Phone unlocking ban could hit you in the wallet

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As of Saturday, your options for owning an unlocked phone become far more limited. You can ask your carrier to unlock it—and good luck with that—or you can pay a premium to manufacturers like Apple or Google for a new unlocked phone. You just can’t unlock your phone yourself—at least, not legally.

That decision was made not by voters, the courts, or even Congress. It was made by one man, 83-year-old Congressional Librarian James Hadley Billington, who is responsible for interpreting the meaning of the Digital Millennium Copyright Act (DMCA). Billington decided last October that unlocking your phone yourself is a violation of the Act, which was originally written to prevent digital piracy.

Congressional Librarian James Hadley Billington

When Billington made his decision, he also granted a 90-day exemption period in which people could still buy phones that they could later unlock, but only after asking their carrier to do it and getting “no” for an answer. That period ends Saturday. After that, the question of whether or not the smartphone you buy is truly your own gets a little fuzzy.

The idea that a decision that will affect so many, and involves so much money, could rest on a single unelected person is bizarre at best and absurd at worst.

But indeed, the law reads in Section 1201 of the DMCA: “Upon the recommendation of the Register of Copyrights, the Librarian of Congress may designate certain classes of works as exempt from the prohibition against circumvention of technological measures that control access to copyrighted works.”

What’s it mean to me?

When you unlock your phone you change part of the firmware code in such a way that makes the phone able to connect to more than one wireless provider’s network. You can unlock your phone by plugging it into your computer and using any of the widely available unlocking software downloads.

The ban means that you won’t be able to (lawfully) decouple your phone from one carrier and move to another carrier that uses the same cellular technology (GSM, CDMA, etc.) unless your carrier agrees to send you an unlock code. Imagine buying a car equipped with software that prevents you from taking certain roads—and being legally barred from disabling the software!

The wireless carriers will unlock phones under certain circumstances, but they don’t like to. For instance AT&T will unlock your iPhone if you can prove you are a current or former AT&T subscriber, that your iPhone was “designed for use on the AT&T network,” and that you are in complete compliance with “all contract obligations, including any term commitment.”

If you’re still in contract, they probably won’t do it (especially if it's an iPhone), so you won’t be able to unlock your phone and connect it to a compatible network overseas. With an unlocked phone, you can visit another country, buy a compatible SIM card at a store on the street, and immediately get phone and web service.

Pre-paid gets harder

Many people now buy used iPhones and other premium smartphones, then sign up for low-cost, no-contract cell service from the likes of Virgin Mobile, Straight Talk, and T-Mobile. That’s because in pre-paid plans you have to either buy a new phone at full retail cost, or buy a used one and bring your own device.

This approach gets you out of a costly long-term relationship with a profit-hungry carrier, and likely saves you money every month on your phone bill. It also saves you the financing charges that your carrier builds into your bill in exchange for subsidizing your phone up front.

But with the unlocking ban, people can no longer legally quit their carrier (usually after paying a penalty), unlock their phone and sign up for a prepaid plan. The ban may also make it much harder to find a good unlocked smartphone on the used market at a reasonable price.

Sure you can pay a premium to Apple or Google for an unlocked version of one of their new phones (iPhone 5, Nexus), but that makes joining a pre-paid plan a costly experience at the outset.

And AT&T will unlock your phone after your contract expires; however, by then you’ve already paid the carrier the high monthly rates and phone finance charges for two years.

Big money

There’s big money at stake here. The CTIA, the association that represents the interests of the large cellular providers, is first on the list to file a legal brief on the matter with the Library of Congress. The 20-page document argues that the owner of the smartphone device is not necessarily the owner of the firmware running on the device, and that altering the firmware is a violation of the copyright owned by the carrier. The majority of the points argued by the CTIA attorneys in the document seem designed to disqualify the arguments of phone unlocking proponents based on legal technicalities.

Big carriers like AT&T and Verizon make much more profit on post-paid (contract) plans than they do on pre-paid plans. You need only look at the companies’ quarterly financial statements to see that. The unlocking ban will simply help keep subscribers locked in post-paid plans (reducing “churn”). And phone locking is the carriers’ main instrument for keeping people locking in two-year, post-paid contracts.

The two-year contract is designed so that the consumer is attracted by the offer of a subsidized handset at very low cost, and then signs up for a two-year service term to get it. The carrier then receives a high monthly payment from the subscriber for 24 months that, when totaled up, far exceeds the real cost of the devices and services delivered during the contract period.

“The real reason behind this ruling is that we’re talking about a device that is tied to monthly recurring services,” says Dan Hays, U.S. wireless services advisory leader at Price Waterhouse Coopers. “The desire on the part of consumers to unlock their phones really effects the challenge the mobile carriers face in continuing to pursue their subscription model.”

And the CTIA says essentially that same thing in its legal filing:

One feature of the marketplace … is the ability of carriers to subsidize handsets and to offer those handsets and their accompanying software to consumers at prices well below the prices that otherwise would need to be charged. Those subsidies depend on ensuring that the handset will be used, as contemplated, with the carrier’s service.

But not everybody agrees that that was the intended purpose of the DMCA. “The DMCA was never meant to enforce mobile phone business models, or to preserve incompatible devices more generally, and the Copyright Office should have said so and granted a broad exemption,” says Electronic Freedom Foundation digital rights analyst Rebecca Jeschke.

The truth is, the decision to ban unlocking last October took place “in a dark corner of Washington,” as Hays terms it. Tech policy decisions handed down by the courts, the FCC, the FTC or Congress tend to get a lot of attention, but who knew that a decision potentially so important to consumers would emerge from the office of the Congressional Librarian?

I’d venture that the decision didn’t pop up on the radars of many people in the tech industry and the media last October, and is taking many by surprise now that the implications of the decision are about to become reality.

Hays says that when LTE phones become more common, the issue of unlocking becomes even more important. Today, when you unlock an AT&T (GSM) phone, your only real option is to go to T-Mobile, which uses the same cellular technology. But when all carriers have converted over to the new LTE networks, the owner of an unlocked LTE phone has a choice of four major carriers and a number of regional ones.

Hays says the carriers may have worked hard to get an unlocking ban to protect themselves against widespread unlocking and massive “churn” in the (LTE) future.

This story, "Phone unlocking ban could hit you in the wallet" was originally published by TechHive.

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