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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
(click image for larger view and for slideshow)

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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jfrey191
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jfrey191,
User Rank: Apprentice
3/5/2013 | 4:30:23 PM
re: What Unlocked Phones Mean For Businesses
Is this really an issue? The carriers have a point in that you agree to purchase a device at a lower price in exchange for using their service for X amount of time. Consumers want low prices, so carriers came up with a model that works. How many users today honestly need to unlock their phone to use on another network? I work as an IT service provider in Philadelphia and I've never had a user come up to me and complain that their device is locked. If you need to use a device on an internal network, you use WiFi. If you work for a company that mandates use of their carrier then they should be providing the device. Why are we wasting legal costs and administrative time to hash this out?
ilocano
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ilocano,
User Rank: Apprentice
3/5/2013 | 4:48:32 PM
re: What Unlocked Phones Mean For Businesses
Yes. Even after your contract ends you would not be able to use your device with any other carrier. How would you like it if you buy a car and car maker said you must keep getting gas from Chevron. It's a way for big companies to monopolize the market and discourage innovation.
adrisimo
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adrisimo,
User Rank: Apprentice
3/5/2013 | 4:59:31 PM
re: What Unlocked Phones Mean For Businesses
This is indeed a real issue for everyone who travels internationally. It's about that old phone that you no longer use because you upgraded, but which would be an ideal travel phone for short international visits. Unlocking it would allow you to buy a reasonable pay-as-you go phone plan from a local carrier, rather than pay exorbitant roaming fees to your home country.
iemhxndoiwhz
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iemhxndoiwhz,
User Rank: Apprentice
3/5/2013 | 5:04:02 PM
re: What Unlocked Phones Mean For Businesses
International travelers would greatly benefit from this. I routinely travel to Malaysia and would love to be able to pop a local prepaid SIM card into my phone for use while I'm in the country. Fortunately, most carriers (at least before this exception was changed) would provide unlocking codes upon request once your contract was up, as AT&T did for me. That doesn't help the international traveler during the contract, though, which is why I think the law should be changed to allow unlocking at any time, not just after the contract is up, for this specific usage scenario. I suppose there are a few dual-SIM phones out there in the meantime.
VicVicVic
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VicVicVic,
User Rank: Apprentice
3/5/2013 | 5:07:13 PM
re: What Unlocked Phones Mean For Businesses
My family members and I all paid nearly $200 when we started their contract with AT&T a bit over two years ago. Now, we're all moving to T-Mobile because they have more competitive prices, and with their Value plans, they do not provide phone subsidies. This means we'll continue to use our phones from AT&T.

With unlocking available, this isn't an issue. However, if we cannot unlock the phones, we now have to pay full price (around $500) for each new smartphone. In a family of five, that's a waste of around $2500 just to get new phones we do not need (our old phones are working perfectly fine).

The alternative - and this is probably what the AT&T corporation wants - is for us to continue with AT&T because we do not want to get new phones. This limits consumer choice.

I hope this real-life example explains one reason for why banning unlocking may hurt the average person.
Baraka555
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Baraka555,
User Rank: Apprentice
3/5/2013 | 5:38:05 PM
re: What Unlocked Phones Mean For Businesses
I don't believe that we are wasting any money on legal proceedings. This is important to people who do not live in big cities. If I can mix and match services from different phone providers then I will have a choice of the different services and I would not be forced into a communications relationship that is not working for me. There is a reason that phone providers have things setup the way they are now. It is to extract a profit regardless of if the service is beneficial or not.
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.
taylor9ball
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taylor9ball,
User Rank: Apprentice
3/5/2013 | 4:50:20 PM
re: What Unlocked Phones Mean For Businesses
As far as I am concerned, this is an issue. If I have fulfilled my contract with a carrier, I have paid for the phone and should be able to use the phone with any carrier I'd like. Not being able to do that is like buying a car, but only being able to fill it up at one particular gas station. My contract with Sprint is up in two months and I have a perfectly usable Smartphone. I'd like to change carriers and go with a non-contract plan. But as the law stands now, I'm forced to either stay with Sprint, or I've got a $600 phone that will get thrown in a drawer. And then I'd be forced to pay for another comparable phone through another service. Communications companies spent big money on lobbyists to make it so consumers can't unlock these phones. They don't spend that kind of $$$ on something that won't benefit them.
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.
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!
NJ Mike
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NJ Mike,
User Rank: Apprentice
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?
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.
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 antennaeGÇÖs 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.
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.
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.
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
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
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