The CTIA, whom we’ve mostly considered a trade organization, has once again reminded us why they exist. They, today, released a blog supporting the decision that the Librarian of Congress made, which outlawed the unlocking of smartphones starting today, January 26th. This decision was to provide copyright protection to the software that locks smartphones on carriers’ networks. By doing this, they are using section 1201 of the DMCA (Digital Millennium Copyright Act) which was passed in 1998 by Congress. Section 1201 states that it is illegal to bypass a devices’ DRM stating, “No person shall circumvent a technological measure that effectively controls access to a work protected under this title.”
The Librarian of Congress, however, has the power to grant certain exemptions from this law. By getting rid of the exemption, the Librarian of Congress essentially puts all smartphones or DRM-locked devices under a protected status under the law.
In the blog post, Michael Altschul, the CTIA’s SVP and General Counsel, used an anecdotal example where he compared the locking of a phone to the purchase of a vehicle. Because, you know, getting a loan on a car is the exact same thing as buying a carrier subsidized phone. The problem with such an analogy is that at when you buy a car, you are not agreeing to any commitments other than the vehicle itself and you don’t find yourself paying for the car 2-3x over. And you aren't actually taking out any sort of a loan when you sign a 2 year contract with the carriers, so the analogy is a clearly flawed one.
The carriers are overcharging us for our plans and devices. A good example, and probably the most common one would be the iPhone. An iPhone 5 costs $649 from Apple, unlocked, for a 16GB. Now, if you go to the carrier, like AT&T, you find yourself paying a MINIMUM of $85 a month for unlimited voice and messaging an only 1GB of data. Now, let’s say you actually use your phone; you’d probably be looking more at the 4GB plan. That means you’re looking at about $110 a month. Take that, and multiply by 24, the standard length of a mobile contract. That comes out to $2,600 + $200 or $2800. Now, subtract the price of the device and you’re looking at $2150 of non-device revenue gained by AT&T per iPhone. Let’s then take that and split it across 24 months, and we’ll see that they’re taking in $89.58 a month to deliver you 4GB of data a month. Does it cost AT&T that much? Hell no. AT&T’s EBITDA service margin is 29.1%, which means they’re making 30% off of you every month because you’re locked into a contract.
The argument that carriers are ripping us off is not an old one, but the fact that they force us to get locked onto their networks is ridiculous. Why? Because they’ve also created ETFs, which are designed to help carriers fight the chance that you’ve jumped ship before the 2 year contract was over. AT&T’s current ETF is $325 minus $10 for each full month of completed service. So, if you abandon your contract 12 months into your contract, you’ve paid AT&T $1320 in service fees, $200 for the phone and $205 for your ETF ($120 removed for a full year of service). That means, you’ve paid AT&T $1725 dollars, which means they’ve taken in $1075 for 12 months with the price of the phone subtracted, or $89.58 a month. Clearly, the numbers indicate that someone terminating their contract early does not actually make AT&T lose money at all, but in fact reduces their profitability over a longer period, which they obviously want to fight.
So, what are we trying to get at with this entire math? AT&T and the carriers in general are not getting hurt by people leaving their networks early before the contracts are up. The entire argument that they are trying to make is that locked phones (locked to a single carrier) protect the carriers financially since a contract has been made between the consumer and the carrier. The truth is that the ETF that companies like AT&T and Verizon have essentially makes them profit from the contract as if it were a 24 month contract. They are completely protected by these 2 year contracts and they do not stand to lose a penny in most of these scenarios. What they also miss is the fact that carriers do not make it ‘easy’ to unlock your phone. I’ve actually done it multiple times while traveling internationally and it usually takes weeks for them to send you the unlock code, and even then you can only swap SIMs and doesn’t actually give you full access to your device, even after the contract is up.
If you read the CTIA’s blog post, you can clearly see that they are not fans of jailbreaking phones either as they claim it makes devices vulnerable. Granted, having a jailbroken device does not make it any less secure than what the carriers are currently running for the most part. Apparently, somehow, they also state that unlocked phones also fuel crime and device theft… Except for the fact that if these people are criminals and are willing to steal phones, they’ll still break these unlocking laws to sell unlocked phones. Whoever thought that locking phones would actually be a deterrent to criminals is a complete idiot, sorry.
Expensive smartphones increase the stakes of the mobile game
The CTIA states that the Librarian of Congress agreed to not exempt the locking of smart phones because the largest nationwide carriers have liberal, publicly available unlocking policies and because unlocked phones are freely available from third party providers.
The entire blog post reads like the carriers are trying to protect the consumers from vultures or from external threats, but the truth is that the worst threat to the entire mobile industry are the carriers themselves. The large carriers have essentially driven the direction of the mobile industry in the US and slowed the progress that we’ve been making. Their new pricing structures in conjunction with this new rule going into effect make the US significantly more expensive and restrictive than their counterparts in almost every other country in the world. And it’s sickening. Aren’t we supposed to be the land of the free and home of the brave?
If anything, right now, most consumers are anything but free when it comes to buying a phone on a network. I personally advocate the stance of buying unlocked phones and not being a slave to carriers, but that’s an expensive proposition for most. In addition to that, the carriers currently treat unlocked customers the same as they do contracted customers, actually making more money off of unlocked customers than they do ones that have an ETF and need to pay off the cost of the phones monthly. Let’s not forget, the whole point of preventing unlocking is to keep the majority of consumers from being able to use their devices on other networks once their contracts are over. They want to reduce churn.
We’re glad the CTIA put out their statement, because now we remember where they stand, and it’s directly behind the carriers and above the rights of consumers.