T-Mobile and AT&T Are Fighting Requirement to Unlock Smartphones

It feels like the issue should have been resolved by now, but alas, seventeen years after the launch of the original iPhone and we’re still arguing about carrier device locking. 

T-Mobile and AT&T this week responded to the FCC’s proposed rule requiring providers unlock phones within 60 days of activation—even if they’re under contract and not paid off yet.

In their responses, the carriers argue unlocking phones quickly would be harmful for consumers because locking a phone to a specific carrier is what makes it possible to provide cheaper handsets to consumers. Advocacy groups say the new policy would give users more choice and lower their costs. 

The FCC has specifically called out T-Mobile for locking prepaid devices sold under its Metro brand to its network for a year after purchase.

The carriers argue it’s a good thing. “T-Mobile estimates that its prepaid customers, for example, would see subsidies reduced by 40 percent to 70 percent for both its lower and higher-end devices,” the carrier said in response to the FCC’s public request for comments on its Notice of Proposed Rulemaking. “A handset unlocking mandate would also leave providers little choice but to limit their handset offers to lower cost and offer lesser performing handsets.” 

The FCC considered how the proposed rule might impact subsidies, but still believes, especially for prepaid customers, that device locking is harmful. From Ars Technica:

The FCC acknowledged Verizon’s argument “that providers may rely on handset locking to sustain their ability to offer handset subsidies and that such subsidies may be particularly important in prepaid environments.” But the FCC noted that public interest groups “argue that locked handsets tied to prepaid plans can disadvantage low-income customers most of all since they may not have the resources to switch service providers or purchase new handsets.”

Verizon, interestingly, is not as strongly opposed to this new rule because it already unlocks devices 60 days after purchase due to requirements imposed on it after it purchased new spectrum. It would probably benefit Verizon in a certain way as customers of other networks would have an easier time switching to its network. Even when a phone was financed and has been completely paid off, the carriers often still impose a waiting period before the device can be unlocked.

“You bought your phone, you should be able to take it to any provider you want,” FCC Chairwoman Jessica Rosenworcel said when the FCC proposed the rule. “Some providers already operate this way. Others do not. In fact, some have recently increased the time their customers must wait until they can unlock their device by as much as 100 percent.”

If you’ll remember, people were aghast when the original iPhone was released back in 2007 at a starting price of $499. In order to induce sales, the major carriers like Verizon and AT&T began subsidizing the cost of the phone, allowing customers to pay a low upfront price and finance the rest, typically in monthly installments over a 2-year period. 

Simple enough to understand, but over the years the business model has caused a lot of confusion and consternation among customers who feel invariably trapped or deceived by the deals they agreed to. I know—my own parents still don’t understand that the iPhones they bought a year ago aren’t actually “free,” and that switching to another carrier for cheaper service would require a costly buy-out of their phones. 

What’s more, carriers like Verizon often require customers taking them up on one of these “free” device offers subscribe to a high-end monthly service plan. Looking at Verizon’s website right now, the carrier proclaims you can “get iPhone 15 Pro Max on us,” but in fine print notes that you must choose an Unlimited Ultimate plan to get the deal. It’s a similar situation at AT&T. The device is financed over 36 months at 0 percent interest, which seems great, but you have to choose a pricer service plan, and again, the carriers like to keep the devices locked even after they’re paid off. The FCC is instead proposing a hard requirement on unlocking to eliminate some of this friction. 

Locking a financed device to a network until its paid off perhaps makes sense in the way that it doesn’t allow a customer to take the phone elsewhere and skip out on payments. Maybe a corollary would be car dealerships that put GPS trackers in devices purchased on a loan. You can still drive the car to Mexico and stop making payments, but it’s not a good idea for your credit or ability to get another car loan in the future. The same thing applies to phones—if you burn AT&T or T-Mobile you will run out of other options. It doesn’t seem like device locking is there to prevent loan write-offs. 

Perhaps device financing should be decoupled from service costs, so consumers better understand the actual price they’re paying and aren’t forced into a premium plan to get financing. There has to be a better solution than the current system that leaves many consumers not understanding how much they’re actually paying and that the phone is far from “free.” Device locking just adds friction and keeps consumers paying for higher-cost service than they might actually need, but makes sense from the carrier side of keeping customers from going elsewhere.