Locked Handsets Evidently Evil Incarnate
By Carlo Longino, Wed Apr 07 20:30:00 GMT 2004

A US consumers' group is petitioning the FCC to keep mobile carriers from locking the handsets they sell to their networks -- a well meaning but misguided and misinformed effort.

Consumers Union, the country's most prominent consumer group, has sent a letter to FCC Chairman Michael Powell and his cohorts extolling the evils of locked handsets, asking him to stop the practice. Seemingly emboldened by the success of wireless number portability, the group says eliminating handset locks would enhance competition and save consumers "real dollars", as well as help the environment, encourage entrepreneurs and, presumably, save some kittens or something.

While their hearts may be in the right place, they've got a lot of the facts pretty wrong. First, most US consumers really don't have a lot to gain from unlocked handsets, since CDMA handsets have to be reprogrammed to operate on different networks, a task that US CDMA carriers (to my knowledge) don't do.

There's no reason that GSM carriers shouldn't unlock phones once users come to the end of their contracts or the carriers make back the subsidy on their phones -- the reasonable method used in the UK. But by banning any handset locks, CU could be moving down a dangerous path that will have ramifications the group hasn't considered.

American consumers already enjoy low handset prices, a product of a competitive market, carrier subsidies and the preponderance of contract users instead of prepaid. CU argues that the high early-termination fees carriers charge users for breaking contracts before they're up (generally $175-200) should cover any handset subsidy. Fair enough, but they don't like those pesky ETFs, either.

But without any mechanism to protect their investment in handset subsidies, carriers will quit offering them. And while they'd love to do that and cut their customer acquisition costs significantly, one can only imagine the uproar from consumers used to free phones being forced to shell out several hundred dollars for new handsets. So who benefits from that? CU is "hopeful" that carriers' savings from reduced acquisition costs will be passed on to consumers. That doesn't seem a very likely proposition, nor one that will benefit a consumer spending $200 on a phone so they can save $5 or even $10 a month in service charges.

Personally, I buy unlocked GSM handsets from third-party vendors, and I accept paying the premium they charge for having an unlocked device and the convenience of not being dependent on an operator to carry the particular model I want. But when I've had locked handsets, I've had them unlocked -- something that's easy to do, as well as cheap or even free, for many devices, something CU either didn't bother to find out, or is ignoring.

They also seem blind to the fact that many consumers don't have a problem with the current system, and getting a new handset at a reduced price is an advantage, if not an incentive, for many people to switch carriers. The bottom line is simply that people like cheap phones, and forcing carriers to abandon subsidies with little or no recourse will inflate prices quickly and significantly, with the minimal savings, if any, passed on by carriers unlikely to cover the increase.

But there's no reason carriers shouldn't unlock handsets once customers have fulfilled their contracts, or the operators have earned back the subsidy. And if CDMA carriers have to reprogram phones, that's a service for which consumers should be prepared to pay. But I guess being reasonable doesn't make for a very catchy press release, does it?