Locked cellphones hurt consumers: critics

Competition in the wireless industry is heating up with the recent launch of several new carriers, but critics say Canadians are still facing at least one big barrier to choice — locked phones — and a new copyright bill expected to be introduced this week could make matters worse.

Mobile phones are typically sold by wireless providers in Canada with a digital lock programmed into them that prevents the owner from using the device on a different carrier's network. This hasn't been much of an issue for years since the networks of Canada's big three cellphone companies — Bell, Rogers and Telus — were generally incompatible anyway.

But in November, Bell and Telus jointly launched a new 3G High-Speed Packet Access network that is compatible with the one Rogers runs, while a pair of new carriers that have started up since December — Wind Mobile and Mobilicity — use the same technology as the other.

Coupled with the ability to take a phone number along when changing providers, which Canadians have been able to do since 2007, consumers now have more ability to switch for a better deal than ever before. 

However, Canadian carriers are still ordering their suppliers to lock phones.

"It's a standard industry practice and when we bought the handset, the manufacturer asked if we wanted it, and we said, 'Sure,'" said Mobilicity president Dave Dobbin at the carrier's launch earlier this month.

Canadians can still unlock their phone through several methods, such as independent phone dealers found in many malls, but it often incurs an additional charge and voids the warranty on the device. Doing so is currently legal under Canadian law and most carriers will happily provide service to customers who bring in their own unlocked devices.

Locking protects subsidies

Marc Choma, spokesman for the Canadian Wireless Telecommunications Association, says locking is done to protect the carrier's investment in the devices. Carriers typically give customers a hefty discount on their handset in exchange for a contractual commitment of one, two or three years.

"If you're getting a phone for zero dollars but the phone is actually $700, that's exactly why the locking is there," he said.

Rogers spokeswoman Odette Coleman said there are also non-financial reasons for the locks.

"We don't unlock them for customers or provide tech support for them because we did not certify those devices on our network and cannot guarantee how they will perform," she said. "The devices … go through the rigorous process of certifying so we can provide technical support and guarantee that they will perform."

Wind Mobile at first sold unlocked phones but began locking once it was discovered that people were buying devices at cost and reselling them on eBay for a profit, a source in the company says. According to Wind's website, phones are being locked "for now."

However, consumer advocates say all carriers are inserting locks for no other reason than to keep customers from switching.

The locks are a form of double dipping, according to the Public Interest Advocacy Centre (PIAC) consumer watchdog group, because carriers already charge steep early cancellation charges on contracts, which are designed to cover outstanding phone subsidies.

Most carriers charge $20 for each month remaining on a contract, and more if the customer has a data plan, so a subscriber who cancels a two-year plan after only one year would be on the hook for at least $240.

Locked phones also force consumers to pay their carrier's often-hefty roaming fees when travelling internationally. With an unlocked phone, the owner can buy a Subscriber Identity Module (SIM) card from a local carrier for a small fee and make much cheaper calls wherever they may be.

Copyright law will test government

The situation may soon put the federal government into a bind. The government has introduced new rules and, as some critics have said, bent others to spur new competition in Canada's moribund wireless market.

In 2007, over the fierce protests of Bell, Rogers and Telus, the government set rules on an auction of public airwaves that reserved a portion of licences for new companies. The ensuing auction in 2008 netted a number of new players, including Wind and Mobilicity.

And late last year the government overruled the Canadian Radio-television and Telecommunications Commission, which had decided to block Wind's launch on the grounds the company's ownership and control structure wasn't Canadian enough. Industry Minister Tony Clement said Wind had indeed satisfied Canadian ownership rules and gave the company the green light to start up.

Now, the government's new copyright legislation — expected to be introduced on Thursday — could come into conflict with its pro-consumer stance on wireless. Several leaked reports have said a key provision of the new bill will make it illegal for consumers to break digital locks placed on devices and content, which would effectively enshrine carriers' locking of phones in law.

It is possible that some types of locks, such as those put on cellphones, will get exemptions from the anti-circumvention clause, but Clement was non-committal. "We definitely can talk once the bill is introduced," he said.

The Canadian bill has drawn comparisons with the U.S. Digital Millennium Copyright Act, which criminalizes the breaking of digital locks. Unlocking cellphones has been given an exemption under the DMCA, a clause that has been reviewed and extended periodically.

Michael Geist, a copyright expert and law professor at the University of Ottawa, says the locking issue in Canada goes beyond the upcoming bill. Getting the copyright correct on unlocked phones is only the first step — further pro-consumer laws are necessary.

"There needs to be a positive obligation on carriers to unlock in certain circumstances," Geist said. "The carrier should be legally obligated to unlock the phone upon request."

Legal obligations

In Europe, a number of countries have instituted such legal obligations, ranging from requiring the carrier to unlock phones immediately when asked by a customer to doing so at the conclusion of term contracts. Some countries, such as Singapore, outlaw locking phones entirely.

PIAC had been hoping Canada's new carriers — and the competition they're injecting into the market — would sort out the issue of locked phones but that hasn't happened yet.

"We were sort of hoping it would organically happen, that one of these carriers would be brave and let people put their own SIM card in it," said John Lawford, a lawyer with PIAC. "It's better than it was but nobody's been really, really aggressive. These little guys are going to need more time."

Internet search giant Google tried that "organic" approach earlier this year when it began selling its Nexus One phone directly to U.S. customers over the internet. The unlocked phone was made available to Canadians in March and came in two different versions — one that would run on Bell, Rogers and Telus networks, and another that was compatible with Wind and Mobilicity.

Google announced in May that it will soon give up on selling the Nexus One, which is currently still available for $529 US, directly via the internet, citing poor sales.

"It’s clear that many customers like a hands-on experience before buying a phone, and they also want a wide range of service plans to choose from," the company said, adding that it would sell the Nexus One through carriers as other manufacturers do.

Some industry analysts said Google's move was proof that North American consumers don't want to pay the full price of their phone up front. But that doesn't mean they're not in favour of having proper ownership over their device, Geist says.

"Once the contract expires and the subsidy has been paid for, it's the consumer's device, not the carrier's."