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What’s really happening with unlocked devices

Perhaps you’ve seen the stories reporting on the Library of Congress’ October 2012 decisionPDF to provide copyright protection to the computer programs used to “lock” subsidized wireless phones to a carrier’s network. The law that governs this decision is Section 1201 of the Digital Millennium Copyright ActPDF (DMCA), which Congress passed in 1998. Section 1201 of the DMCA makes it illegal to bypass a device’s Digital Rights Management (DRM) software:

“No person shall circumvent a technological measure that effectively controls access to a work protected under this title.”

However, the DMCA also includes a provision that allows the Librarian of Congress to grant certain exemptions.

While this section of the DMCA, and the Library of Congress’ process for reviewing requests for exemptions, may be difficult to follow, the business practice behind the decision to protect the software used to “lock” a wireless phone to a carrier’s network is really no different than in selling a car.

If the car is fully paid for, the owner simply transfers the car’s title to the purchaser as soon as payment is received; however, if there is an outstanding loan on the car, the finance company has to be paid before the owner can transfer the title to the purchaser. In other words, until the loan is paid, the finance company has a “lock” on the transfer of the car to a new owner.

That’s all that is happening here: consumers who pay the full price for a phone can take that phone to the carrier (or carriers) of their choice. However, if a carrier subsidized the price of the phone in exchange for the consumer’s agreement to use the phone on that carrier’s network, the consumer can only transfer the phone to a new carrier once the terms of the contract (or the carrier’s unlocking policy) have been satisfied. 

Ignored in numerous media stories is the fact that this LoC decision makes our streets just a little bit safer by making it harder for large scale phone trafficking operations to operate in the open and buy large quantities of phones, unlock them and resell them in foreign markets where carriers do not offer subsidized handsets. Making it illegal to unlock devices without carrier consent adds another barrier to these fencing operations and may help dry up the demand for stolen phones.

While The New York Times and others got the story right, we have seen some reports that confuse “unlocking” with “jailbreaking,” which are two very different things. Jailbreaking is when a user removes the software controls that restrict access to “apps” and “app stores” other than those supported by the device’s operating system. Although the Library of Congress exempted “jailbreaking” from copyright protection, that doesn’t mean it is a good idea. By manipulating the hardware and/or software coded onto the device, jailbreaking voids the phone’s warranty as well as any insurance and liability protections. It also increases the device’s vulnerability to cyberthreats such as malware, spyware and viruses. Most consumers recognize the benefits of having these kinds of protections since wireless carriers and handset makers have been proactive in protecting their customers’ privacy by blocking spam, filtering for viruses and testing software sold through their portals.

According to the Librarian of Congress, who agreed with CTIA, the exemption for unlocking was not necessary because ‘‘the largest nationwide carriers have liberal, publicly available unlocking policies,’’ and because unlocked phones are ‘‘freely available from third party providers—many at low prices.’’

Consumers who do not want a contract plan with a carrier, but want an unlocked phone, may buy unlocked devices directly from the manufacturer, retail stores and wireless carriers—and they can take their device to whatever network they want. However, many consumers prefer paying a discounted price for their device in exchange for agreeing to a service plan with the carrier that has subsidized their phone.  Consumers who sign a contract with a carrier and receive a subsidized wireless phone may “unlock” their devices once they have satisfied the terms of the contract or as long as their carrier agrees.

As I explained in The NYT story, “If a customer bought an iPhone on contract for a carrier-discounted price of $200, for example, he could use third-party software to unlock the device and sell it at a higher price.” With the latest smartphones, the difference can be substantial.  The same iPhone that costs $199 with a carrier subsidy sells for $649 in the unlocked version.

The penalties for unlocking a subsidized wireless phone without carrier consent can be severe. Civil penaltiesPDF are based on the carrier’s actual damages and any additional profits of the violator, or a court can award statutory damages of not less than $200 or more than $2,500 per individual act. Criminal penaltiesPDF are even more severe: any person convicted of violating section 1201 willfully and for purposes of commercial advantage or private financial gain (1) shall be fined not more than $500,000 or imprisoned for not more than 5 years, or both, for the first offense; and (2) shall be fined not more than $1,000,000 or imprisoned for not more than 10 years, or both, for any subsequent offense.

