How Facebook plans to bust up the SMS profit cartel

March 4, 2011: 10:50 AM ET

In acquiring Beluga, Mark Zuckerberg has set Facebook's sights on cell companies' most overpriced service: text messaging.

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Under the cell phone industry's peculiar pricing system, downloading data to your smartphone is amazingly cheap—unless the data in question happens to be a text message. In that case the price of a download jumps roughly 50,000-fold, from just a few pennies per megabyte of data to a whopping $1000 or so per megabyte.

In that giant pricing gap, Facebook chief Mark Zuckerberg spies opportunity.

Yesterday Facebook acquired Beluga, a nine-month old company that built a better and cheaper way to send text messages. Download the Beluga app to your smartphone and suddenly you can send texts to groups of people with one click, along with other handy tricks old-fashioned text messaging software can't handle. The cost of sending texts with this improved app: zero.

That should scare AT&T (T), Verizon (VZ) and their smaller competitors, wrote Bernstein & Co. analyst Craig Moffett in an email analyzing the deal: "Facebook is, at its core, a communications company. The move to acquire Beluga makes this explicit. Beluga puts Facebook squarely into competition with [wireless] carriers for the first time." More

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