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Earlier this year, when the librarian of Congress declared that unlocking a cellphone to make it available on other carriers was illegal under the Digital Millennium Copyright Act of 1998, many people were outraged. A genuine grass-roots effort to change the policy sprung up and more than 114,000 people signed a White House petition to voice their discontent.
When the White House announced its support to allow consumers to unlock their cellphones, the administration noted that the policy was “crucial for protecting consumer choice, and important for ensuring we continue to have the vibrant, competitive wireless market that delivers innovative products and solid service to meet consumers’ needs.”
The Unlocking Technology Act (HR 1892), recently introduced by Rep. Zoe Lofgren, D-Calif., and co-sponsored by Jared Polis, D-Colo., and Thomas Massie, R-Ky., would make it legal to circumvent digital rights management locks and to develop and sell cellphone unlocking software.
Despite the best of intentions, the very innovation that some members of Congress, the White House and presumably consumers who signed the petition claim they want to protect would actually be hampered by allowing consumers and third parties to unlock their cellphones. The DMCA is supposed to prevent digital piracy by making it illegal to disable digital rights management software, and it applies to the device locks that carriers put on cellphones — primarily to prevent phones they sell from being used on other carrier networks. When tech companies spend billions of dollars on research and development, they have to recoup those costs and make a profit to stay on the cutting edge of innovation.
One of the ways they do this is by entering exclusive agreements with certain wireless carriers. AT&T, for example, dominated the smartphone market for years because of its exclusive contract to distribute Apple’s iPhone in the United States. AT&T paid Apple an exceptionally high subsidy on top of the consumer purchase prices, but the company made quite a return on its investment. In subsidizing more expensive phones, AT&T could sell more expensive data plans to its customers.
In effect, cellphone carriers subsidize most cellphone purchases with the expectation that the consumer will be purchasing service from them. Hence, when consumers purchase cellphones at a discounted rate from a carrier, they do so with the understanding that their phone is only intended to be used on that carrier’s network.
Unlocking cellphones wasn’t a huge problem —mainly performed by third-party small businesses that sold them online — but the practice garnered serious attention when smaller service providers started to siphon off customers from other carriers by offering less expensive service on unlocked phones. T-Mobile even ran a bold advertising campaign imploring consumers to bring in their unlocked iPhones from other carriers.
Now that cellphone manufactures and cellphone carriers have more protection for their intellectual property, they can recoup their research-and-development investment more quickly and, hence, spend more on developing new technologies in the future. It also ensures that most major carriers will continue to offer subsidized phones to their customers — increasing consumer choice.
The fines announced in the new rules —$200-$2,500 for an offense by an individual or up to a $500,000 fine, five years behind bars or both for commercial offenses — caused a bit of sticker shock for many Americans. Despite the steep penalties described in the rules, it’s highly unlikely that the fines would ever be enforced. Any suit brought by a provider or tech company would be lost in the court of public opinion far before it ever made it to trial.
Contrary to claims by the White House and others, allowing consumers to unlock their phones most likely stifled innovation over the last decade. Protecting the intellectual property and technological advances of the electronics industry should be a top priority for consumers that enjoy cutting-edge advancements in their smartphones at a subsidized rate.
Michael Moroney is the director of communications at the Franklin Center for Government & Public Integrity.