Long Overdue--Consumer-Determined Unlocking of Smartphones and Tablets
As reported recently by Ezra Klein, a groundswell of support has coalesced for unlocking cell phones with the White House joining the fray aligned against the wireless carriers. The wireless industry offers several justifications, but relies principally on the ruling by Copyright Office of the Library of Congress that unauthorized unlocking of cell phones is a violation of the Digital Millennium Copyright Act. CTIA, responded on its blog, largely dismissing consumer concerns, but assiduously maintaining that “the consumer can only transfer the phone to a new carrier once the terms of the contract (or the carrier’s unlocking policy) have been satisfied.”
But, as FCC Chairman Genachowski notes, that’s the issue. Customers should be allowed to unlock their handsets (particularly smartphones and tablets) after the commitment periods expire without their carriers’ permission. He urges Congress to pass legislation to override the ruling of the Copyright Office and indicated the FCC will look into the matter.
One question the FCC should address is what decisions have been issued (or not issued) since 1992 when the FCC allowed the bundling of handsets with wireless service, as an exception to the rule against the bundling of CPE and services, that enables wireless carriers not only dictate which handsets can be used on their networks, but how these handsets can be used after the minimum commitment periods have expired. The practice was well-entrenched prior to the October 2012 decision by the Copyright Office.
The disparate treatment on the bundling of CPE with wireless and wireline services, respectively, is striking, notwithstanding the apparent consumer preference for subsidized wireless handsets. Imagine if Cisco routers could only be acquired from AT&T and that AT&T could prohibit customers from using routers with Level 3 service after the customer’s services agreement with AT&T expired? With the increasing concentration within the commercial wireless industry, it is clearly time for policy makers to set limits on carrier-determined bundling of handsets and wireless services. Exclusive arrangements between wireless carriers and equipment suppliers with respect to particular models should be limited.
On the other hand, the competitive benefits of unbundling and consumer-determined unlocking are muted to a noticeable degree because the handsets offered by the major wireless carriers transmit on carrier-specific frequency bands. While some interoperability issues may be addressable, such as the FCC’s ongoing assessment of interoperability in the 700 MHz band, current technology and the preferred form and function of handsets limits the number of frequency bands on which handsets can transmit. Moreover, each carrier wants to offer handsets having backward compatibility with its respective wireless technologies and licensed frequency bands.
Consumer-determined unlocking and handset portability may have the greatest impact in driving the MVNO and prepaid wireless service markets in the United States. While there seems to be an almost unquenchable demand for the latest and greatest handsets, more durable hardware, longer battery life (or low cost replacements), and robust software upgrades may well extend the useful lives of smartphones and tablets well beyond the standard two-year replacement cycle.
MVNOs with access to facilities-based carriers’ services and networks—assuming resale of wireless services (data and voice) remains viable—are well-positioned to offer attractively priced, contract-free wireless services with which customers can use their unlocked handsets for the (enhanced) useful lives of these devices.