• by Mark Walsh , October 12, 2008

Verizon Wireless on Friday seemed to step back from a controversial plan to charge companies a 3-cent fee for text messages that it delivers to its subscribers.

RCR Wireless News first reported Thursday that Verizon would impose the new charge for every message handled on its network starting Nov. 1. But with mobile marketers expressing alarm about the potential impact of the proposed fee, the No. 2 wireless carrier appeared to soften its position on the matter.

Verizon Wireless spokesman Jeffrey Nelson told The New York Times Friday that the company had not set a specific price for delivering text messages or a date that a new fee might go into effect. Any new charge also would not affect messages sent by nonprofit organizations or political or advocacy groups, the company said.

Verizon partners said they had already received formal notification of the change through OpenMarket, a division of Amdocs Ltd. that handles billing matters for the wireless operator.

Companies that send SMS text messages such as 4INFO and mBlox suggested that the fee could lead them to dramatically cut back on-- or stop altogether--sending messages to Verizon customers.

"Decisions to charge companies for text messages will likely put pressure on SMS advertising companies and drive up CPMs," said Paran Johar, CMO of mobile search and advertising company JumpTap.

Marketers have embraced text messaging as an ad format because it is widespread among cell subscribers and generates response rates between 1% and 10%--far higher than banner ad. Text ads also produce recall rates of 54%, according to Nielsen Online.

For its part, Verizon maintains that it has not increased the cost to marketers to send messages since 2003, while bearing the back-end costs of buying spectrum and building out its network. However, Verizon and other major carriers have increased the cost for consumers to send text messages from 10 cents to 20 cents.

The doubling of SMS rates led Sen. Herb Kohl (D-Wis.), who heads the Senate Judiciary Committee's antitrust panel, to send inquiries to the major carriers about the pricing hikes. The increases have also prompted several consumer class actions.

Johar said carriers should look for other ways to boost revenues, such as capitalizing on subscriber data to deliver targeted mobile advertising. "It opens up a whole new revenue stream and valuation that transcends beyond selling more voice, text or data minutes," he said. Such efforts could also open up more privacy issues for operators.

If Verizon does go ahead with the 3-cent fee on text message, other carriers may be tempted to follow suit. After Verizon introduced a $99 monthly unlimited calling plan earlier this year, other major wireless operators quickly launched their own competing plans.