99 Responses to “What’s really happening with unlocked devices” Leave a reply ›

  • avatar

    Ok, forgive me if I'm a bit confused here, but I thought the purpose of ETF's was to compensate the carrier for any money lost through subsidies when a consumer leaves before paying back the value on the phone. So now, you are telling me that instead of having to just pay the carriers ETF to rid myself of their mantle and possibly recoup some money by unlocking the phone and selling it; I am also liable to pay up to $2500 worth of damages?

    How exactly do you justify that? Firstly, I still have to pay the carriers ETF (my current one is $300). So in my case, I paid $300 for a phone through my carrier and have a $300 ETF. That means if I cancel the carrier would recoup $600 of the cost of the phone. Assuming the value of my phone is a very generous $800 in value, I can understand a fine of $200 additional dollars to recoup losses but where and how could you possibly justify fining me any more than that? Once I've purchased the phone isn't it mine to do with as I like? Am I to be bound to the carriers will just because I bought it through them? Where and how can I buy unlocked CDMA devices to work on Verizon or Sprint's networks? There are so many problems with this. It is literally punishing a consumer for buying a product.

  • avatar

    Thanks for making me a criminal. I really appreciate your efforts on behalf of your masters. Keep up the amazing work.

    And could you try and lock my TV to my specific cable TV company too. That would be amazing!

  • avatar

    Let’s look at the real reasons why people unlock phones even when under contract and what could have been done to balance the benefits to the use as well as the carrier. As it stands now, this only benefits the carriers, protects their profits and limits consumers.

    Travelling: Unlocking a phone allows you to visit another location outside the carriers zone and simply purchase a pay as you go SIM card which is a fraction of the high roaming charges carriers would charge. We’ve all read the horror stories of high bills users have incurred who are uneducated to high roaming charges abroad. Carriers should have been forced to come up with some kind of solution for these situations. Be it a temporary unlock for a period of travelling, or being forced to cap roaming charges for a period of time.

    Upgrades: Even under contract, carriers allow users to upgrade their phones yet they give these same users a hard time in unlocking the phone. This limits the potential for the user to resell their phone to further help subsidize their contract. Carriers use this as a means of ensuring the potential of a new customer being forced unto their network. There should be a zero tolerance unlock rule for phones that qualify. ie. A customer who has upgraded or is off contract should have their phone unlocked the moment they request it, no if ands or buts. It should also be free as carriers can charge fee’s that are far above third party unlocking services. A free unlocking service should have been mandatory.

    Exclusives: Carriers make exclusive deals with phone manufactures as a means to lure customers unto their network. People who are happy with their current carrier but want a phone only available on another purchase the phone outright. A rule should have been in place to limit exclusives on phones to one month. And/Or Cell Phones manufactures should make available fully unlocked/unbranded phones at full retail for people wishing to purchase these phones to use on other networks during an exclusive term. This would not impact the carrier as they would still retain the exclusive on subsidized terms for the device but allow users wishing to pay full price the option to obtain a fully unlocked/unbranded device.

  • avatar

    What you fail to mention is that even once you have fulfilled the terms of your contract, you STILL HAVE TO GET PERMISSION TO UNLOCK YOUR PHONE. So I buy a subsidized iPhone, keep it on the carrier for the period of the contract, own the phone free and clear at the end and cannot unlock it unless the carrier gives me permission. To use your car analogy, even after I pay off my car loan, I have to ask Fords permission to repaint it.

    • avatar

      This is a great example! There are many more cases when unlocked phones are required for the development of tools for the advancement of the wireless industry.

  • avatar

    I just unlock my iPhone 4s. Called AT&T waited 3-4 days sync it on iTune n now got a T-Mobile prepay for 1 month. I'm testing their network while my iPhone 5 is still with AT&T.

