Because the FCC auctions off portions of the wireless spectrum, and various municipalities control where you can build cell towers, and so a hypothetical telecom startup devoted to the cheaper text message rates must jump through a lot of bureaucratic red tape just to setup the basic infrastructure. Most startups won't bother while there's low-hanging fruit in the unregulated Internet market.

I'm not sure I buy the whole "truly free markets will save us all" argument, but the particular text-messaging argument has a very simple explanation in terms of government monopolies and the cozy relationship between entrenched players and the government.

> auctions off portions of the wireless spectrum

http://en.wikipedia.org/wiki/Tragedy_of_the_commons#Modern_s...

> municipalities control where you can build cell towers

http://en.wikipedia.org/wiki/Externality

Again, I'm not certain that free markets are the answer. It may be that telecom is fated to suck, and the regulated alternative sucks less than the complete laissez-faire one. But I am fairly certain that telecom sucks at least in part because of regulation.

Certain the tragedy of the commons is a real issue, but the FCC and the spectrum control is too far in the regulated direction.

This consumer talks on my prepaid voice account and saves lots of money over texting. Or I use the email I already pay for to send people text.

Substitution sometimes works just as well as attacking any one product's pricing model.

Like free email? Like open wifi networks to send GB of data?

And the other reply is right. The space is incredibly regulated. You'd be arrested for trying to compete in the restricted spectrum.