March 06, 2013

Actual Impact of Mandatory Phone Unlocking is Less Clear than You Think


It’s hard to ascertain the real prospects for actual movement by the U.S. federal government to mandate mobile phone unlocking in the U.S. market. Some argue that the benefits to consumers would be significant, as “phone unlocking” would create a competitive situation more analogous to Europe.

Some may suggest competition in Europe is more intense in the European mobile market than the U.S. market, largely because of unlocked device policies. Others might say unlocked phones mean more competition and lower prices.

Just how much those statements are true is a matter of perspective, simply because there are other big differences between U.S. mobile markets and European mobile markets.

Some would point to declining mobile service provider revenue trends in Europe as evidence that competition is “working.”

Others might say lack of scale and product substitution (largely driven by the relatively higher amount of intra-European cross border traffic) are the bigger drivers. 

In other words, unlocked devices have relatively little to do with basic consumer behavior or service provider revenue. More is explained by the high incentive to use "over the top" communication methods, based on high tariffs and the large need to communicate "internationally."

And lack of scale is important, many would argue. There are simply too many providers, most of them too small, to gain scale economies. Locked or unlocked devices do not play a big role in that sense.

Some might say the European experience with device unlocking is less useful in the U.S. market simply because the nation’s industry has two major and incompatible air interfaces.

Even if all devices were sold “unlocked,” users would have less choice than in Europe, where all carriers use the GSM air interface.

Unlike many other countries, subscribers and networks are at the moment split into GSM (AT&T and T-Mobile USA) and CDMA (Verizon Wireless and Sprint) air interface camps. An unlocked CDMA device cannot be used on the AT&T and T-Mobile USA networks, while a GSM unlocked device cannot be used on the Verizon or Sprint networks.

Presumably, the value of unlocked devices will becomes a bigger actual value to consumers only when Long Term Evolution (LTE) fourth-generation networks are fully established in the U.S. market, and all LTE devices can be used on all U.S. networks.

But the matter is more complicated than often seems to be the case, in part because sale of unlocked devices might, or might not, affect end-user behavior all that much.

Not many consumers will prefer shelling out full retail price for the latest Apple iPhone, even if they can, when the alternative is a lower device acquisition price, even at the cost of higher monthly recurring costs than might be possible if subsidies were not offered and available.

What happens to device refresh rates if all devices must be sold at full retail? It is hard to say for sure, but basic economics suggests people will trade down to cheaper devices, or stretch the amount of time they keep an existing device, if a switch to fully unlocked phones were to occur.

But that prediction does not account for the responses mobile service providers could make. It’s hard to say what consumers might do if confronted with the choice of buying a device at full retail, compared to a contract service plan with a subsidized device, even if all devices were sold unlocked.

There might be big changes in behavior, but possibly not. It all depends on how mobile service providers change retail packaging.

The point is that the assumption mandatory unlocking would lead to “more choice and lower prices” is not as clear cut as might seem to be the case. It’s the ability to get a new and “better” device every 18 months that might be the value consumers get from subsidized phones, unlocked or not.

Mandatory unlocking might have relatively slight impact, in that sense. The issue might still be a consumer preference for lower subsidized phones. And some would say users can already buy unlocked devices, or get locked devices "unlocked," if they really want to.

Most users do not appear to "want to," very much. 




Edited by Braden Becker



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