Unlocked phones may be part of spectrum auction

FCC to set auction rules in coming weeks

If Americans want to buy cell phones and add mobile applications that they can use with any carrier, they need to be watching the Federal Communications Commission.

The five-member FCC is considering the question of unlocking cell phones and creating more cell phone portability as it considers a wide range of rules for an auction of the 700-MHz spectrum band likely to be held next January. With locked phones, the customer is limited to using the carrier and services where the phone is purchased. The iPhone, for example, is a locked phone, because it can only be used through AT&T Inc.'s network.

The commissioners are expected to vote on those rules in a public session in late July or August, at which time the rules will be made public, according to FCC officials and observers. So far, the FCC chairman and one commissioner have talked to a few members of the press about the draft rules, which so far are secret. The FCC has posted nothing official on them.

The spectrum auction, which could reap up to $20 billion for the U.S. Treasury, is possible because of the advent of digital TV. Congress authorized the auction in 1997, and in 2006, voted to move to digital TV broadcasts and abandon the 700-MHz band for analog channels 52 to 69 by Feb. 17, 2009. That leaves about 84 MHz of spectrum in the 700-MHz band, of which 24 MHz has been set aside for public safety, with the remaining 60 MHz for the auction.

The FCC commissioners in coming weeks will set a broad group of auction rules that will dictate what private carriers bid on and how the spectrum can be used. Public interest groups, elected officials and wireless carriers have weighed in on topics, such as Net neutrality and open access, hoping to get their issues added to what the FCC decides to include in the auction rules.

FCC Chairman Kevin Martin divulged some of his proposed rules in newspaper interviews in early July, telling USA Today that he wants the winner of the spectrum to "open the door to a lot of innovative services for consumers."

Here's his explanation for what he intends for users: "You can use any wireless device and download any mobile broadband application, with no restrictions" except for software that is illegal or could harm a network, he explained.

Martin added that current practices "hamper innovations," and that he was concerned that wireless innovations are rolled out more slowly in the U.S. than elsewhere.

In an interview with the Associated Press, Martin said the draft rules would allow consumers to have device and application portability for a portion of the auctioned spectrum.

What has generated more concern for Google Inc. and public interest groups involved in open access is how the draft does not specifically include a requirement for future licensees to offer a portion of the 700-MHz band for wholesale wireless services.

Under that concept, a wholesaler could lease spectrum to other providers, which would offer wireless broadband services. Martin told the AP that while the draft rules include no requirement for wholesale access, they also don't prevent a winning bidder from setting up a wholesale process voluntarily.

FCC Commissioner Michael Copps told the AP he might not support the draft proposal because it should include "open access ... that means wholesale as well as device and application freedom."

Analysts said that even if the FCC created rules that resulted in device freedom, it could be more than two years before its impact would be felt in the U.S. Almost 95% of the cell phones in the U.S. are sold locked, or limited to the carrier where the phone is purchased, while about half are sold locked in Europe, according to Gartner Inc.

The differences in the two geographies are many, but many Europeans have come to rely primarily on a single GSM network, while in the U.S., users are split between CDMA and GSM networks. Faster, newer networks are evolving in both locations, which could change the situation in the long term.

However, as long as the U.S. supports both CDMA and GSM networks, unlocked phones would need to support both technologies, adding to their cost, size and complexity, said Hugues De La Vergne, a Gartner analyst.

"People may well say they want unlocked phones, but there are negative consequences to it as well." Some CDMA/GSM phones are available, but are relatively expensive, he noted.

Craig Mathias, a principal of The Farpoint Group in Ashland, Mass. and a Computerworld columnist, has written to the FCC urging an open access provision that results in licensees providing a cellular standard based on the Internet Protocol. With IP, many phones and devices could interoperate, which would make at least some of the spectrum an "Internet in the air, where the Internet user is an ISP user through all IP and prioritized access."

"Unlocked phones and open access are not necessarily related," Mathias said, noting that unlocked phones would also be subject to regulation by the U.S. Federal Trade Commission.

Jack Gold, an analyst at J. Gold Associates LLC in Northboro, Mass., said if the FCC doesn't dictate rules to unlock phones for part of the spectrum, then it should at least require carriers to fully disclose to buyers the actual cost of the phone and the carrier's actual subsidy during a two-year contract. One disclosure needed is how much a calling plan would cost without a cell phone subsidy -- what the carrier says is the consumer's part of the phone cost spread out over several months. Gold called it a "hidden tax."

With fuller disclosure, consumers would at least have more choices, Gold added. "Consumers are always better served by having true choice and not getting locked in," he said. "We decided years ago that Kodak should not be able to sell film that only fit their cameras and that only they could develop to maintain their monopoly. The phone market today is not all that different, except that you have more than one carrier acting in a similar fashion."

Copyright © 2007 IDG Communications, Inc.

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