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U.S. carriers agree to new cellphone 'unlocking' policy

A man checks his phone before the spring collection Argentina show at Fashion Week in New York, September 6, 2013. REUTERS/Carlo Allegri
A man checks his phone before the spring collection Argentina show at Fashion Week in New York, September 6, 2013. REUTERS/Carlo Allegri

By Alina Selyukh

WASHINGTON (Reuters) - Major U.S. wireless carriers on Thursday pledged to make it easier for consumers to "unlock" their mobile phones for use on competitors' networks, responding to pressure from consumer groups and the top U.S. communications regulator.

Verizon Wireless, AT&T Inc, Sprint Corp, T-Mobile US and U.S. Cellular agreed to "clearly notify" customers when their devices are eligible for unlocking and to process unlocking requests within two business days, said wireless industry group CTIA.

U.S. wireless carriers often "lock" smartphones to their networks as a way to encourage consumers to renew their mobile contracts. Consumers often get new devices at a heavily subsidized price in return for committing to longer contracts.

The top carriers have long allowed consumers to unlock devices and take them to another network at the end of a contract term - commonly, two years - though the process varies by company and can be quite painstaking.

Then in late 2012, the Library of Congress, the minder of U.S. copyright law, completed a new triannual review of exemptions to the law that effectively made phone unlocking illegal, even after the consumer completed the contract.

The ruling surprised many telecom observers, outraged phone users, and finally landed on the White House's agenda thanks to an online citizen petition that gathered 114,322 signatures, more than the 100,000 needed to spur a response. The White House sided with the petitioners.

Unlocking then became a top 2013 policy matter for new FCC Chairman Tom Wheeler, a former CTIA chief for whom it presented an opportunity to distance himself from his former industry.

In November, he sent a letter to the CTIA demanding the carriers voluntarily agree to unlock phones for customers in good standing to ensure phone users still have that option.

On Thursday, the agreement was announced and the five carriers pledged to unlock devices after the customer's contract is fulfilled, including pre-paid ones within a year of purchase. (To read the agreement, see: bit.ly/1h3XS1G)

"Today was an important day for consumer choice," Wheeler said on Thursday. "Today's commitment by wireless providers will provide consumers with more information about when and how to move their devices from one compatible network to another, should they decide to do so."

The agreement was welcomed by Sina Khanifar, one of the organizers of the White House petition, although he and public interest groups would still like a permanent change to the copyright law and more flexibility for consumers to unlock their phones before their contracts end - possibly without having to ask the carriers' permission first.

"I really wish I could hang my hat on this and say that the issue had been resolved. But unfortunately it's only a start," said Khanifar.

The changes are expected to be rolled out over a year.

BUSINESS REALITIES

Unlike cell phone operators in other countries, U.S. wireless carriers often lock smartphones to make it harder for customers to leave their network. It helps sustain the subsidy business model of the industry, in which consumers get steep discounts to buy pricey devices like Apple Inc's iPhone in exchange for higher monthly fees.

Technically, too, devices sold to U.S. consumers are not compatible across all networks. AT&T and T-Mobile use similar technology standards, while another type is used by Sprint and Verizon. Some services may not work as well on phones from another operator.

Verizon is the only carrier whose phones generally come unlocked at the beginning of a contract. The company is bound to do so through an earlier deal it had struck with the FCC.

SELF-INFLICTED WOUND

While Wall Street has paid little attention, the unlocking saga was a black eye for the wireless industry which was perceived to be on the wrong side of consumers' rights.

Inside the carriers, executives grumble that the ordeal was largely self-inflicted as lawyers from the CTIA were the ones to stir up the issue at the Library of Congress.

U.S. copyright law had an exemption allowing unlocking of devices since 2006, but in the new review in 2012, the CTIA lawyers successfully challenged it.

Despite opposition from the Commerce Department, the CTIA convinced the Library of Congress that the exemption was no longer warranted. They argued that new, unlocked phones were widely available and that the carriers' unlocking policies were already flexible.

CTIA has pushed back on the notion that it acted without direction from its members, but Jot Carpenter, vice president for federal affairs, acknowledged that the legal battle spun into a major policy debacle unexpectedly.

"The industry won a legal argument but failed to anticipate it morphing into a policy argument," he said in an interview. "I think there are a lot of lessons to be learned from that."

(Reporting by Alina Selyukh,; Additional reporting by Sinead Carew; Editing by Bernard Orr, Kenneth Barry and Tim Dobbyn)

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