Seeking Alpha
Seeking Alpha Portfolio App for iPad
Finance
(1)
Market Currents

Consumers who buy phones from cellular carriers no longer have legal protection to unlock the...

  • Sunday, January 27, 3:03 AM ET
    Consumers who buy phones from cellular carriers no longer have legal protection to unlock the devices so they can work on another operator's network. Under a change in regulation from the Library of Congress's Copyright Office that came into force yesterday, unlocking phones is not expressly permitted under law. "It may go to court some time, and then it will be up to a judge," says lawyer Mitch Stoltz.
Track new comments on this story

This news story has 22 comments:

  •  
    Really these are no longer phones but hand held computers. You should be able to customize these just like a regular PC/laptop. I should not be restricted into keeping apps I don't want without having to root a phone.
    27 Jan, 09:46 AM Reply Like
  •  
    The Judge will rule, you can't tell people what to do with their property. All one needs do is stay within the law.
    27 Jan, 10:07 AM Reply Like
  •  
    I am tech stupid so I have no problem asking stupid questions. That said, if I contract with Verizon and then hack my phone so that I can use AT&Ts service am I not stealing service from AT&T?
    27 Jan, 11:00 AM Reply Like
  •  
    No, your phone # gives you access to the network, if you have the unlocked hardware. AT&T will disable your phone line if you don't sign up for and pay them the monthly rates.
    27 Jan, 12:09 PM Reply Like
  •  
    hacking your phone does not give you free service it allows you as a consumer to have freedom of choice with hardware that you have purchased and have ownership of. Example you can buy an unlocked iphone directly from apple and use it on your T-Mobile account even though T-Mobile does not offer the iphone.
    27 Jan, 12:26 PM Reply Like
  •  
    Not if you pay for everything. It is your personal property. Zoning laws are not the same as this. Nobody can tell you what to do with your personal property. This law, if that is what it is, will be over turned.
    29 Jan, 07:39 PM Reply Like
  •  
    Keep in mind if you bought your phone before the law change you can still use it on another network. It's just you can't with newly bought phones.
    27 Jan, 12:37 PM Reply Like
  •  
    Who is going to enforce this and how?
    27 Jan, 08:54 PM Reply Like
  •  
    Keep in mind that, if your phone is an iPhone, you didn't really buy it. You only paid a part of the cost...so, technically, the carrier may have a good argument that the phone isn't yours. They significantly subsidized its cost based on an assumption of revenues they would earn from your using their network. If you want to "own" the phone, then buy it in the first place....then arguments that you can do as you wish with it should hold water. Just saying....
    27 Jan, 02:47 PM Reply Like
  •  
    This is a false statement. You did in fact purchase the phone. The carrier sold it at a loss in order to get you the consumer to sign a contract for service. This service is initially tied to the phone, but does not have to be. The consumer is free to do whatever they choose with the phone once it has been removed from the store. I am sure a judge will uphold these rights, even if the USPO does not.

    Edit: Just sayin.....
    27 Jan, 06:41 PM Reply Like
  •  
    The cost of the phone is amortized over 2 years--that's why they require a 2 year contract. After 2 years, one has paid 100% for the phone, and more than 100% due to interest (they charge interest on the purchase price that is capitalized and amortized over 2 years, otherwise they would be losing money on the initial capital outlay--I wonder what outrageous interest rate they charge? considering that they can cut off service, and people really hate that, it's a relatively low risk loan). After 2 years, one should be able to unlock, change carriers, etc... since the phone is paid for. However, that's why they love phone updates on a 2 year schedule--they entice you to upgrade and sign another 2 year contract.
    28 Jan, 06:54 AM Reply Like
  •  
    Ryan, the carrier does not take a loss--you are paying them back with interest. You are leasing the phone. And leasing is not ownership.
    28 Jan, 07:01 AM Reply Like
  •  
    Incorrect statement when you buy the iPhone directly from Apple off of their website. Also, if you get it from a carrier it is not a lease it is subsidized for the contract once the contract is fulfilled you are not required to return because you own it and if you break the contract you pay a fee and still keep the phone.
    28 Jan, 02:31 PM Reply Like
  •  
    John, the minimum contract period with a "subsidised" phone is designed to ensure you repay the subsidy. You have to keep paying the carrier and hence repay the subsidy for the phone whether you use it on their network or not. It makes no difference to them.

    Not being able to use a subsidized phone on another network is like getting a loan from a bank to buy a car, and then the bank telling you where you can and can't drive.
    27 Jan, 05:02 PM Reply Like
  •  
    I think the US should outlaw subsidy for phones
    many countries hav this policy
    27 Jan, 10:21 PM Reply Like
  •  
    What is your source of information, what are the Countries?
    29 Jan, 07:44 PM Reply Like
  •  
    Interesting - the Library of Congress rule here is a reversal of normal common law, and western culture. In essence, it is saying that unless you have permission, you may not unlock the phone - whereas normally our culture permits any application or innovation unless the law specifically forbids it. The risk of this approach is a kleptocracy - unless you satisfy the official/system/control process, you do not have the freedom to take an action, which enables the system to extract an unearned rent. There probably should be a clear distinction between a phone 'leased' i.e., still under contract, and an owned phone after expiration of the initial contract. Most Asian countries have already moved to this model, in contrast to their traditional legal system, thereby encouraging greater competition and innovation - witness the two chip phone from China which enables the user's phone to work on several proprietary networks at once, which shifts use to the lower priced service provider.
    28 Jan, 11:53 AM Reply Like
  •  
    Is the cost of service on AT&T any different for a locked vs. an unlocked phone? It is my understanding that the only difference is simply that service is provided without a contract for an unlocked phone. The customer's month-to-month cost for service with an unlocked phone is the same as for a locked phone. If that is the case, and I'm asking, then AT&T is NOT recovering the cost of the phone by any hidden lease or financing plan.
    28 Jan, 03:09 PM Reply Like
  •  
    John you are right of course, but I will offer an alternative interpretation.

