The only way legalizing cellphone unlocking will make a real difference

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As President Obama prepares to sign a bill to once again legalize unlocking cellphones, there’s only one way it will make any real difference.

Last last week, President Obama said he would sign a new bill (s.517) that would once again make it legal to unlock mobile phones, ending a year and half of uncertainty following a Library of Congress ruling in January 2013 that removed cellphone unlocking’s exemption from the Digital Millenium Copyright Act (DMCA).

See also House passes cellphone unlocking bill that now only needs Obama’s signature

Unlocking is the process that allows a mobile device owner to use their device on any compatible carrier, not just the carrier that provided the phone. In theory, unlocking is clearly a “good thing,” as it makes it easier for owners to use their devices on the network they choose (as long as they have no ongoing business service agreement or other deal with the original carrier).

Theory vs. the real world

The question, though, is whether this decision will make a big difference in the real world. Removing restrictions on unlocking should save a few dollars for the relatively few individuals who want to reuse an existing phone or buy a cheap device to use on a more expensive carrier. And because the bill that passed Congress allows “bulk unlocking,” it will likely revitalize the cottage industry in unlocking phones. But it’s unlikely to have a big, immediate effect on corporate phone buyers.

Sure, there are a couple of scenarios where unlocked phones might save some businesses some money. When organizations switch carriers, they wouldn’t have to buy all new phones, for example. And when workers travel or move to areas best served by carriers different than the company’s prime carrier, unlocking the phones would make it easier for them to keep their existing devices. 

But those situations don’t seem very common. For one thing, high switching costs (and hassles) make changing carriers a big deal for most organizations, whether unlocking is legal or not.

And there’s no reason to think IT shops will go out and buy piles of cheap phones and then dole them out on a variety of carriers to save a few bucks. Smartphone device technology changes far too quickly for it to make much sense to stockpile phones. By the time the device finds a home, it could already be outmoded. (The uncertainty is heightened because the Library of Congress apparently still has to decide what to do about unlocking’s long-term DMCA exemption in 2016, when the next review is scheduled.)

The end of subsidies as we know them?

Most importantly, large organizations already get hefty subsidy deals on devices from carriers hoping to lock in their business for the long term. It’s hard to see how companies are going to get better overall savings buying devices from one vendor and service from another.

Going forward, however, unlocking could help encourage a sea change in the way U.S. mobile carriers do business that should make a big difference to enterprises. Currently, most mobile devices (for consumers and businesses) are subsidized by carriers, in exchange (explicitly or not) for higher monthly service fees. If phones can be legally unlocked, the incentive for that insidious practice is lessened.

I say “insidious” because while many consumers rely on those subsidies to finance their new phones every couple of years, the total cost usually ends up higher than buying the phone without a subsidy and paying only for service. Sophisticated enterprises know this and have plenty of cash flow to pay for their phones up front to reap service savings down the line.

If legalizing unlocking helps unbundle cellphones from the cell services, and puts the kibosh on the hidden costs of subsidies, then it will have had a huge -- if indirect -- effect on the smartphone marketplace.

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