New "unlocked" mobile phones may make it easier to switch carriers, shaking up the $100 billion U.S. wireless industry
by Olga Kharif
Customers—some from as far away as Canada—camped through the night outside the store on Michigan Avenue in Chicago. No, it wasn't the first shipment of Sony's PlayStation 3 or Nintendo's Wii gaming console they awaited—but cell phones. And not just any cell phones. These ones, unveiled at the summer opening of the flagship store owned by mobile-phone giant Nokia, boasted features such as multimegapixel cameras and the ability to surf the Internet over wireless fidelity, or Wi-Fi, connections. Best of all: They were among the first in the U.S. that could be used on any one of several wireless networks.
That's a radical idea in a country where switching among cell-phone providers invariably means changing phones. Say you want to move from Cingular, owned by AT&T (T) and BellSouth (BLS), to Deutsche Telekom's (DT) T-Mobile, your Cingular device won't work on T-Mobile's network. Not so with one of these "unlocked" phones from Nokia. And as the phones gain in popularity, switching may increase, benefiting handset makers and forcing providers to cut prices to foster loyalty.
Unlocked devices have long been a hit in Europe and Asia, where people often switch carriers when traveling from country to country. In fact, most cell phones sold in those regions are unlocked, says Albert Lin, an analyst with American Technology Research. But until Nokia's move, few major cell-phone makers had dared peddle their entire line of unlocked phones in North America, where carriers hold tight reins on subscribers and their phones.
Dawning of the Unlocked Age
That's come about through an arrangement whereby wireless carriers subsidize the price of a new phone in exchange for agreement by the manufacturer to sell only locked versions of phones. A customer who can't use a beloved, feature-packed mobile phone on a competing network is less likely to switch providers.
Not so in the mobile phone's Unlocked Age. Motorola (MOT), the biggest U.S. cell-phone maker, earlier this year quietly began selling unlocked phones through retailer CompUSA, which has also started carrying some unlocked Nokia (NOK) and Sony Ericsson models (see BusinessWeek.com, 7/26/06, "Motorola Shows Its Mojo"). "Never in the history of mobile-phone sales in the USA has such a brash circumvention of the carriers been attempted," says Lin.
Manufacturers and customers may get brasher still. On Nov. 22, the U.S. Copyright Office ruled that consumers can use special software and services to unlock their handsets without infringing on carriers' or handset makers' copyrights. And for subscribers eager to reset phones, dozens of Web sites, including TheTravelInsider.info, are all too happy to guide users through the process for a modest fee.
Market Bombshell
If you use a phone based on the global system for mobile communications (GSM)—think Cingular and T-Mobile—you can unlock your phone by entering a special code that lets you switch networks by replacing your phone's subscriber identification module, or SIM, card, used to authenticate users. In the case of wireless networks based on code-division multiple-access, or CDMA, technology used by Verizon Wireless and much of Sprint Nextel (S), unlocking is more complicated, but doable. A phone designed only for a CDMA network cannot be reused on a GSM network.
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