    AT&T is not making a loss on the phone. The minimum contract period ensures the phone is paid for. What this means is that people who bought their own phone are getting a poorer deal from the carrier, because they are effectively paying a subsidy on a phone they haven't got.

    You will notice that as phones have become more expensive the minimum contract periods have become longer. Where shorter contracts are still available the price you pay up front for the phone is typically higher to maintain profitability for the carrier.

    While I cannot argue the law which Rolling Wave has commented on powerfully earlier, I think we can be confident that the price of the phone is incorporated in the price of the contract, and is financially at least, a hidden lease or loan from the carrier to the consumer.
    28 Jan, 10:16 PM Reply Like
  •  
    With all due respect, Boisterousbob, it appears to me that your "alternative interpretation" is without any basis in fact. We don't need to conjure up a sinister leasing/rental approach to explain the iPhone subsidy. These subsidies are just that; discounts offered by the carriers for the purpose of attracting customers to use their data services. If you read the telco's annual reports, there is no mention of these discounts being thought of or handled as leases or rents. They are described very straightforwardly as discounts. Here is a paragraph from AT&T's 2011 Annual Report:

    "Our Wireless segment operating income margin was 24.2%
    in 2011, compared to 26.1% in 2010 and 25.8% in 2009.
    The margin decrease in 2011 reflected higher equipment subsidies and selling costs associated with higher smartphone sales and handset upgrades, partially offset by higher revenues generated by our subscribers. While we subsidize the sales prices of various smartphones, we expect to recover that cost over time from increased usage of the devices, especially data usage by the subscriber. We also expect a recent change in our handset upgrade policy (to lengthen the time between upgrades) to help our margin."

    As you can see, this business model is nothing more than Kroger offering bread at 4 loaves for $1 (say a 75% discount) on the expectation that customers will come into the store and buy more of other products which are being sold at regular price. Kroger does not go around raising the price of every other item in the store to offset the price of the bread discount. It is simply an expectation that, overall, they will increase business by offering the discount on bread. If all you buy is the bread and leave, Kroger will take a loss. And thus you can see why the telcos would resist, if at all possible, the customer's ability to "take the bread and run." Not saying their position is right or wrong, but I do see a defensible rationale in it.
    And so to over-complicate the iPhone subsidy program by the carriers by seeing these as hidden leases or rents is to go to an unnecessary and unproductive length. The carriers are investing vast sums of capital (more than any other private companies) in construction and maintenance of their cell and data systems. These systems are always over designed when built and so incremental use the carriers are able to provide is essentially free and to the carrier's advantage to harvest as quickly as possible. In this way, the discounted phone price is recovered. These discounts are not hidden leases, they are simply loss leaders.
    30 Jan, 11:14 AM Reply Like
  •  
    Ok well look I think we see this differently. I am not arguing contract law or accounting, I am talking about cash flows and what they look like.

    I will make one more comment, if you please feel free to have the last word.

    "As you can see, this business model is nothing more than Kroger offering bread at 4 loaves for $1 (say a 75% discount) on the expectation that customers will come into the store and buy more of other products which are being sold at regular price. "

    I think this could be refined as follows

    "This is nothing more than Kroger offering bread at 4 loaves for $1 (say a 75% discount) contingent on a signed contractual obligation that you will buy tins of beans every month for the next two years at a higher price than we used to sell them at and a higher price than you can buy them for just next door"

    To me, this is not the same at all.
    30 Jan, 10:14 PM Reply Like
  •  
    I agree it isn't the same at all...and in fact it is NOT what the telecos do nor is it what Kroger does. So what was the purpose of modifying the language? They both (i.e., Kroger and the telcos) take a chance that they will come out ahead in the end by enticing the customer in the door. And of course they do come out ahead, or they wouldn't continue doing it. The telecos do NOT sell "...at a higher price than we used to sell or at a higher price than you can buy them for just next door." That's my point...although the telcos trap your business for two years, they do not charge a higher price during that period than if you had walked in their door with a phone. Also note that they do not LOWER your rate after the 2 yr contract period. There is just nothing here that even smells like a lease or payback. It's a loss leader paid for by the telcos...nothing more and nothing less.
    3 Feb, 04:31 PM Reply Like
LATEST|
TODAY SO FAR|
YESTERDAY
Other date
DJIA (DIA) S&P 500 (SPY)

TECH ETFs IN FOCUS

Latest Tech Articles
More Latest Articles »