to their size and market power. one particular the anti- competitive practice we face is that one large carrier prohibits customers from running at all. with all the consolidation, such as altel being purchased by verizon , cricket has fewer running available as -- credit has to work romaiaming adel abilities. there are currently three proceedings on roaming pending in the sec. i would be happy to go into more detail. cricket believes roaming policies are the basis of competition. everyone should have access to affordable options such as these services cricket provides.

thank you. i will be happy to answer questions. >> thank you very much. mr. kelsey. >> thank you for the opportunity to testify on behalf of consumers union. i plan to cover four areas. i would like to give the consumer perspective on text messaging and then i will talk about the consolidated market structure. i would like to cover some other limitations we see consumers facing in this marketplace and i will offer solutions we believe will help introduce more competition and lower consumer prices. since 2005 every carrier has doubled its price for text messaging. but this is confusing to consumers because these costs are not related to the price incurred by the carrier. -text messaging costs are very small. consider that it would take 600

text messages to equal one minute of voice. at 20 cents per text, that is $120 equivalent of a one-minute phone call. we believe the purpose of high individual text messaging is to price consumers into large monthly plans with more tax than a consumer will need. if they go over that amount, they are back to paying 20 cents per text. these are protection money consumers pay said they do not have to face high rates. this is not the bellwether of a competitive market, but this represents a parallel behavior among national providers that indicates inadequate pressures in the wireless world. these increases are occurring against the backdrop of a consolidated market structure. as we have heard the question of national carriers represent 90% of the subscriber base,

additionally, the two largest providers have been able to capture much of the spectrum in this country, the airwaves that make communications possible. this allows the two top providers to control the on ramps to the internet. they charge their competitors special access fees in order to offer internet fees. consumers are paying the price. u.s. mobile phone subscribers pay more annually in customers' overall in other developed nations. the $506 a year figure you mentioned can be compared to the united kingdom at $374. within this consolidated context we continue to seek personal behavior that is locking consumers in. -- we continue to see questionable behavior.

carriers demand cellphone makers signed contracts. this precludes them from offering their phone on any other network. this has the effect of not only limiting choice, but raises barrier to entry from smaller competitors. yesterday, three senators sent a letter to the fcc addressing this. second, after signing contracts were bundled service, if a consumer is dissatisfied, they cannot easily switch providers. they face high termination fees and if the fund they bought is a lot to that carrier they end up with an expensive brick in their hand. -- if the phone is locked to a particular carrier they end up with an expansive brick in their hand. i provide examples of consumers that's fine of four monthly

service and ended up -- even when they do pay their not getting the full experience of the internet. they are being served up internet light. because wireless providers are blocking popular software applications from being accessible. what are the solutions? as more americans are switching from wire to wireless services, increasing costs are reaching deeper into the pocketbook of americans. this hearing is an excellent start. but formal inquiries and investigations need to continue to determine if government intervention is necessary. the goa could look at the barriers consumers face when they want to switch service and what that has on the consumer demand market, and the sec should take of different efforts. for example, one opening a --

fixing the market exception for voice roaming, and begin a rulemaking on data roamin. i look forward to any questions you have. >> thank you very much. for mr. milch and mr. watts, verizon and at&t defended their text messaging price increases on the grounds that both companies make independent decisions in response to market conditions. neither of your company's has made any effort to undercut your competitors on christ's -- your competitors on price. why did neither at&t nor for rise and resist these per message price increases or at least raise your price increase less than the other one in order to undercut your competition?

this is what we always do in a marketplace to try to gain market share. this is the way business is normally compete, especially when you offer identical services. why did you each go up by the same amount? why did you not go up less than your competitor and get more business? >> there are a number of factors to your question, but let me point al that there was not a coincidence in time in the price changes. while you constantly hear the suggestion that these occurred simultaneously is not the case. most importantly, in looking at how the wireless world operates from the competitive standpoint, there are many places where each carrier hangs it have to differentiate itself from competitors. -- each carrier hangs its hat

to differentiate itself from competitors. we have looked at a variety of places where we have chosen to compete. we want to make sure there is not a plan out there we're we do not have a competitive price. and in a plan where you pay a price per message we have a competitive price. we have focused our attention on places that really were innovative. less than 1% of text -- we focused our attention on the other 99%. we have made enormous strides to lower the prices and compete aggressively on all sides. that is where we have focused our efforts to differentiate ourselves in this wireless market. >> mr. milch. >> from our point of view, at

