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Tech Sunday, January 27th 2013 at 2:12 pm

It’s Now Illegal to Unlock Your Subsidized Phone, But Does it Matter?

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As of yesterday, it is now illegal to unlock a carrier-subsidized phone for use on another network. Doing so before your contract expires now puts you in violation of the Digital Millennium Copyright Act. The move is meant to protect carriers from losing the money they spend to subsidize phones before they have a chance to earn it back through their service plans. There’s already a We The People petition to reverse the decision, but is it worth trying to overturn this law?

The reason that cell phones are cheaper when you buy them under contract is that the carrier is paying the difference in the price of the phone, expecting that they’ll earn that money back over the course of the contract. The list price for my phone was $699.99, but with a carrier subsidy, I only paid $50. AT&T paid $650 to Samsung so that I would use their service for two years, and over that time they can reasonably expect to make much more than that from me.

Carriers do stand to lose money if people take advantage of a subsidy and then drop them for another service. Even with the incredibly high early termination fee, customers could still stick carriers with bills for a few hundred dollars if they buy a subsidized phone and then drop the carrier. If I paid $50 for my $699.99 phone, and then immediately canceled my account and paid the $299 termination fee to go with another carrier, AT&T is still out $350. (This is assuming AT&T pays the retail price. They probably don’t, but I was unable to find the actual price they do pay.)

Phones that are already unlocked are not in violation of the law, and neither are older “legacy” phones. You can still buy unlocked phones, and with carriers like T-Mobile getting rid of subsidies altogether, this might not even be an issue for much longer.

The penalties attached to violating the law can range from $200 to $2,500 “per individual act.” That’s if you unlock your phone for your own use. The penalties for anyone doing it for “commercial advantage or private financial gain” can face jail time and be fined up to $500,000 for the first offense. That doubles for second, and any further offenses.

That seems pretty severe. The petition to have the White House reverse the decision needs 78,561 more signatures for an official response. Maybe signing it isn’t a terrible idea.

(via TechCrunch, image via somesortoferror)

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  • http://twitter.com/JBod Justin

    So… If I bring a phone into a new contract, or use my phone after the 2 year period, I should instantly get a discount on my already outrageously priced cell service, right?

    ..no? Ok.

  • Deezeggs

    you do at T-Mobile. The plans are $20/month cheaper.

  • Jack Bond

    Sounds reasonable to me. We can still get factory unlocked models. It’s not really fair to anyone to get a subsidized device and then just run off with the company’s subsidy money.

  • sanduu

    the cell companies do not pay retail for the phones they acquire. A $700 phone probably cost them $150

  • Broman

    It’s not fair for them to charge me prices 3 times as high (compared to Europe) for the same service. Can’t believe how dumb some of you are.

  • http://www.facebook.com/nelsonvargas Nelson Amaury Vargas Meyreles

    If you run off with the phone, you get a early termination fee. which is usually like 250-300 bucks. so 300 + 250 = 550. which is about the regular no price. so wtf are they talking about?

  • E Cruz

    I hope you guys know that there is a petition open that you can digitally sign to stop this non sense law
    We need 100k signatures for them to stop here is the white house link
    https://petitions.whitehouse.g…
    please help stop this thank you.

  • fail

    I’m sorry he likes to jump on every misguided bandwagon he see’s

  • Marco Mendoza

    (This is assuming AT&T pays the retail price. They probably don’t, but I was unable to find the actual price they do pay.) Exactly Carriers don’t pay full retail so they don’t lose much. Its Consumers who pay full rerail

  • Jack Bond

    Sounds like you prefer to accept whatever your peers think. Who’s misguided again?

  • Jack Bond

    At least I’ve heard of a phrase called “civil discourse”.

    Now, even if cell companies are gouging us, that doesn’t legitimize basically stealing from them in favor of another company who will also gouge you. There is and has always been a perfectly valid solution. Save your money and live without the service you don’t want to pay for. You’re not entitled to cell service, so if you don’t want to/can’t pay for it, then DON’T. That’s the best way to get cell companies to drop their prices for you.

    If Anonymous can be coherent enough to get something done, surely savvy consumers can work together too.

  • Jack Bond

    Source?

  • Anonymous

    What a crock. ATT does not pay $650 to Samsung. Get the facts.

  • Jack the MORON

    ” that doesn’t legitimize basically stealing from them”

    Stealing what exactly? If I quit them they charge me an early termination fee but the phone is still MINE. They could ask for it back or charge a higher termination fee if they wanted to but the current terms state the phone belongs to the user. They are making it illegal to switch (which one might want to do if the provider is terrible) after making the contract null and void. This goes against the spirit of consumer protection laws. I love how hung up you are on protecting corporations to just label something this grey and complicated as “stealing” and put all the responsibility on the end user. What a damn moron.

  • Dickens

    Source: You are a twit.

  • sanduu

    I gave an estimate as I don’t have the exact figures. I’m referring to bulk discounts.

  • Steve

    In the UK, the cost of the phone is subsidised over the course of a contract, thats why 1 year contracts are much more expensive than 2 year contracts.

    Much as Walmart receives massive discounts for buying food in bulk, so do the companies providing the contracts.

    Basically by the time the contract has ended, the price of the handset, has been paid for, this does not include the extra profit companies make from contracts.

    So, once the contract has been fulfilled the phone is yours, you keep it, you have 100% ownership of it. Think of it as getting a sofa or a car on finance.

    Now personally, I’d be REALLY pissed off if someone tried to tell me what I can and cannot do with the product that I own.

    If you are an American: Sign the petition, don’t let the bastards win.

  • John Coryat

    They would have nailed OJ with something like this if he wasn’t in jail for being a complete dumb arse already.

