The Wireless Giants May Have More Than Unlocked Phones to Worry About

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More than 114,000 people signed the We the People petition asking the White House to decriminalize the unlocking of cell phones. That cry was heard, answered, and clearly agreed with by the administration.

"Neither criminal law nor technological locks should prevent consumers from switching carriers when they are no longer bound by a service agreement or other obligation," wrote R. David Edelman, the White House senior advisor for Internet, innovation, and privacy.

But will this support from the highest levels of government finally get jailbreaking cell-phone owners out of darkened alleyways?

Not if the major wireless carriers can stop it, and they have every business reason to try to do so.

First, carriers spend billions of dollars on building their network infrastructures and keeping those networks up to date. Then they must obtain the most desirable handsets from the phone manufacturers and subsidize the high cost of those phones to attract consumers to sign long-term contracts.

CTIA-The Wireless Association, which represents the larger carriers, such as Verizon, AT&T, Sprint, and T-Mobile, in its comments to the U.S. Copyright Office of the Library of Congress last month, characterized locked cell phones as common and important to its members' business: "According to a recent survey, 36% of wireless customers received a free phone from their carrier, and many more received heavily subsidized handsets." That practice of subsidizing phones, CTIA wrote, was a "key component to keeping wireless service accessible and affordable."

That played off Librarian of Congress James Billington's notice in October that locked phones played "an essential part of the wireless industry's dominant business model."

But once a cell phone is unlocked, the carriers still have ways to make changing carriers with that phone a pain in the neck, if not just plain impossible.

In the U.S., much of that pain is produced because of two incompatible wireless protocols used that the different carriers use: the GSM standard at AT&T (NYSE: T  ) and T-Mobile USA, and the CDMA standard at Verizon (NYSE: VZ  ) and Sprint Nextel (NYSE: S  ) .

The 4G LTE technology that most carriers have been moving to was supposed to remove the protocol mismatch by allowing subscribers to take their handsets with them to different carriers just by changing their subscriber identity modules, or SIM cards. But Verizon and AT&T rutted up that road by requiring phone makers to provide handsets that work only on each of those networks' wireless frequencies.

A game-changer?
However, there are market forces coming into play that may pose an even bigger threat to the wireless status quo than just unlocked phones. With the growth of the "connected car" concept, vehicles with built-in wireless technology will need the capability of changing carriers as they are driven from one network coverage area to another. A "wirelessly locked" car is not practical, nor is having to physically change SIM cards when driving along.

That brings up the concept of the virtual SIM (also referred to as an embedded SIM, a soft SIM, or a white SIM), a non-removable unit that can be remotely and transparently reprogrammed to work with whatever network it finds itself having to operate in.

If that can be done for the automotive sector, why hasn't this been tried for the cell phone?

Actually, it has -- by Apple (NASDAQ: AAPL  ) , no less -- but the wireless carriers pushed back against the idea of a consumer's ability to easily switch carriers.

On Nov. 3, 2011, the U.S. Patent Office released a patent application from Apple that showed it was working on an iPhone that would use a virtual SIM card. In the application, Apple points out the desire among users to have the ability to buy wireless network services without having to change SIM cards.

The following week, The Sunday Telegraph reported that Apple gave up trying to bypass the mobile operators with its virtual SIM technology when carriers threatened to stop subsidizing the iPhone.

But the carriers may get run over by the auto industry, which can't resist the huge revenue potential from so-called machine-to-machine connectivity in cars. Machina Research estimates that the automotive M2M market will explode from 90 million worldwide connections in 2011 to 1.3 billion by the end of 2020. That market, the research company believes, will be generating $199 billion in revenue annually by then.

If that day ever comes when cost-conscious consumers can shop around for the best wireless communication price and can then change carriers by having a new network merely reprogram a mobile device's built-in virtual SIM remotely, that will mean the big carriers will have lost much of their subscriber retention power. And those carriers can probably thank the auto industry if it happens.

General Motors says it will begin offering its connectivity system later this year on some of its 2014 model year cars. It's one of the moves it hopes will help in its still in progress turnaround. Investors around the world are wondering if GM has what it takes to reclaim its former glory. John Rosevear has put together a brand-new premium research report telling you what you need to know about GM and its turnaround. If you own or are thinking about owning GM, then you don't want to miss this report. Click here now to get started.

Read/Post Comments (8) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 16, 2013, at 9:28 PM, ldlduvall wrote:

    IMHO - one has to be a fool of another sort to buy into the locked cell phone culture in the U.S. Once again, there are better ways to do things - outside of the U.S.

  • Report this Comment On March 16, 2013, at 10:29 PM, BrowserPlus wrote:

    Service providers for cellphone should not be allowed to sell cellphones. Cellphones should be open-market and then let the individual choose who they want as their service provider. Auto manufactures should not be allowed any type of cellphone devices and/or technologies, unless it is to restrict the use of cellphones while an individual is driving. People are becoming so addicted to cellphones, that I see individuals on their cellphones all the time while driving and it is dangerous! Manners have taken a back seat and are no longer first and foremost.

  • Report this Comment On March 16, 2013, at 11:04 PM, eidsonb wrote:

    And at the center is Blackberry with the QNX based stuff.....

  • Report this Comment On March 17, 2013, at 12:35 AM, rav55 wrote:

    Locked cell phones are strangely United States phenomena. I have been working OCONUS for sveral years and swapping SIMs is necessary as every country has several carriers. SIMs are cheap about $5 and time is cheap.

    The consumer in the US is getting ripped off. Having a CDMA and GSM format is absurd. And we are paying for that.

    The FFC decreed that HD TV become the broadcast standard. The FFC needs to make the same decree about GSM. CDMA has to go. One nationwide network needs to be built-out and the 4 carriers compete for SERVICE on one standard.

  • Report this Comment On March 17, 2013, at 1:35 AM, MGKII wrote:

    The notion that the wireless companies subsidize and or give away phones is baloney. No business model would survive under those circumstances. Unless they could get get away with charging almost confiscatory rates. The reason why rates are so high is because the subscriber is paying over time for that phone.

  • Report this Comment On March 17, 2013, at 9:49 AM, nebarsh wrote:

    Do our politicians and policy makers not realize that they are being bamboozled by the phone companies?

    You do pay for that phone over time. It is built in to the monthly bill, and if you choose not to upgrade and renew your contract, you still keep paying for for the phone because your bill does not go down. The phone company wins either way. Even MetroPCS has locked phones, and these are phones that you buy at the outset.

    The company I like lately is SimpleMobile. You can by a SIM (phone number) card for any unlocked phone.

    CDMA really has to go as these off-contract phones just become paperweights.

  • Report this Comment On March 17, 2013, at 11:16 AM, MMMKKK wrote:

    The cell phone companies are really a monopoly with all agreeing to keep service as expensive as possible. Once outside the US cell phones are usually all unlocked and the person can change companies as they please. Also in many countries of the world, one would not buy service from any company that had the policy that one paid for incoming as well as calls one makes. That is paying double. The most successful companies in many countries of Latin America are those that provide the latest models of phones at a fair price and the person can choose if they wish it to be a monthly contract or simply a card phone where the person buys the minutes they need and when they run out they simply buy more minutes.

  • Report this Comment On March 17, 2013, at 2:52 PM, Mike655mm wrote:

    Ok, Give us something useful for a change. How does what carriers do in the US compare to the rest of the world ? Other countries have been able to use unlocked cells for over 10 years

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