IPhone Eyed by Small Carriers Backing Unlocked Devices

Small wireless carriers see a new path to scoring users of Apple Inc.’s iPhone and other popular handsets: the legalization of unlocking mobile devices.

Regional and rural wireless providers are backing several bills in Congress that would let consumers unlock mobile phones and tablet computers without carriers’ permission. Big phone companies often land exclusive rights to offer the hottest devices, and U.S. rules currently prohibit altering software to let new phones from one carrier to work on other networks.

“Smaller carriers have a very difficult time getting access to smartphones and handsets,” said Steven Berry, president of the Competitive Carriers Association, which represents such companies as U.S. Cellular Corp. and Bluegrass Cellular. “The unlocking is one way the consumer can make the decision that I can try someone else who has better coverage in the area where I live or play.”

The Washington-based trade group is seeking to undo a Library of Congress decision, backed by largest U.S. mobile providers Verizon Wireless and AT&T Inc., barring consumers from unlocking their handsets without their carrier’s approval. The rules change, which took effect Jan. 26, reversed an earlier exemption under copyright law.

Senate Judiciary Committee Chairman Patrick Leahy, a Vermont Democrat, and Charles Grassley of Iowa, the panel’s top Republican, introduced a bill March 11 to overturn the Library of Congress’s decision and direct the agency to consider adding tablet computers to devices that consumers can unlock.

Lawmakers’ Proposals

“When consumers finish the terms of their contract, they should be able to keep their phones and make their own decision about which wireless provider to use,” Leahy said in an e-mailed statement. “They should not be forced to stay with their original provider due to software that restricts a phone to only one network.”

Democratic Senators Ron Wyden of Oregon and Amy Klobuchar of Minnesota have also introduced bills to unlock mobile phones. House Judiciary Chairman Bob Goodlatte, a Virginia Republican, and John Conyers of Michigan, the panel’s top Democrat, have also announced plans to sponsor such legislation.

“The campaign to make unfettered mobile phone unlocking the law of the land is understandably attractive to a mix of wireless of carriers, especially those up against No. 1 Verizon and No. 2 AT&T,” Jeffrey Silva, a Washington-based analyst with Medley Global Advisors.

Verizon Wireless has about 98 million subscribers and AT&T has 78 million; U.S. Cellular said in its annual report filed with the Securities and Exchange Commission that it has almost 6 million wireless subscribers. Some smaller companies have as few as 2,000, according to the Competitive Carriers Association.

Online Petition

Unlocking phones isn’t the only thing standing in the way of smaller carriers, who say they need more access to wireless spectrum and cutting-edge handsets, and limits on consolidation among the largest carriers, Silva said.

President Barack Obama’s administration said March 4 that consumers should be allowed to unlock smartphones and tablet computers without risking criminal penalties, citing a White House online petition endorsed by more than 114,000 people.

The Federal Communications Commission and the National Telecommunications & Information Administration, a Commerce Department branch that advises the president on airwaves policy, will handle the issue, the administration said.

The Library of Congress’s Copyright Office, as part of a periodic review, said changing software to let one carrier’s phones work on other networks wasn’t among activities expressly permitted under copyright law.

Steep Discounts

CTIA-The Wireless Association, with members including Verizon, AT&T, Sprint Nextel Corp. and T-Mobile USA Inc. had argued that “locking cell phones is an essential part of the wireless industry’s dominant business model” involving handset subsidies and contracts, Librarian of Congress James Billington said in the notice.

Major carriers such as AT&T and Verizon Wireless sell locked phones at a steep discount -- or give certain models away for free -- to entice customers to sign a service contract, usually for a period of two years. IPhones accounted for 84 percent of AT&T’s total smartphone sales in the fourth quarter and 63 percent of Verizon’s, according to data compiled by Bloomberg.

Handset makers and big-box retailers such as Best Buy Co. have begun selling unlocked devices that work with multiple carriers. Partly because consumers have that option, unlocking newly purchased devices doesn’t merit an exemption under copyright law, Billington said.

“While we think the Librarian’s careful decision was reasonable, the fact is that it has very little impact on AT&T customers,” Joan Marsh, AT&T vice president of federal regulatory, said in March 8 company blog post.

‘First Steps’

AT&T already will unlock a device for any customer whose accounts have been active for at least 60 days and are in good standing and who has fulfilled his or her service agreement, Marsh said.

David Samberg, a spokesman for Verizon Wireless, referred questions to CTIA-The Wireless Association. CTIA spokeswoman Amy Storey declined to comment, referring to a March 4 statement from the group that carriers will unlock a phone at a customer’s request when the contract terms are satisfied or for reasons such as a trip outside the U.S.

Apple spokesman Steve Dowling didn’t respond to a request for comment.

While the Senate bills are “excellent first steps,” Congress needs to go further, Carri Bennet, general counsel for Rural Telecommunications Group, a Washington association representing rural carriers with fewer than 100,000 subscribers, said in an e-mail.

“Innovation and consumer interests would be better served if wireless devices were freely available and not tied to wireless networks,” Bennet said.