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3/5/2013
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What Unlocked Phones Mean For Businesses

U.S. lawmakers pledge to change regulations that make it illegal to unlock cell phones. Is there an upside for the enterprise?

Mobile World Congress 2013: 9 Hot Gadgets
Mobile World Congress 2013: 9 Hot Gadgets
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On Monday, both the White House and the FCC came out in favor of changing the laws that pertain to locked cell phones. The goal is to make it legal once again for device owners to unlock their cell phones. The response was provoked by a petition that scored more than 114,000 signatures demanding that the law be changed. This change would impact the enterprise, but perhaps not in the way you might think.

First, some backstory: Until January 26 of this year, it was legal for device owners to unlock their phones. It was legal thanks to an exemption made by the Library of Congress in the Digital Millennium Copyright Act. For whatever reason, the Library of Congress changed the exemption in October 2012 and the new locking rule went into effect two months ago. Currently, it is illegal to unlock your cell phone without carrier permission. Some carriers will allow you to unlock their phones under certain circumstances, as long as they know about it. It will continue to be illegal to unlock devices without carrier permission until the White House, FCC and Congress get around to changing the current law.

What is a locked phone? Wireless network operators typically subsidize the cost of phones for customers to reduce the out-of-pocket expense at the contract initiation. This is why the iPhone costs $199 instead of $649. The carrier then earns back the subsidy (for the iPhone, $450) throughout the length of the contract (typically two years). During the contract, the carrier doesn't want the subscriber using that device on any other network, so it is locked, with software, so it can't be used on other networks. That's why an AT&T-branded phone won't work on T-Mobile's network, a Sprint phone won't work on Verizon's network, and vice versa.

[ Feds are developing a government-wide approach to managing mobile devices and software. Read about it at Feds Pursue Uniform Approach To Device Management. ]

For most people, this is a non-issue. Most device owners (especially those in the U.S.) will never want or need to use their device on another network.

The key phrase in all of this is "device owners." Cell phones, tablets and smartphones that are under contract are not owned by the people who use them regularly. Thanks to the device subsidy, most phones are technically the property of the wireless network operator until the contract is completed. Anyone who purchases a new cellphone at the subsidized price is legally beholden to use that device on the network operator that sold it to them for the length of the contract. Only once the contract is completed does the subscriber actually own the phone.

But not everyone accepts device subsidies. Some customers choose to purchase phones for full price so they can avoid signing new contracts. It is these devices -- those that were purchased for full price or that are out-of-contract -- that the White House and FCC want to grant certain freedoms.

"The White House agrees with the 114,000+ of you who believe that consumers should be able to unlock their cell phones without risking criminal or other penalties," said the government in its official response on Monday.

"In fact, we believe the same principle should also apply to tablets, which are increasingly similar to smartphones. And if you have paid for your mobile device, and aren't bound by a service agreement or other obligation, you should be able to use it on another network. It's common sense, crucial for protecting consumer choice, and important for ensuring we continue to have the vibrant, competitive wireless market that delivers innovative products and solid service to meet consumers' needs. This is particularly important for secondhand or other mobile devices that you might buy or receive as a gift, and want to activate on the wireless network that meets your needs -- even if it isn't the one on which the device was first activated. All consumers deserve that flexibility," said the White House.

Where does the enterprise fit in all this? That depends a bit on who is purchasing the phones. If you're a BYOD shop, it will be the employees who may eventually be able to use their unlocked devices on other networks. If your business owns the devices, the real benefit is flexibility. Rather than being limited to a single carrier, which might not offer the best mix of plans and service in a given situation, the business may have several options.

For example, consider international travel. Tens of thousands of mobile industry watchers recently descended on Barcelona to attend Mobile World Congress. U.S. business employees who traveled with their on-contract work phones were likely forced to pay exorbitant roaming rates by the business' carrier. Because their devices were locked to the U.S. carrier, they had no choice. People with unlocked phones, however, could choose to subscribe to any local provider at dramatically reduced rates.

At the end of the day, unlocked cell phones will let people choose their own network and service that best suits them and their needs.

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raagatha
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raagatha,
User Rank: Apprentice
10/1/2013 | 4:02:38 AM
re: What Unlocked Phones Mean For Businesses
Nice article
acampoe
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acampoe,
User Rank: Apprentice
3/20/2013 | 1:20:52 AM
re: What Unlocked Phones Mean For Businesses
Is that pork or turkey? I believe it was pork, served by a congressman/woman near the so called Library of Congress. Upss, maybe it was that the FCC and the other folks of that committee reserved a reading room there because it was so crowded at their own halls. It's just like Macondo's place in the bestseller book by Nobel Price Gabriel Garcia Marquez. Wake up US!
Andrew Hornback
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Andrew Hornback,
User Rank: Apprentice
3/6/2013 | 2:47:57 AM
re: What Unlocked Phones Mean For Businesses
What an unlocked phone or device means for me - that that's a device that I need to treat differently since it's no longer a trusted device when it comes to riding on my network.