  • avatar

    Michael I am appalled with your stance and it seems inherently motivated by personal gain, not the interests of the American people. It is hugely unconstitutional and un-American. The corporate carrier system of forcibly locking and jailing our cell phones is idiotic and should be illegal. Copyright law is *only* authorized by the constitution insofar as it creates additional value for the citizens through a growth of the public domain. Under these terms, this kind of application of copyright law clearly exceeds the authority of Congress. This application of laws serves absolutely no legitimate public purpose. When consumers violate cellphone contracts, there are plenty of existing mechanisms available to deal with that other than giving away our constitutional rights to property to big corporations. It would be much more consistent with the American tradition of ownership and property rights to prohibit locked & jailed devices under the principle of first sale.

    Your understanding of the law is flawed and I highly recommend you change your stance. You state: "Consumers who sign a contract with a carrier and receive a subsidized wireless phone may “unlock” their devices once they have satisfied the terms of the contract or as long as their carrier agrees."

    What if the carrier does not agree to unlock? Why must I receive consent from the wireless carrier to do with what I want with my device after the terms of the contract have been fulfilled and paid for and/or have expired? The pretense of full ownership of that device is lost. This is un-American. Unless, it is truly American to use your power, position and influence in an industry to be in bed with large corporations at the sacrifice of the majority. I am calling you out Michael Altschul!

  • avatar

    All hail the Obama machine! From top to bottom, government control and tyranny at it's best.
    CTIA - Covert Tyrrany In America

    • avatar

      Im confused here, what does this have to do with Obama? Cell phones have been locked since 2003. Keep your eye on the ball.

  • avatar

    The argument in favor of protecting the carriers against unlocking of cell phones is certainly valid. After all, they do provide large subsidies in the hope of trying to recoup them over the life of the contract. It's a significant problem if consumers can simply disregard their contractual obligations with ease and places a great strain on the economics that make the wireless consumer market go round.

    That said, I do recall something in the U.S. Constitution that abolishes "cruel and unusual punishment" in favor of a system where the punishment must fit the crime. It speaks volumes about our society and more about government when vehicular manslaughter in several states provides for a more lenient criminal punishment than does selling an unlocked iPhone illegally.

    • avatar

      that's why there are ETFs. ETFs are typically designed so that the carrier would not lose a dime when someone would not keep their contract. And if they keep their contract and unlock the phone? who the heck cares.

  • avatar

    It's simple math. Nothing is free, and in fact the cost of the contract has the subsidy for a new phone 'priced in'. Also, typically when you add ETF (Early Termination Fee) and the subsidized purchase price of the phone, you are pretty much at what the true the cost of the phone was at a max. And - you can't 'early terminate' your way to grow a business if it were larger. You may do that once, may do it twice - but at one point, since you have to provide your SSN anyways, you would be refused service at one point.

    Counter-suggestion: Just disclose the true 'new phone subsidy' (difference between street price to subsidized prce), and adjust the ETF to recoup that new phone subsidy plus say a 10%-20% margin for administrative purposes and nobody needs any penalties for unlocking phones.

    Compete with the best products, best services, best policies - not with scare tactics and lock-in mechanisms.

  • avatar

    1. Don't contract terms and termination fees mean that carriers' subsidies get recouped even if the phone is unlocked and resold?
    2. Do you honestly think it is justifiable and proper that this is a subject of COPYRIGHT law? The idea that this is about preventing infringement of the firmware is laughable.
    3. Did you write that "streets a little safer" bit with a straight face?

  • avatar

    A pathetic attempt to rationalize what everyone knows is simply about protecting the interests of a handful of large corporations, at the expense of consumers and thousands of small businesses. Shame on you!

  • avatar

    The author of this blog Michael Altschul is merely defending the hand that feeds him. He provides strained justification and conveniently fails to take into account ETF's and in doing so has done major damage to his online credibility.

