US carriers, FCC nearing agreement on cellphone unlocking policy: Report

U.S. wireless carriers are hammering out the final details of a deal with the Federal Communications Commission to adopt new policies to make it easier for consumers to "unlock" their mobile phones for use on a competitor's network.

The agreement, expected soon, would ensure that providers notify customers about the eligibility of their phones for unlocking - by text message, for example - and could also cover some pre-paid phones, industry sources say.

The deal would also require carriers to process or deny unlocking requests within two business days, according to FCC's earlier guidance.

U.S. wireless carriers often "lock" smartphones to their networks as a way to encourage consumers to renew their mobile contracts. Consumers often get new devices at a heavily subsidized price in return for committing to longer contracts.

The new deal would assure consumers that they could get their phones "unlocked" at the end of their contract and make the process more uniform among carriers.

The final sticking points in reaching the agreement among carriers and FCC were said to include questions on how fast the new policy would be rolled out, how pre-paid phones would be handled, and how to keep unlocked phones off of black markets.

Top providers like Verizon Wireless, AT&T Inc, Sprint Corp and T-Mobile US have long allowed consumers to unlock devices and take them to another network at the end of a contract term - commonly, two years - though the process varies by company and can be quite painstaking.

What changed in 2013 was an unexpected ruling from the Library of Congress, which oversees U.S. copyright law and reviews exemptions every three years, that effectively made unlocking illegal.

The ruling surprised many telecom observers, outraged phone users, and finally landed on the White House's agenda thanks to an online citizen petition that gathered 114,322 signatures, more than the 100,000 needed to spur a response. And in its response, the White House sided with the petitioners.

With that, unlocking turned into a top 2013 policy matter for new FCC Chairman Tom Wheeler, a former top wireless industry lobbyist for whom it presented an opportunity to establish a pro-consumer stance.

On Thursday, Wheeler is expected to address unlocking at a House of Representatives hearing and later at the FCC's regular meeting, where it is on the agenda.

Business realities
Unlike cell phone operators in other countries, U.S. wireless carriers often lock smartphones to make it harder for customers to leave their network. It helps sustain the subsidy business model of the industry, in which consumers get steep discounts to buy pricey devices like Apple Inc's iPhone in exchange for higher monthly fees.

Technically, too, devices sold to U.S. consumers are not compatible across all networks. AT&T and T-Mobile use similar technology standards, while another type is used by Sprint and Verizon. Some services may not work as well on phones from another operator.

Verizon is the only carrier whose phones generally come unlocked at the beginning of a contract. The company is bound to do so through an earlier deal it had struck with the FCC.

Self-inflicted wound
While Wall Street has paid little attention to the unlocking saga, the issue has turned into a policy and consumer black eye for the wireless industry, which was perceived to be on the wrong side of the debate over consumers' rights and freedoms.

The wound is practically a self-inflicted one as lawyers from the wireless association CTIA were the ones to stir the hornet's nest at the Library of Congress.

U.S. copyright law had an exemption allowing for unlocking of devices since 2006 but in the new triannual review in 2012, the CTIA lawyers successfully challenged it.

Despite opposition from the Commerce Department's telecom policy advisors, the CTIA convinced the Library of Congress that the exemption was no longer warranted. They argued that new, unlocked phones were widely available and that the carriers' unlocking policies were already flexible.

CTIA has pushed back on the notion it acted without direction from its members, but Jot Carpenter, vice president for federal affairs, acknowledged that the legal battle spun into a major policy debacle unexpectedly.

"The industry won a legal argument but failed to anticipate it morphing into a policy argument," he said in an interview. "I think there are a lot of lessons to be learned from that."

© Thomson Reuters 2013