By Carl HoweToday's Wall Street Journal notes that the US copyright office has ruled that consumers are allowed to unlock their phones with another carrier provided they own their phone. Frankly, the whole justification for locked phones was always a bit silly:
U.S. cellphone companies lock devices primarily because they want customers to stick to their service contracts typically lasting one or two years, analysts say. Since the carriers often subsidize the cost of the phones, they want to make sure they are repaid.
Right. Now answer me this: if you have a contract with your service provider, presumably with penalties for cancellation, why do you have to lock the phone as well?
The real answer is that carriers have locked cellphones to make exclusive handset deals with cellphone manufacturers work and to guarantee a market for future contracts. If Cingular boasts an exclusive deal with Palm (PALM) for its latest smartphone, it doesn't want a consumer buying the phone through Cingular and then shifting service to T-Mobile later. It wants that customer locked into its service as long as it can.
US carriers need to look at business models in Europe and Asia, where carrier acceptance of unlocked phones has created a huge secondary market for both new handsets and competitive services. Why? Because phone subsidies actually add significant costs to the carriers that acceptance of unlocked phones can eliminate. And while consumers love low costs for phones, those low costs encourage those same consumers to treat them as low value devices, decreasing brand value for the carriers. The result: locked phones actually lock in carriers to subsidies that reduce their profits, while hurting their brand value with a poor customer experience.
There's some marketing data that supports this point. If we look at Interbrand's top 100 global brands by value, there are four handset manufacturers in that list: Nokia (NYSE:NOK), Samsung, Siemens (SI), and Motorola (MOT). But in that same list, there is not a single telecom carrier. Not one. And a recent Forrester report by mobile phone guru Charlie Golvin rated the brand trust, brand potential, and brand adoption of both mobile handsets and carriers. Not a single US carrier scored above a C.
And this divergence between handsets and service is only going to get worse. Increasingly, phone handsets are as much a window into online lives as our computers are, storing text, email messages, music, and even video for us. With phones becoming more complex and expensive, the concept that consumers have to throw those experiences away if they want to change their carrier is as absurd as forcing them to throw away their computer if they change Internet provider. And consumers are smart enough to know this.
Locked phones are only a piece of the US wireless carrier marketing, but they are the part of the brand experience that consumers can feel and touch. The wired phone world of AT&T (NYSE:T) changed completely when the FCC allowed consumers to buy and connect their own handsets. The same will happen with wireless, but only if the carriers embrace, not resist, unlocking their customers from their service.