the decision a customer makes to go with verizon or at&t is a complex one. it involves a few variables. it does not just involve what is the price for pay as you go service. you were talking from issues that range from what kind of fun you have, what are the various plans -- p what plans ofhone do you have -- what kind of phoe do you have. the issue of whether we would able to undercut at&t or sprint on the pay per text part of our service and attract customers away from competitors is doubtful. so the notion of competing on a series of price issues and a series of service issues, phone issues, plan issues is alive and well. we need to go into any store and see all the different types of plants as the various

carriers compete. but focusing on this part of the market, this less than 1% of all the text messages that are at issue and believing this will drive the competitive needle, that was not our marketing judgment. if we were to cut the price we don't think we would attract anyone to our market, because if they use text small-lot -- if they use texts a lot, they're not paying that price. we don't believe as a marketing matter that this is a focus where we can draw customers away from competitors. >> back in october 2006, sprint raised the per message price from 10 cents to 15%. within months verizon and at&t also raised their price by that

amount. then in october 2007, sprint raised the per message text price from 15 cents to 20 cents. and by march 2008 both verizon and at&t matched this price increase would then only weeks at each other. you say it has nothing to do with people subscribing to your service or not subscribing. hooker it doesn't charge anything. do you think that is a competitive enticement to customers? -- cricket does not charge anything. >> we have plans where there is never a charge to receive incoming messages. you receive unlimited text messaging. we find that we have had opportunities to be innovative in prices, and that is important

in today's economy. >> you don't think she is right? she says price is an issue. and you are saying whether you charge 10 cents or 20 cents for a text message, the individual one, is not a big issue. that is what you are saying. it is pretty hard to believe, because if it is not a big issue what are you in business for? price is a part of your whole business. it is a part of how you get and keep customers. if they had not gone up to 20 cents, and he would not have either. if they went to 5 cents, perhaps you would have done that, if nothing else to be out on something. that is the way business is. what we are suggesting is a clear indication at least on the surface here that when one went

up, the next one went out. whether or not that was done after consultation or before, it clearly is not to be doubted to any extent whatsoever. >> i am sorry. was there a question there you would like for me to address? i would be happy to address that. if i might, there is implicit in this conversation that if two competitors charge the same price they must be not be competitive. there are a number of faults with that. economists would say that does not indicate anything, but the real world economy does not indicate that either. you can find businesses, particularly when you have businesses like ours who offer a

broad range of services and capabilities, where if you go into our prices you will find hundreds of examples where the prices we charge are different from each other. will you find an example where the price might be the same? of course you will, but you will find that in every single business. we happened to do a few quick checks this afternoon of common prices. home depot charges the same price for a particular barbeque grill that lowes does. does that indicate they have conspired somehow or they are not competing? of course not. they have thousands of other products they offer. for some reason, i cannot tell you why, they chose on the component to charge that price. you can find the same example where foot locker and champs sports charge the same price for

a basketball. it is one thing they offer out of thousands of products. does the fact that they charge the same price mean they don't compete on other things? of course not, and that is what we have here. we have an example that has been pulled out of hundreds of different services and say you there is the same price, there must be something wrong. we have to come back to who is using that? less than 1% of our text messages are at this price. businesses are simply not going to spend enormous resources in a highly competitive environment in an area where there is such a small amount of usage. we focused our attention on many other things to differentiate ourselves. >> what is the percentage of your customers that use the individual text message? not the percentage of the total volume, but the percentage of your customers? it is more than 1%, isn't it?

>> would you like to try to answer this? >> certainly. for verizon, yes, it is. it is more than 1%. about 26% of customers don't use any text messaging at all. we don't put together something where they are paying for text messages in a plan. they don't need this bundled into their costs. of the remaining fed to text, about 17% total -- of the remaining that do text, about 17% do incidental text in. >> our numbers are comparable. >> that is what i thought. i would like to call on the ranking member of this committee. >> thank you. i welcome all of you to the committee. this is an interesting subject.

i am sorry i am late but i am involved in the health care matters that i have to run back and forth. if the accusation that cellular companies is true, why do we see higher prices and only one area of the business? customers that paid per text message, if you have artie brought this up, they make up less than 2% of the text in volume for the cellular providers. is there that much profit to be made in that section of the market as compared to the market as a whole? >> it is important to note that this is one example, but this is one that it is similar to other services. data plans and voice plans, and pricing those services high is a way to herd consumers into

monthly plans and will result in more minutes than needed. they are also by a 200 per month text a limit and when they have someone who goes past that limit they are back to paying 20 cents per message. we are not alluding to any collision but we are saying people don't need to come up with a plan for consumers to see the same hard exist in the marketplace. with individual text messaging now consumers are charge the maximum amount they are willing to pay rather than the lowest cost a carrier can provide it for. >> what would be your respective companies' profit margin and what percentage of your testing -- t --exting profit comes from the ppu business?

