Saturday, October 27, 2007

A blow for cell phone freedom

A momentous story moved late yesterday afternoon on the AP wires. Sprint has agreed to allow its customers to take their phones with them if they switch to another carrier.

As part of a proposed class-action settlement [Sprint] has agreed to provide departing Sprint PCS customers with the code necessary to unlock their phones' software.

That would allow the phones to operate on any network using code division multiple access technology, or CDMA. Competitors using that technology include Verizon Wireless and Alltel Corp. ...

Sprint made the offer as part of the proposed settlement of a California class-action lawsuit, filed last year, accusing the company of anticompetitive practices. The plaintiffs claimed the software "lock" forced anyone wanting to switch carriers to buy a new phone, throwing up a barrier to competition.
The settlement covers phones purchased between August 1999 and July 2007. It is not clear whether Sprint will implement this as a policy going forward, but that would be a reasonable guess.

Similar suits are pending against T-Mobile and Cingular (over the iPhone). I'm surprised no one has sued Verizon yet.

Unless I misread the report of the ruling, the impact of this should be minimal. If you have a contract that says "pay for 2 years of service or pay a $300 early termination fee," then you wouldn't be able to unlock your phone unless you settled those terms. I would imagine all the carriers have contracts that recover the $200 handset subsidy if you leave early (and perhaps also the $50-200 cost of customer acquisition that amortizes their large ad budgets). So this would mainly cover people who were willing to pay the full price of the phone, or had a two-year-old phone they wanted to carry to another carrier.

Still, this would be a start in a shift of power between carriers and customers. It would also disproportionately hurt Apple (if they eventually lose), since -- unlike other carriers -- their business model assumes an ongoing revenue share by the carrier. I wonder if Apple can get the NPV of their revenue share built into the early termination fee.

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