Consumers Get Cell Phone Unlocking Relief

By Peter Bernstein December 12, 2013

A few days ago I wrote about Federal Communications Commission (FCC ) Chairman Tom Wheeler’s first public speech at Ohio State University.  I took notice that at the top of his “to do” list was a fast start  to resolving the issue of unlocking cell phones. I was curious that this item seemed so important, but it turns out that it was/is, and Wheeler did not waste any time addressing it. 

In fact, in testimony before the House Subcommittee on Communications and Technology of the Committee on Energy and Commerce on the subject of congressional oversight of the Commission, Chairman Wheeler revealed an agreement between the FCC and wireless carriers (details to be released by the FCC at its public meeting), that would ensure mobile service providers will notify customers about the eligibility of their phones for unlocking.

According to sources, the deal is likely to include notifications by text message and could even cover some pre-paid phones not covered by conventional plans. The deal would also require carriers to process or deny unlocking requests within two business days, according to FCC's earlier guidance.

Why action and why now?

A little historical context is in order. 

Unlocking is the process of enabling customers whose contracts expire to use their phones on service providers other than their current ones - assuming technologic compatibility has been relatively benign for several years.  After all, the U.S. wireless market has virtually since its inception been based on a business model where the costs of phones have been subsidized by the operators in order to seed the market in exchange for locking in the customer for a set period of time.  This included discounted pricing on the devices the longer you subscribed but also the provision that the phones could not be unlocked for use on competitor’s networks. 

A problem arose however this past year when despite Obama administration objections, the Library of Congress, at the behest of the CTIA (the U.S .cellular industry’s trade association), issued a ruling that essentially made unlocking illegal. The Library of Congress is obligated to review copyright law every three years.  Unlocking of devices has been allowed since 2006, but in the new review in 2012, the CTIA challenged the exemption of unlocking it and ruled in CTIA’s favor.

A firestorm erupted.  A citizen petition quickly gathered 114,322 signatures, more than the 100,000 needed to spur a response. Chairman Wheeler, looking to establish a pro-consumer stance in the face of criticism during his confirmation hearings that his prior leadership of CTIA would bias him in favor the industry, wisely jumped on the opportunity to put those fears at ease.

While the details have not been published, the outlines of the resolution are already in the public domain.  The basics are that consumers could get their phones "unlocked" at the end of their contract and the process for doing so will be made user-friendly and consistent among the operators.  Reports have stated that the sticking points on this have been around on how fast the new policy would be rolled out, how pre-paid phones would be handled and how to keep unlocked phones off of black markets.

While a victory for consumer groups and a real public relations black eye for the industry, the fact of the matter is in the long-run this is actually good news for the operators who have for years tried to find ways to wean customers from the old device subsidization model. New data plans are emerging as the battleground for generating customer loyalty, especially as operators have been forced to offer a wide portfolio of devices.

The facts are that Verizon for years has allowed people to have their phones unlocked at the end of their contracts, banking correctly that consumer appetites for the latest and greatest device was a deep emotional reason for staying with a service provider along with service pricing and that they could sustain growth and loyalty by having the right product mix along with the right service plans. This has become increasingly important as the number of personal devices each of us have has exploded exponentially, that subsidized phone is only an increasingly small part of our carrier consideration decision.

How soon will subsidies end?  That is a question that remains to be seen.  At least for the moment however, if you like your phone you can keep it.  

Edited by Stefania Viscusi
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