>> i don't have the exact number for that. i can tell you that because you can assume 99% of text messages are on the rate plants, and a substantial portion of revenue comes from that same percentage of usage. i cannot break this down by a particular unit, because our networks are not constructed to provide a particular service. i cannot break that down that way, unfortunately i don't have that statistic. >> the only statistics i have for you is the one i recall, and it is not precise. the% of revenue that wireless gets from the paper use -- from the pay per use customer is minuscule. it is a very small percentage of

our revenues. i don't have the profit margin broken up the same as mr. watts does. >> are their statements consistent with your analysis? >> they did not reply to your question on the profit margin. my analysis indicates if a text message is priced at 20 cents, the cost is roughly one-third of 1 cent, said the profit margin is 19.7 cents. >> ppu prices are going up. how can you argue at&t is not exerting undue market power if prices continue to rise and your companies are charging higher rates? >> serrie.

when you say market power, that suggests one company can dictate a power and we don't have that ability. most importantly, what you can see is that at&t competes with all the wireless carriers across a broad spectrum of products and services. we have different prices and different offerings. in this case, with pay per use text messaging , is an area where we have not -- we are charging a rate that is at a competitive price, because there is no one that has a significantly lower price with the exception of cricket. they have a different market. we have simply chosen to focus our attention in other areas. >> i understand you stated that verizon is attempting to steer its customers toward bundled plans.

can one do this in a competitive market to avoid undue market power? it is a question that needs to be passed. >> it hasn't. of course we believe we can do this. we believe as mr. watts stated earlier, customers and bundled plans are more satisfied and have more predictable bills every month. it is important for them. it reduces our costs because we have lower customer complaints and much more satisfied customers. the question of whether we can offer our customers a bundle would significantly lower prices and give them the opportunity if they don't want to use many messages to pay as they go, ir seems this is consistent with a competitive market.

there is no estimate to offering a series of choices that suggests there is any market power in the texting market. this is a very broad market. there are billions of text messages. this is a market where output has skyrocketed and average prices have declined. those are not the markers of a non-competitive market. those are the markers of a competitive market. >> what is wrong with the verizon steering people to bundled plans? i understand these plans are very popular and they seem to have a and offer better value. >> from a consumer perspective, it is important not to confuse

growth with competition. what is wrong is that americans pay more than consumers in many other nations. i would suggest one of the reasons it is doubtful pricing individual text messaging lower is anyway to get competitors from one of the other national providers to switch is because once they are lured into the bundle, they face high switching costs through early termination fees and the fact that there hand sets are limited to the particular carrier there in a plan with. it is hard for consumers to vote with their feet when they are pushed into one of the longer term contracts. >> hand sets and the information they transmit and receive are becoming increasingly complex. more than ever, proper integration is vital to the

successful launch of new cellular projects and features. i understand the visual e-mail requires significant work between head set manufacturer in the wireless provider. therefore, are not exclusivity agreements in the best interest of customers long term? >> no, i don't think so. if there were ever justified it might be early on when the market place was still in its infancy. now you see 87% of americans have cell phones plans. we don't believe this is necessary to boost innovation. rather, hand said exclusivity is one of a finance question. -- hand set exclusivity is one of a finance question. in other parts of europe, 85% of hands sets are offered apart

from their telephones. if you look at other markets in the u.s., hand set exclusivity, like computers and the internet, your dell does not explicitly work with comcast. i think there are plenty of other places where the device itself is divorced from the carrier, and that's represents more choice and provides lower- cost. >> i apologize, but may have had a moment to respond? i have to say candidly he could not be more wrong. there are some many reasons why hand set prices are what they are. while we hear examples of other countries where we have -- what is left out of that debate is

the effect on prices of the telephones, the effect on the innovation that is engendered by this arrangement. prices of phones are cheaper than anywhere in the world and for a simple reason, because carriers subsidize those prices. they do so because they had exclusive of arrangements with the vendors where they have the ability to drive down the cost of the funds that they buy. we have one of the more popular phones. -- drive down the cost of the phones that they buy. it was recently announced apple could announce -- apple announced it was $99 for a new iphone. that could not happen if a price was not subsidized by at&t. we could not do this if we did not have the ability to recoup the cost. that carries the rest of the market. other cni