Just before Thanksgiving last year, the US Copyright office ruled that Americans should be able to unlock their phones if they so desired. Some of the carriers involved in the case are fighting back (as per this recent Wireless Week article) and the whole thing has Marguerite Reardon from CNET wondering if a rise in the unlocking of phones will “free” US wireless consumers.
I think there’s a lot of confusion of what this ruling actually does, and does not, mean for consumers.
Most mobile phones sold in the US are sold through carriers. For example, you buy a Cinuglar phone through Cingular either at one of their stores or through a licensed distributor, like those kiosks you see at the mall. The phone you’re paying $100 for from Cingular actually costs them more like $200. They subsidize the cost to encourage you to buy the device and stick with their network. With the subsidy comes a contract that ties you into a minimum spend each month, a kill fee if you leave, and various other terms. To further cement you to them, Cingular “locks” their handsets, making them unusable on competitive carriers.
Consumer groups have an issue with this. The logic goes, if you’re paying for the phone, are committing to pay your carrier monthly for two years, and can’t break the contract without a fee, then why is this extra step necessary? Hasn’t the carrier already ensured they’ll cover the subsidy at this point?
The thing is, most carriers more or less agree with you here. Verizon Wireless, for example, doesn’t lock phones at all. Sprint does but they’ll unlock them for you if you ask them nicely. Cingular will unlock any phone for a customer who’s left their contract early and paid their fees, or for customers who’ve purchased their units at full price. T-Mobile will unlock your phone 90 days after purchase. And anyway it’s usually very easy to do on your own. For many handsets, there are websites that sell codes for $5 a pop that you enter and you’re done. Other handsets require you go to the somewhat shady cell phone store on the corner to do it for you. It takes a minute.
But most mobile users have no need to unlock their phones. And those who do have a need (say, are switching from one carrier to another and want to take their phones with them) will find a host of other problems. Locked or not no CDMA phone (Verizon / Sprint) will work on a GSM network (Cingular / T-Mobile) and vice-versa. Nor will your unlocked phone necessarily be able to take advantage of all of the services offered by carriers. A Sprint phone on Verizon, for example, won’t be able to stream videos through VCast as it won’t have the proper software, nor be configured to run it. A T-Mobile Sidekick will never work on Cingular as it is designed to interact with a special back-end that only T-Mobile employs. Phone locking is the least of your issues here.
So why the carrier kafuffle?
The real problem carriers have here is with the pre-paid phone market. As per the Wireless Week piece, the company fighting the ruling hardest is pre-paid leader TracFone:
Consumers embraced the copyright office's decision, but it sent prepaid phone service provider TracFone Wireless straight to a Miami courthouse. There, TracFone filed suit to get the government to rethink its decision.
TracFone worries that the ruling's wording will erroneously give wrongdoers an "out" when they're accused of hacking TracFone's phones. TracFone has been battling a net of schemers who buy its phones for $20 a pop at retail stores, reflash them and then sell them overseas at jacked-up rates.
Remember a year ago when authorities spotted three people of Middle-Eastern descent buying up pre-paid phones in Michigan and suspected them of plotting terrorist attacks? Those were TracFones they were buying and they weren’t using them to blow up a bridge. They had other nefarious purposes in mind; they were buying them for cheap, unlocking them, and selling them in Europe and Asia for three-times the price.
Like any other carrier, TracFone has to subsidize their devices to appeal to US customers who are so accustomed to dirt-cheap phones. But unlike carriers with post-paid service plans, TracFone has no contract with you, doesn’t know anything about you, doesn’t have your credit card, etc. They rely on that lock to ensure you’ll actually use the phone on their network so they can make back their subsidy. Without it there’s nothing to stop people from doing what these guys were doing in Michigan and costing them millions of dollars in unrecouped subsidies. This is a very widespread and very costly problem for pre-paid carriers.
The story isn’t over on this one. For one thing, the US Copyright office didn’t actually declare phone unlocking legal, just that it didn’t sound like a copyright issue to them (as opposed to, say, making a copy of a DVD; to copy a DVD you need to override anti-piracy protections built-in to DVDs and the act of doing so is considered illegal under the Digital Millennium Copyright Act This was the type of precedent that the wireless industry was hoping to use for the phone locking case.) And even this ruling will come up in a few years for review. Expect more lawsuits and new tactics from TracFone and other in their shoes as they have much to lose here.
Does the ruling “free” mobile consumers? For most of us the answer is no. Carriers that currently lock their phones still can and will do so and most of the market still won’t notice or care. For people in the know who have tri-band phones and would like to swap out their SIM for, say, a European one when they’re traveling abroad, they can now go to the guy on the corner and set up their phone to be able to do so without fear that they’re breaking the law. Useful? Absolutely. But a relatively small market segment overall.
Tom Ryan speaks five languages. He did international precious metals trading in Europe for five years (or was it diamonds? It was something very James Bond romantic to be sure.) 
We had a visitor from 
Carnival of the Mobilists #58 is live and can be found 
I got enough emails from friends about this one today to warrant a post I think.
