Exclusive Testimony on Unlocking: Beware Cellphone Companies' 'Red Herring'

*Editor’s note: Unlocking -- not just of cellphones but of everything we “own” (the answer is no longer obvious) -- has been a hotly discussed issue. This is an exclusive excerpt of testimony **on the latest unlocking act, just *given to the U.S. House of Representatives ***by Derek Khanna. Described as a "rising star" *in the Republican party *by David Brooks, Khanna wrote the infamous, "shockingly sensible" copyright memo for the GOP's internal think tank last year ... and then was fired for it. He is now one of the leaders of the cellphone unlocking campaign. *

Over the course of our campaign on this issue, the sheer ridiculousness of banning unlocking became more clear as we began to hear from more affected parties and gradually began to realize the real and measurable impact that this unlocking prohibition has had upon innovation and consumer choice. Most disturbing is its terrible and unforeseen impact on our nations’ service members.

Wireless companies have been required to offer wireless number portability for consumers since November 2003. If the phone unlocking legislation actually resolves this issue and restores a free market (while protecting freedom to contract), then legalizing phone portability may have a comparable impact as mandating number portability. It could be the most beneficial change in mobile policy in over nine years.

The Unlocking Consumer Choice and Wireless Competition Act (H.R. 1123) is a terrific first attempt to address a portion of the issue. However, there are some important fixes which must be made to ensure this legislation succeeds in preserving consumers' rights to property and restoring a free market. To actually fix the problem any serious legislative fix must not only legalize the personal use of unlocking technology (as H.R. 1123 does) but it must also legalize tools and services that facilitate unlocking (which H.R.1123 as currently written does not authorize). And it must legalize this permanently.

What Is 'Unlocking,' Really?

Many people are unfamiliar with unlocking primarily because it has been banned in the United States while it is legal in the rest of the world. This technology is not scary or dangerous. There is no reason why the technology itself should be contraband.

Smartphones today are essentially mini-computers in our pocket. These phones are “locked” through software to block the phone from using SIM cards from other phone carriers. Legalizing unlocking means letting users plug their phones into the computer to patch the software, and then use another carrier’s SIM card. (In contrast to unlocking, the terms “jail-breaking” and “rooting” refer to modifying the software of a portable computing device, including a smartphone, to allow the device to run software programs, or “apps,” that were not authorized by the device manufacturer.)

Tinkering Drives Technological Progress

Personal computers have always allowed users to install their own software and operating systems on computers that they own; this worked well in the PC market. Even with historic market dominance from Microsoft in the past few decades, there has been substantial and growing competition from Apple’s MacOS operating system, Google’s Chrome operating system, and open-source operating systems like Linux (Ubuntu). This competition has fostered innovation in operating systems, greatly benefiting the consumer and increasing productivity for business.

The free market approach has led generations of tinkerers to build their own computers, design their own circuit boards, and code their own software -- and these tinkerers have pushed technology forward. Apple was created by tinkerers who sold computing designs, components, and finally complete PCs to average people and businesses (Steve Wozniak and Steve Jobs sold their computers at the Homebrew Computer Club where computer builders and computer programmers would show off their latest tech). Bill Gates created -- bought, modified and improved -- the DOS operating system that would become the basis of the Windows revolution, the direct result of a free market system where Microsoft could offer operating systems for IBM-built computers and other PCs.

Today, tinkerers build their own computers, pushing the boundaries of what computers are capable of; advance the frontlines of robotics and faster computer chips through “overclocking”; devise new and more secure cybersecurity solutions; and even test the safety and integrity of our of nation’s digital voting machines.

The Internet itself has been a wonderland for tinkerers to design, build, and launch their ideas for the world -- which is how innovations like Amazon, Twitter, and Google were created. When you empower the tinkerers, economic growth follows. From Edison’s light bulb and Westinghouse’s AC power to modern 3-D printing and UAV drones, tinkerers invent the future.

Phone unlocking ought to be an important part of this innovation story.

Banning Unlocking Impacts More Than You Know

If a user has bought a phone, and owns that device, then they should be allowed to do what they want with the device -- and installing their own software is a crucial property right. Continuing to ban unlocking is to deny a fundamental tenet of property rights: the ability to modify your own property.

Restraining users’ ability to modify their property is an invasion of personal freedom and liberty. And criminalizing innocuous behavior to discourage new market participants is a form of federal intervention into the market.

When our service members are deployed abroad, whether in wars in Afghanistan and Iraq or in permanent bases in South Korea and Germany, they often have to unlock their phones to be able to continue to use them in theater and on base. I have received messages from numerous service members who were very concerned about breaking the law and committing a felony in order to be able to use their phone in Afghanistan where their local carrier had no service whatsoever. Our nation’s service members deserve better than to worry about losing their security clearances or being discharged for using a technology that should never have been banned to begin with.

American citizens should not be under threat of going to prison, being convicted as felons, and losing their freedom and right to vote over* behavior that is not a social harm*. The danger of federal overcriminalization is not just the actual threat that average Americans would be arrested for these crimes, but rather the impact upon economic opportunities for business and prosecutors’ ability to abuse the system and selectively target individuals for prosecution. When average and innocuous behavior is illegal, the threat is not just of individuals being arrested by an overzealous prosecutor, but also that the threat of criminal action can be used by businesses to attack and intimidate competition.