  • avatar

    If I spend money on a device I expect to get the full potential out of it. If you bought a toaster and someone told you you could use the first three slots but not the fourth, you better believe im using the fourth slot. To not use the fourth slot would be wasteful and irresponsible of me.

    The same goes for a cell phone I buy, it comes with a radio which supports multiple bands for multiple regions and providers, and so to not use those bands because im told not to would just make me an idiot with three fourths of a toaster...

  • avatar

    Okay, one stupid thing about this is that we have the right to do whatever we want to what we owned or paid for. We as citizen are protected by the Amendments and our right is given to us by the fathers that created America. So my point is that, the right given to us no longer matters in any way? This is not ethical for those that paid for their services and paid for their phone. Let me give an example, So if I bought a car from the dealer or lets say cashed it. Although, I paid for that car I can't do anything to it? I can't even change the tires or refill that gas tank? I can't alter engine because it's copy righted? In layman's term: The Law Is Breaking The Law. This is not justice. Justice is serving what best fits the world not what the governments want or business want? That is taking sides, therefore, It's unfair. What happens if someone who bought a phone and didn't know that unlocking is illegal; unlocked their phone? You can't blame that person for doing it because he/she didn't know. You can't expect bystanders or consumers who have no clue of this to not do it. Not everyone knows the law and everyone have the right to be free. what happened to "This Is The Land Of The Free, The Brave, and The Strong"? What happened to "United We Stand"? I'm starting to lose hope as an American. This hurts my pride and many others. This shouldn't even be a law.

  • avatar

    The Law Is Breaking The Law? What a funny world we lived in.

  • avatar

    This change to the law also hurts a long list of entrepreneurs and software companies in the US who rely on being able to purchase reasonably priced unlocked phones to test their software on many versions of devices. It use to be the case but no longer to buy and test a bunch of older phones cheaply which is a necessity for any software developer developing for mobile. Now for small software companies, they will be forced to pay hundreds and thousands of dollars just to obtain and test their software on phones that use to be reasonably accessible on the aftermarket from citizens that had completed their contract and wanted to resell their device; Many of these devices are no longer shipping which creates yet another problem for software developers if they are unable to unlock them. This restriction is not in place in other countries so it encourages yet again for US companies to move development overseas where it is easier to obtain phones for testing. This change to the law is a joke and we should also be examining the rights of the library of congress and reforming their rights as part of this episode. Mr Billington should lose his job over this outrageous decision.

  • avatar

    I just got off the phone with apple.They have informed me that I have to contact my carrier for the unlock.Mind you my contract was fulfilled as of yesterday my phone was paid in full when i received it.My carrier doesn't even offer an unlock.i used to live in PR Now I'm back in NYC and I cannot use my phone unless i renew my contract with my previous provider which is Claro PR.After speaking with apple they informed me that if my previous carrier does not offer unlocks then I can only use my iphone as if it was an ipod touch.What kind of nonsense is that so your telling me I paid $600 for an ipod touch.He tells me i am afraid so.i wish there was a way to sue them for this is insane.As someone said above so if I purchase a television and it is blocked to a certain cable or sat provider when my contract is up with that provider i can only use it with that provider.It does not make any sense what so ever.If I own an item I am allowed to do what ever i see Fit.....if i want to change providers I should be able to.It is unconstitutional to force someone to a service they are unhappy with.I waited 7 months with my account in great standings just to change my provider,and come to find out they don't even allow it.I should be entitled to a Refund for the full amount of the equipment if that's the case.the same way they cut someone's service for failure to make payment is the same way we should be entitled to the amount we spent on the product if we cannot use it.Basically we are paying in full to rent equipment but they make you feel as if you own it,.....But with a catch you can only use there service, even after fulfilling your side of the contract.

  • avatar

    It's unfortunate that these big companies linked to gov. can have such a control over the freedom that Americans are deserving of. Hopefully the proposed changes to this legislation are put into effect sooner than later and are beneficial to consumers.

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