Is the smartphone 'kill switch' really bad for business in California?

Senators who nixed mandatory antitheft software on phones sold in state say it’s bad business. But many won’t say why.

Richard Nieva Former senior reporter
Richard Nieva was a senior reporter for CNET News, focusing on Google and Yahoo. He previously worked for PandoDaily and Fortune Magazine, and his writing has appeared in The New York Times, on CNNMoney.com and on CJR.org.
Richard Nieva
6 min read

Sen. Mark Leno and San Francisco District Attorney George Gascon introducing the "kill switch" bill in San Francisco in February Richard Nieva/CNET

When 17 California senators voted last week against a new law that would require that antitheft software be included on every smartphone sold in the state, many of them said the legislation would be bad for business in California.

But it's hard to get them to elaborate as to why they think that. Fourteen of the senators who voted down the bill either did not return calls or emails requesting comment or said they were unavailable for comment when asked for specifics about the business harm. Of the three senators who commented on their vote, one said he voted against the bill because he would rather see the issue addressed on a federal level, another said smartphone makers are addressing the issue already with new technology, and the third implied that mandating the software would push companies to leave the state.

SB962, introduced by state Sen. Mark Leno and sponsored by San Francisco District Attorney George Gascon, asks that device makers including Apple and Samsung put so-called "kill switch" technology on every smartphone and have the switch automatically turned on when people buy a phone. A kill switch lets users lock the phone if it is stolen, making it inoperable.

Smartphone theft has reached "epidemic" proportions, Leno says. One in every three robberies in the United States involves the theft of a mobile device, according to the Federal Communications Commission. On Gascon's home turf of San Francisco, over half of thefts involve phones or tablets. Across the bay in the city of Oakland, that number jumps up to more than 75 percent.

Consumer Reports says that about 1.6 million Americans were the victims of smartphone theft in 2012, and replacements of lost and stolen mobile devices that year cost an estimated $30 billion.

But the measure pits the bill's supporters against the wireless-telecom industry, which argues that kill switch software leaves phones vulnerable to hacking.

The industry softened its stance last month when the CTIA, a trade organization that represents the mobile-telecom companies, announced a commitment to make the the antitheft software standard on all phones from participating device makers and carriers -- including Apple, Samsung, Google (which makes the widely used Android mobile operating system), AT&T, Verizon, Sprint, and T-Mobile -- though ultimately the choice to include the software would be voluntary for the companies.

"Our members work hard every single day to help consumers prevent theft and protect their information. As evidenced by our proactive initiatives, we will continue our efforts, and any suggestion to the contrary is false," said Jamie Hastings, vice president for external and state affairs at the CTIA.

Under the CTIA's voluntary commitment program, the kill switch features would come automatically turned off by default -- a position that riles Leno and government regulators. They argue that requiring a customer to turn on the antitheft feature defeats its purpose, since the intent of the law is to send a message to would-be thieves that stealing an inoperable phone would be useless. The bill's supporters have said the wireless industry's resistance has to do with money, specifically losing business from insurance partners.

Carriers have business ties with insurance firms, selling plans to customers in case phones are stolen or damaged. And some people say that by potentially discouraging theft, kill switch legislation would make consumers less likely to shell out for such plans. In December, New York Attorney General Eric Schneiderman, who has also been at the forefront of the kill switch issue with Gascon, accused the carriers of being too closely tied to the CTIA and the insurance company Asurion. And Leno agrees the situation raises questions.

"There's an inherent conflict of interest," Leno told CNET.

Mandating companies 'to death'?

One of the oft-repeated points of the debate is that over-regulating tech companies -- which pay taxes in the state and have been an undeniable boon to the local economy -- would drive them out of California. "We want to mandate them to death, so they move in flocks to other states," Republican Senate Leader Robert Huff, said while arguing against the bill at the state capitol in Sacramento on April 24.

The No. 1 and No. 2 largest smartphone makers in the world, Samsung and Apple, already offer antitheft software to users of their devices. In September, Apple added "activation lock," a feature that makes it harder for someone to use a stolen iPhone. The program requires a user's Apple ID and password before they can turn off the phone's location tracking or reactivate a locked phone. Last month, Samsung, maker of the popular Galaxy smartphone line, launched "reactivation lock," which prevents a locked phone from being made operable again, even through a factory reset.

"They are well on their way and probably will not need any regulation at all," Sen. Jean Fuller, one of the 17 senators who voted against the bill, told CNET after the vote last week.

While the law would regulate only phones sold in California, Apple sells phones worldwide, Huff noted last week. This might force the company to sell two versions of the iPhone: One with the kill switch software turned on, and another that requires the customer to enable it. It's unclear if Apple would do that or just have the software turned on for its entire inventory of phones, but pressure from carriers and their insurance partners may cause the company to go with two versions.

Apple did not return a request for comment.

Besides the CTIA, other organizations opposed to the bill are the California Chamber of Commerce and the California Retailers Association, which don't think the software will be much of a deterrent against theft. Because people might be using a phone they purchased outside of California, thieves wouldn't necessarily think twice about grabbing a device. The Chamber of Commerce and Retailers Associations declined requests for interviews, and instead pointed to a written position on the measure, endorsed by both associations. It says, in brief, that the mandate is unnecessary and "risks distracting industry's focus on rapid deployment of security solutions."

"The Republicans in particular just ape the line of the California Chamber of Commerce," said Leno. "Everything they don't like is a job killer. Every raise in the minimum wage is a job killer, even though more jobs are created. It's not backed by any fact. It's just rote pronouncements."

If the concern is that businesses might abandon California, the question becomes whether any of the tech companies have made specific threats to leave the state because of the bill. "It is extremely rare for any companies -- particularly those that are publicly owned -- to make public statements about their future intentions with respect to relocation," William Bird, communications director for Republican Senate leader Robert Huff, said in an email. Huff, who also voted against the bill, was unavailable for comment.

Bird said a handful of companies have left California just since the beginning of this year, including Occidental Petroleum and Toyota, which announced earlier this week it would move most of its US operations from Torrance, Calif., to Plano, Texas. It's not certain if regulation played a major role in the companies' decisions to move.

Sen. Anthony Canella, a Republican, also voted down the kill switch bill but for reasons not having to do with business, his press secretary said. Canella thinks the issue should be addressed on a federal level, instead of each state trying to adopt its own individual law. A separate bill, the Smartphone Theft Prevention Act, was introduced in the US Congress in February and would address the issue on a federal level. But that bill, which also calls for customers to be able to remotely make data on a phone inaccessible if stolen, is still in committee, making its way through the legislative process.

Leno points out that the wireless industry initially lobbied hard against bills that outlaw texting while driving, until it became law in California in 2008. Now the four national carriers are big supporters of the "It can wait" campaign. That campaign urges drivers to refrain from texting. "They've seen the light," said Leno. "Unfortunately, how many people had to die before that?"