U.S. Carriers, FCC Reach Accord on 'Unlocking' Cellphones

Pile of mobile phones with an open lock
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By Alina Selyukh

WASHINGTON -- U.S. wireless carriers will make it easier for consumers to "unlock" their cellphones for use on a competitor's network, Federal Communications Commission Chairman Tom Wheeler said Thursday.

Wheeler told members of Congress an agreement was reached between the carriers and the agency, and details will be presented at an FCC meeting later Thursday.

Industry sources have said the agreement would ensure that providers notify customers about the eligibility of their phones for unlocking -- by text message, for example -- and could also cover some pre-paid phones.

The deal would also require carriers to process or deny unlocking requests within two business days, %VIRTUAL-article-sponsoredlinks%according to FCC's earlier guidance.

U.S. wireless carriers often "lock" smartphones to their networks as a way to encourage consumers to renew their mobile contracts. Consumers often get new devices at a heavily subsidized price in return for committing to longer contracts.

The new deal would assure consumers that they could get their phones "unlocked" at the end of their contract and make the process more uniform among carriers.

The final sticking points in reaching the agreement among carriers and FCC were said to include questions 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.

Top providers like Verizon Wireless (VZ) (VOD), AT&T (T), Sprint (S) and T-Mobile US (TMUS) have long allowed consumers to unlock devices and take them to another network at the end of a contract term -- commonly, two years -- though the process varies by company and can be quite painstaking.

What changed in 2013 was an unexpected ruling from the Library of Congress, which oversees U.S. copyright law and reviews exemptions every three years, that effectively made unlocking illegal.

The ruling surprised many telecom observers, outraged phone users, and finally landed on the White House's agenda thanks to an online citizen petition that gathered 114,322 signatures, more than the 100,000 needed to spur a response. And in its response, the White House sided with the petitioners.

With that, unlocking turned into a top 2013 policy matter for the new FCC chairman, Wheeler, a former top wireless industry lobbyist for whom it presented an opportunity to establish a pro-consumer stance.

The issue on unlocking is on the FCC's meeting agenda Thursday.

Business Realities

Unlike cell phone operators in other countries, U.S. wireless carriers often lock smartphones to make it harder for customers to leave their network. It helps sustain the subsidy business model of the industry, in which consumers get steep discounts to buy pricey devices like Apple's (AAPL) iPhone in exchange for higher monthly fees.

Technically, too, devices sold to U.S. consumers aren't compatible across all networks. AT&T and T-Mobile use similar technology standards, while another type is used by Sprint and Verizon. Some services may not work as well on phones from another operator.

Verizon is the only carrier whose phones generally come unlocked at the beginning of a contract. The company is bound to do so through an earlier deal it had struck with the FCC.

Self-Inflicted Wound

While Wall Street has paid little attention to the unlocking saga, the issue has turned into a policy and consumer black eye for the wireless industry, which was perceived to be on the wrong side of the debate over consumers' rights and freedoms.

The wound is practically a self-inflicted one as lawyers from the wireless association, CTIA, were the ones to stir the hornet's nest at the Library of Congress.

U.S. copyright law had an exemption allowing unlocking of devices since 2006, but in the new review in 2012, the CTIA lawyers successfully challenged it.

Despite opposition from the Commerce Department, the CTIA convinced the Library of Congress that the exemption was no longer warranted. They argued that new, unlocked phones were widely available and that the carriers' unlocking policies were already flexible.

Originally published