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

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 and T-Mobile USA, and the CDMA standard at Verizon and Sprint Nextel .

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 , 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.

The article The Wireless Giants May Have More Than Unlocked Phones to Worry About originally appeared on Fool.com.

Fool contributor Dan Radovsky owns shares of AT&T. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

Goal Setting

Want to succeed? Then you need goals!

View Course »

What Is Your Risk Tolerance?

Answer the question "What type of investor am I?".

View Course »

Add a Comment

*0 / 3000 Character Maximum