Consumers pay more to send a terrestrial text than NASA pays for messages from Mars.### International Travelers and Calling Rates

When you walk off the airplane at many international airports, there are numerous kiosks and companies offering SIM cards for phone use. In the current legal structure this is illegal if doing so required the consumer to patch their device (or other forms of unlocking). A small change in law would place downward pressure through competition upon international calling rates -- thus using the free market to reduce exorbitant international roaming costs. If wireless carriers have to compete for international calling rates with these SIM card providers, that means cheaper prices for everyone.

The wireless market is dominated by several major phone companies who have nearly exclusive access to the latest phones and latest technology for phone coverage. Costs for data usage, texting, and phone calls have remained high for American consumers. Abuses include carriers’ voicemail prompts being deliberately long to increase the number of calling minutes. Competition through the free market can be a critical part in reining in these exorbitant pricing models. Texting in particular is a cash cow where all texting plans are essentially 99.9% profit (texting costs the carriers next to nothing). In fact:* consumers pay more, per same data size, to send a terrestrial text than NASA pays for messages from Mars*.

The mobile market is gradually adapting to become (for some) a commodity-based market. The latest iPhone, Blackberry or Android will be functionally equivalent to a 2-year old device. Unlocking legalization would enable average Americans to trade in their old phones for newer phones, giving them more flexibility and consumer choices. Further, unlocking will ultimately reduce the number of phones that end up in landfills by finding new uses for older devices.

Many parents want their children to be able to contact them in case of an emergency, during a field trip, once they start driving, or after extra-curricular activities -- but they may not want their young children to have their own phones at such an early age. If a free market were allowed for mobile, these parents could give their old phones to their children just for these purposes, while restricting calling, texting, email, and web privileges as they see fit. The average person may not buy a whole extra phone for these purposes, but they are far more likely to buy a SIM card that is extremely cheap and use an old phone for this purpose instead.

In areas that are not subject to federal intervention through criminalization, we are seeing the market offer alternatives to drive down costs. This year for the first time, phone usage of alternative messaging services has now outpaced use of phone carrier SMS texting.

Republic Wireless offers a competitive new product for consumers, unlimited voice, text, internet and data for only $19 a month. The secret? Their service offloads calls, text, and data to wireless when the phone is in a wireless area and uses Sprint when it is not in a wireless area. This model undercuts the market by 60-80% and has the added benefit of being part of the solution to the spectrum crunch (off-loading will be critical in weathering the continuing explosion in consumers’ data usage). The problem? Republic Wireless is a newer market participant and doesn’t have the necessary relationships with the handset providers to offer the latest and greatest device technologies with its service. In an unlocking world, a consumer could bring their old iPhone, Samsung Galaxy, Blackberry Q10, Nokia 420 over to Republic Wireless and be on a $19 per month all-you-can-use plan.

The government should not be in the position of picking winners and losers. It’s impossible to predict what innovations Silicon Valley and Silicon Prairie may come up with as a result of allowing a free market.

But Beware Cellphone Companies’ Red Herring

Since the success of our White House petition, there has been an attempt by cellphone companies to claim that it is a non-issue because they already allow unlocking. This assertion is simply untrue.

First, even if phone companies routinely allowed unlocking, that is not an argument for keeping consumers’ unlocking of their own phones illegal. Second, by making this technology only available by permission, it’s effectively keeping it unknown to most consumers and denying the thriving market that would likely exist. Many users would be discouraged with a complicated process to obtain unlocking codes for their phones. The law should not require users to call their providers for permission to do something they should already be able to do with their own property.

Third, carriers claiming that they allow unlocking for all consumers upon expiration of their contract may be true in isolated circumstances, but NTIA findings demonstrate that there is a system of impediments to ensure many consumers cannot access this technology. And if a user owns his/her own phone, then they should be able to unlock that phone on day one.

If it is a violation of a contract, then consumers should be required to fulfill the contract by paying an early termination fee or other form of restitution; in other contractual relationships, we allow for violations to be dealt with between the two parties (mortgages and car leases in particular).

Some have argued in favor of maintaining the ban on unlocking because carriers subsidize the phones for consumers -- so therefore they should be able to prohibit unlocking.

Carriers do subsidize phones, but contracts allow for the seller to recoup their investment through an early termination fee. I am aware of no other situation where a seller provides a contract to a consumer and then expects the Department of Justice to arrest the consumer if they breach their side of the contract. Consumers should not be arrested for violating contracts; rather they should be liable for the damages set in the contract.

***

The last major revision to copyright law was the Digital Millennium Copyright Act (DMCA), passed in 1998. That was three years before the iPod, six years before Google Books, and nine years before the Kindle. Congress should evaluate how this legislation has now impacted modern technologies 15 years later.

Banning technologies is an extreme step by government, a truly incredible reach of Federal power, and I would petition this body to be very careful in continuing to delegate authority to a quasi-regulatory agent. As a telecommunications public policy question, unlocking should be resolved by Congress -- not punted to a pseudo Legislative/Executive regulatory agent that manages the nation’s preeminent library and also decides what technologies to ban. (In present form, H.R.1123 would require the Librarian of Congress to rule again on this issue, even though the Librarian’s statement explains that he stands by his previous ruling. Such regulatory uncertainty would inhibit innovation, consumer/business confidence, and a robust legal marketplace.)

The legislation as currently crafted does not reflect the input of the White House, former FCC Chairman, FCC Commissioner, scholars, or outside groups such as R Street and FreedomWorks. Minor changes, however, would ensure that H.R. 1123 actually solves the problem it intends to address: Permanently legalizing unlocking and allowing for businesses to sell the technology to consumers restores a free market.

*You can read the full testimony here. *

Editor: Sonal Chokshi @smc90