  • salalaw

    stefn, or you could learn to read. The article says that the phone costs $700 retail and ATT subsidizes (and then goes on to even say likely they don’t even pay retail) the difference between the retail value and what you pay for your phone. Hence when I buy a phone with a 2 year contract instead of paying the $700 retail value for the phone I get it for $50 and ATT is allegedly subsidizing the rest. It did not say they pay $650 for a $50 phone.

  • Anonymous

    Sorry about your comprehension problem. Let me spell it out, slowly: A $50 phone is a bottom of the barrel phone; no carrier would pay a $650 subsidy on it.

  • Tony R.

    Except for some satellite phones, there’s probably not a single wireless phone in the world that costs $650 to produce. Bill of materials cost is under $20, and with labor content, $35 tops, even for your fanciest Apple iPhone.

  • Tony R.

    Online petitions are worthless, as the signatures aren’t traceable. Don’t waste your time. Lawmakers ignore them anyway.

  • Tony R.

    Try more like $50, including a comfortable profit margin for the producer.

  • Yancy Butler

    I betting the miguided one is the jerk who makes pompous and condescending remarks and then leaves without addressing a single counterpoint to his idiotic posts… That would be YOU, Jack (thought I’d make it clear since you don’t seem very bright).

  • sanduu

    I was being generous wan’t I?

  • sanduu

    The point is, even if you are in complete compliance with their contract you no longer have the freedom to alter the property you legally acquired.

    Imagine if it was illegal to remove an Old Navy logo from a tshirt you purchased with a coupon and being charged $2500 by the law man. If you sell that shirt to a thrift shop you could be nailed for $500 grand.

  • Jack Bond

    I like how butthurt you are over my opinion.

    I’m not concerned about early termination. I’m talking about accepting a good deal from a company and then not making good on your end of the deal. If companies start losing too much money on that deal, they might as well opt to make you pay full price for your phone. Then where will you be?

  • Jack Bond

    Lol. I respond to like every attack people throw at me. Stop making shit up and get a life.

  • Jack Bond

    Thank you for your fair and mature explanation. You make a convincing point. Once the first contract is paid off, I agree, one should be allowed to unlock his phone. In fact, that should be a service provided by the carrier who gave you your phone.

  • Jack Bond

    And you are a fanny!

  • Jack Bond

    In that case, tell me how cell phone manufacturers make a profit. They can’t just give their phones away without getting something in return.

  • sanduu

    They sell in millions of quantities. Charging double the cost of materials will still turn a profit because they can divvy their labor and energy costs by millions as well. The micron manufacturers down the street have one guy there. Their. facility is huge. The guy working ther makes $10 an hour.

    Also consider that some companies are misconstrued as manufacturers when they simply put their label on goods. Apple, MSFT, Firestone etc.. Money isn’t hard to make, all you need is to have money before someone else.

  • sanduu

    Millions of phones are sold by them worldwide through private labeling or other means. Even if they sold for just double their bill of materials divide the labor and energy costs by millions and it’s profitable.

  • LuisB

    Firts ATT Wirless will never pay that amount of money for a phone, and they never loose at the end that its way they are so big, when you get their service they charge you a full month in advance, activation fee, and many other fees, the goverment only support this companys because they now at the end they receive their cut from them, who can you go GREEN if a phone that can be used in another carrier when you are not happy any more with your previus service privider cant be used any more because its locked to another company and if you decide to unlocked, them you can go to jail and also pay a penalti, so to make this nice on each side, way the law dont make them to pay you back for the phone after you dont need it any more and returned to them if this phone have that much value to them MMmmmmm….

  • LuisB

    lol lets see if ATT or T-mobile giv you a discount on monthly service if you bring your own phone lol lol lol

  • Steve

    For those debating the cost of the handsets over the course of the contract. I’ve done a little research on my own contract, although probably not 100% accurate it gives a good idea of how things work.

    I have a Galaxy S3.

    My contract is £31pm including the phone which I had to pay an extra £29 up front. Contract length is 2 years. Total cost £773

    The simcard only version (no mobile included) of my contract is £12pm totaling £288 over 24 months.

    So you can deduce that the cost I paid for the handset over 2 years is £485.

    To buy an unlocked Galaxy S3 I would have to pay around £400-ish.

    So it would be fair to assume that my service provider is able to purchase the handset for significantly less than £400. Meaning that over the course of 2 years, I am infact being overcharged for the Galaxy S3.

    Sucks… but what do you do when you can’t afford £400 upfront.

  • http://www.facebook.com/profile.php?id=1220888942 Michael Banks

    Yeah, I get the idea regarding subsidies, but do you really believe that the company is paying the full $600+ for the devices? You can get a pretty decent laptop for half that much and the cost of production is undoubtedly far less for a phone than a laptop. There has to be more to it. I haven’t seen any recent news about major phone companies struggling to keep the lights on. What’s next, a law that makes it illegal to run laptops on Linux for some reason or other? My contract has a clause saying that if I break the contract, I have to pay full price for the phone anyway. …They’re just trying to widen that profit margin. That’s all it is.

  • Anonymous

    T-Mobile does. It’s called a value plan. Or you can do prepaid Monthly 4G. It’s $20/month cheaper to bring your own phone. I guess you can consider yourself educated now. Don’t answer any questions or make comments when you dont know the answer.

  • Mcof

    Another shout out for T-Mobile. You have to do some digging, but they are the only US carrier that offers a variety of cheap, contract-free plans for your existing hardware.

  • j-black

    the phone i use was sent to me from uk,it is a blackberry bold 2 which uses vodafone when it was brought to ghana, it does not allow any other network sims if any in ghana is put in it, it says the sim is invalid plaese wat should i do
    amoahjudah@yahoo.com