With regards to the actual practice, carriers are trying to protect the revenue streams by not allowing devices to be unlocked. Recall from the article that the device is sold at a loss and the loss is made up over the life of the contract - meanwhile, the device's usage (i.e. the service provided by the carrier) is also a revenue stream. Consider that if you unlock a phone and move to a different carrier, the original carrier has now lost money on the device and the recurring revenue created by the contract goes away as well.

As to how the Library of Congress can take the action that they did in order to make this the law of the land, I would direct you to look at: USC Title 17 Circular 92 Chapter 121 Section 1201.

Andrew Hornback
InformationWeek Contributor
sloan1919
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sloan1919,
User Rank: Apprentice
3/5/2013 | 7:40:07 PM
re: What Unlocked Phones Mean For Businesses
The articles leaves out an important fact, most companies charge a fee if you break the contract. I assume this fee is related to the amount of the device subsidy. This is important because the article paints the picture that the carrier's sole interest during the contract is to avoid paying for a phone for the competitor. This is not the case. The carrier is simply attempting to raise the switching cost to the customer in such a way that the customer resists the temptation of lower prices and better service from a competitor. This ultimately has the effect of reducing competition. One of the most effective ways of reducing competition is through legislation which apparently the carriers where successful in lobbying for in 2012.
Nick4114
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Nick4114,
User Rank: Apprentice
3/5/2013 | 7:38:54 PM
re: What Unlocked Phones Mean For Businesses
Did you read the article all the way through? This is about *off-contract* phones where you either paid full price or you have already completed your 2 year commitment. As far as I'm concerned, you should be able to unlock on-contract phones as well. If you end your contract early, carriers have huge penalty fees that recoup the costs of the subsidized phone.
Nick4114
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Nick4114,
User Rank: Apprentice
3/5/2013 | 7:36:32 PM
re: What Unlocked Phones Mean For Businesses
You are right, but there is crossover. Two of the big 4 telecom providers use CDMA and two use GSM. I don't know all the deets with 4g, LTE, 3g, and voice, but there is plenty of overlap.
jvoda631
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jvoda631,
User Rank: Apprentice
3/5/2013 | 7:23:43 PM
re: What Unlocked Phones Mean For Businesses
Unless I'm mistaken, aren't the frequencies used by the wireless providers different, such that the antennaeGs in the devices must be customized to the provider, such that a device sold by one provider couldn't work on another company's network, anyway? As US firms move to LTE the differences may be less, but as long as the providers own their own frequencies (rather than them all sharing them all) or technology advances to antennas can work on ANY frequency, devices will always be limited to specific bandwidths.
ilocano
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ilocano,
User Rank: Apprentice
3/5/2013 | 7:23:10 PM
re: What Unlocked Phones Mean For Businesses
The bottom line is that if you've paid for the phone (contract ends), you should be able to use that phone with other carriers. Otherwise, call it "Rent". I am so sick of corporate greed who is always finding ways to make money from average consumers. Cell phone carriers has the money exert influence in the white house so they can find loopholes to screw everyone else. How much is enough for these guys? They make hundreds per month from their customers already and that's not enough? It's already ludicrous that they introduced that concept of charging for data transfer but because nobody stood up or said anything, now most of them are charging data transfer. Let's all stick together and keep these greedy corporate in check.
NJ Mike
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NJ Mike,
User Rank: Strategist
3/5/2013 | 6:38:27 PM
re: What Unlocked Phones Mean For Businesses
"First, some backstory: Until January 26 of this year, it was legal for device owners to unlock their phones. It was legal thanks to an exemption made by the Library of Congress in the Digital Millennium Copyright Act. For whatever reason, the Library of Congress changed the exemption in October 2012 and the new locking rule went into effect two months ago." - since when did the Library of Congress get involved in the law-making business?
joesephus
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joesephus,
User Rank: Apprentice
3/5/2013 | 5:44:11 PM
re: What Unlocked Phones Mean For Businesses
The key phrase in this article is that FOR WHATEVER REASON THE LIBRARY OF CONGRESS CHANGED THE LAW. That action by an unelected body to arbitrarily change the law needs to be looked at,as to why and for what reason were they prompted to do this,and where do they get the right to do these things. I suggest we follow the money to see who would benefit by such actions. It seems to me only the telecom people and maybe someone in the Library of Congress.
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