Consumer Groups Disagree on Proposed Handset Unlocking Rules

Carriers clashed over whether the FCC should move forward on an order that generally imposes industry-wide handset unlocking rules, requiring all mobile wireless providers to unlock handsets 60 days after they’re activated. Groups representing low-income consumers warned the rules could mean ending subsidies for purchasing phones. Comments were due Monday in docket 24-186, on an NPRM commissioners approved 5-0 in July (see 2407180037).

The current rules differ between carriers (see 2407160048). For instance, Verizon must unlock handsets as a requirement of licenses it purchased in the 2008 700 MHz auction. T-Mobile faces limited requirements as a condition of buying Mint Mobile and Ultra Mobile. And AT&T faces no requirements.

AT&T warned that a requirement could overstep the FCC’s legal authority. While Title III of the Communications Act “gives the Commission authority to grant, condition, and modify licenses in the public interest, that does not ‘confer an unlimited power,’” AT&T said: “Because Title III is directed to radio services, the provisions cited in the NPRM do not grant the Commission express statutory authority to regulate wireless providers when they are engaged in some other activity, such as the provision, sale, or financing of handsets.”

In addition, AT&T questioned the effects of a mandate. The NPRM “concludes summarily that mandated handset unlocking within 60 days of activation will lead to lower prices, but higher prices are far more probable.”

Verizon disagreed strongly with AT&T. "A uniform regime," Verizon said, "that allows providers to lock postpaid and prepaid devices for a reasonable time, with automatic unlocking after that time, will benefit consumers and competition.” Subsidies won’t go away, it added. “Reducing regulatory asymmetries creates an equal playing field that fosters increased competition.”

The mandate is unnecessary “as competition and consumer choice are thriving under the existing legal framework,” T-Mobile countered. “The proposed rule would do more harm than good.” If the FCC approves rules, then “it should exclude free handsets, handsets that are subject to an installment plan (including leased handsets), and handsets on nonconsumer/enterprise accounts,” T-Mobile said. Rules should apply only prospectively, and the agency should consider a longer unlocking period than 60 days and give providers enough time to “address the many logistical challenges posed.”

The mandate proposed in the NPRM “is impractical and inflexible, and the Commission should reject it,” the Competitive Carriers Association said. CCA noted that it has championed unlocking rules in the past, but only if the FCC exempts handset financing and other “consumer-friendly” offers. “The rollback in consumer financing options would prove especially damaging to lower-income subscribers, who already face heightened pricing vulnerability following the end of the Affordable Connectivity Program.” It would also pose “additional fraud and security risks to carriers’ networks through the greater availability of cheaper devices that smaller carriers may be ill-equipped to manage joining the network.”

But the Rural Wireless Association supported the proposed rules, citing “extensive evidence that handset locking policies are anticompetitive.” The burden on smaller carriers to comply with the mandate would be “outweighed by the significant public benefits that this requirement will promote, such as reducing costs and simplifying the ability to switch service providers for consumers,” RWA said.

Groups representing people of color and low-income consumers noted potential benefits and risks of an unlocking requirement.

“These proposed requirements would benefit consumers and enhance competition in the wireless marketplace, especially for communities of color,” the Multicultural Media, Telecom and Internet Council said. MMTC also said the requirement would be good for wireless competition, forcing carriers to compete under the same rules. But MMTC had a caveat: “The unlocking rules disincentivize carriers from providing subsidies that some low-income consumers rely upon to obtain devices with the current features.”

“While we understand the FCC's well-meaning intention to protect consumer rights and competition," warned the Conference of National Black Churches, "the proposed unlocking rule, if adopted as written, would harm the very communities it seeks to protect, particularly those who are traditionally marginalized, underserved, and economically sensitive.” The mandate would likely discourage carriers “from offering free or subsidized smartphones, particularly through installment payment plans.”

The Hispanic Leadership Fund (HLF) supported a “single, reasonable standard” for all providers. But it also warned against potential “unintended consequences,” noting that low-income consumers rely on their smartphones and carrier subsidies to pay for them. “Moving to a uniform unlocking policy requires a thorough and thoughtful understanding of all the issues at play and how the trade-offs for consumers would ultimately affect their access and pocketbooks,” HLF said.

The Latino Coalition said about a quarter of Hispanics rely on smartphones for internet access, according to a recent Pew study. That is twice the percentage of non-Hispanic whites. Many in the Latino community rely on subsidies and payment plans to purchase phones, the coalition said. The rules could also hinder the ability of small businesses to negotiate with providers and obtain “access to the latest handsets and technology that helps them compete.”

Other groups supported rules.

An unlocking mandate would serve the public interest “by increasing competition, giving consumers the freedom to choose or switch carriers, and increasing overall transparency,” said Public Knowledge, the Open Technology Institute at New America and Consumer Reports. The groups stressed the importance of unlinking unlocking to device payment status. Carriers could offer a handset “discount,” which “is really just an installment contract with a monthly payment described as a ‘discount,’” to “prevent consumers -- who often don't recognize the difference between service contracts and device contracts -- from being able to switch devices,” the groups said.