Unlock the Phones. Get Rid of Subsidies

Photograph by Volker Moehrke/Corbis

The issue of phone unlocking has become the cause célèbre of Washington lately. The White House has gotten behind a consumer petition to overturn the recent ban on the practice. Not one, but three bills are wending their way through Congress that would make it legal for us to remove the network locks on our handsets once our contracts expire.

All of that legislation and bluster, however, isn’t going to solve the fundamental problem that produced the practice of locking devices in the first place: handset subsidies.

There’s a reason why carriers lock phones. They’re heavily discounting the cost of most devices, which is why you can get a $500 smartphone for $100 and many mid-range and low-end handsets for free. Carriers make their money back through monthly subscription fees that factor in those subsidy costs. For carriers to get the full value of the phone back, subscribers need to finish out their contracts, and locking devices to their networks functions as their insurance policy. It’s a hell of lot easier than repossessing phones.

The bottom line is most consumers don’t really own their phones. They’re mortgaging them. Just like you can’t sell your home without paying off your bank loan, carriers don’t want you selling your phone or taking it to another carrier without finishing your contract and paying off your handset loan.

Thus, we’re left with the locking mess, which leads to all of the problems pointed out by locking’s critics: having to jump through hoops to get your carrier to unlock a phone when your contract is up, the inability to use another carrier’s SIM card when traveling overseas, and the difficulty of building a resale market for phones when the majority of devices are locked.

Making it legal and easy to unlock phones might seem like an easy solution to this problem, but I guarantee you carriers will find some other way to protect their investments. Carriers could require deposits, implement some kind of collateral fee, institute more onerous contract restrictions, or they could simply raise prices. If carriers start losing money when customers skip out on the contracts, you can bet the customers that remain will have to make up the difference.

I’m not saying it’s right. I’m just saying that in this messed-up subsidy system, everyone is trying to protect their own interests. Consumers will try to unlock their phones, and carriers will try to stop them.

If we get rid of subsidies completely, though, all of those conflicting interests go away. Once you separate the service from the device, carriers have no interest—and no right—to lock devices. You may still be under contract, but since there is no subsidy recovery fee bound up in your monthly bill, carriers couldn’t care less what you do with your device.

Of course, paying full price for your phone is an expensive proposition. An unsubsidized iPhone 5 costs $649 to $849, as opposed to the $200 to $400 most carriers charge with contract. But in the long run buying your phone upfront will probably save you money. T-Mobile has been a trailblazer in this area, charging cheaper monthly rates for voice and data if you don’t opt for a phone subsidy. What’s more, once subsidies are gone, handset makers will be able to sell their wares directly to consumers, which could lead to a greater variety of devices and more price competition in the device market.

Ultimately, mobile voice and data rates are so high because our phones are so cheap—artificially cheap. If we reverse that equation, we wind up with cheaper subscriptions, more choice, and phones we can do with as we please.

Unfortunately, having an unlocked device doesn’t leave you with too many options in the U.S. If you travel internationally with a GSM-capable phone, you can plug in a local carrier’s SIM card and pay local rates. But in the U.S. itself, there isn’t much mobility between carriers.

U.S. operators are split between GSM and CDMA camps, and while it is possible to activate a Verizon phone on Sprint’s network or bring an AT&T device to T-Mobile, there’s no guarantee you’ll have access to every network or service they offer. U.S. carriers don’t just use different radio technologies, they use different spectrum bands. The band fragmentation problem got even worse with the introduction of LTE.

But there are signs that things will get better. T-Mobile is in the process of overhauling its network, aligning its 3G bands with those of AT&T. In 4G, we’re starting to see some LTE network convergence around the Advanced Wireless Services (AWS) band. We’re even seeing more dual-mode GSM-CDMA devices making their way into the market.

With emerging smart antenna and radio module technologies, handset makers will soon be able to pack a dozen bands into a single device. Eventually we might even see a universal phone in the U.S. that can work on any carrier’s networks, no matter what combination of technologies and frequencies they use. And if at that point we’re no longer weighed down by subsidies, contracts, or locked devices, consumers will be able to switch to any operator at their whim. That’s not a bad choice to have.

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