How Free-texting Works
SMS texting has been such a cash cow for mobile providers because they've been able to charge a huge premium for what the service actually costs them to provide. A text message costs a third of a cent to transmit, but a phone user pays anywhere from 10 to 20 cents for sending it, and the provider also gets to collect a similar fee for each message that's received. That works out to better than a 4,000 percent markup, as one expert, University of Waterloo professor Srinivasan Keshav, recently calculated for the New York Times [source: Wortham].
SMS is one way to send text over phone networks, but it isn't the only way. In a 3G network that provides access to the Internet, it's possible to use the data side of the network -- the part that you use to send e-mails, view Web pages, or run games and other apps -- to send messages as well. The plus is that it's way, way cheaper. For a phone user with a conventional $25 a month, two-gigabyte data plan, it costs about 1.25 cents to send the same message that would cost 20 cents via SMS [source: Wortham].
It didn't take the brainiacs in Silicon Valley and elsewhere long to figure out that the Internet gave them a nice long straw with which to drink the phone companies' milkshakes. The initial interlopers were instant messaging clients such as Apollo IM, an iPhone app introduced in late 2007 which allowed users to connect to AOL and other free instant-messaging networks via the Internet connection [source: Wilson]. In late 2008, San Jose-based Pinger rolled out an iPhone app called Pinger Phone, which enabled users to send text messages over the Internet to other phones, even if they weren't running the Pinger app [source: PR Newswire]. Others providers, with names like TextPlus, WhatsApp and Kik were quick to follow [source: Wortham].
Still, you may be wondering what's in it for the free-texting companies, and whether what they do is even allowed under the law.