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Unlock the cell phone? It's a high-stakes debate

Allowing consumers to mix and match wireless gadgets and service providers could spark innovation--and compromise security.

Imagine a day when you can buy the newest, coolest phone you can get your hands on--and use it on any wireless carrier's network.

Right now that's almost impossible in the U.S. But if the rules for the upcoming Federal Communications Commission auction of 700MHz spectrum, which is being vacated by analog TV, are written in a way that encourages what's being called "open access," the wireless market could evolve into a network as open and thriving with innovation as the Internet itself. The date for the auction hasn't been finalized yet, but it's expected to take place in January 2008.

"The wireless industry is stuck in 1994," said Amol Sarva, a co-founder of Virgin Mobile USA and chief executive of Txtbl. "Back then, AOL controlled how people surfed the Internet and what content they could access. And that's what the current wireless market is like today under the control of mobile operators."

The problem is simple. Today most of the 220 million American cell phone users are forced to buy handsets provided and controlled by their service provider. In some cases, mobile operators are actually turning off features or disabling applications so consumers cannot access them.

For example, some phone manufacturers have disabled Wi-Fi radios at the request of operators to ensure that people don't circumvent the carrier's network and use their home Wi-Fi connection or public hot spots for access to the Internet. The peer-to-peer application Skype, which allows people to make free and low-cost phone calls using an IP connection, is also banned by U.S. operators.

"Spectrum is a finite resource that must be managed efficiently for the benefit of all network users."
--Steven Zipperstein, vice president of legal affairs, Verizon Wireless

Some providers have opened their networks to a certain degree. T-Mobile USA, the smallest of the four major operators, has just launched a service that allows people to switch between Wi-Fi and cellular. T-Mobile and AT&T also allow more third-party applications on their phones. And the phones, because they are GSM, can often be "unlocked."

Verizon Wireless, on the other hand, is the strictest of the major carriers in terms of the devices used on its network and the applications allowed on its phones. For example, many Verizon Wireless customers complain that the company blocks the use of Bluetooth-enabled applications other than headsets.

The situation is quite different in other parts of the world, such as Europe, where consumers are able to buy unlocked phones that they can load with applications from a variety of developers.

And because the devices aren't connected to any one operator, consumers are free to take their device with them when they switch carriers. In the U.S., most cell phones are "locked," which means that when American consumers switch cell phone providers, they must get a new phone.

"Imagine buying a television that stopped working if you decide to switch to satellite," Tim Wu, a professor from Columbia Law School, told lawmakers last Tuesday at a that examined wireless innovation and consumer protection. "Or a toaster that died if you switched from Potomac Power to Con Ed. You'd be outraged, for when you buy something that usually means you own it. But it's not quite so when it comes to wireless devices."

As an example, Wu said that Apple's $600 iPhone, which can only be used on AT&T's network, becomes an expensive paperweight if the consumer decides to leave the AT&T network.

Steven Zipperstein, vice president of legal affairs at Verizon Wireless, said in his testimony last week that Verizon limits the devices and applications that can be used on the network to protect consumers and its network resources. He also said Verizon works with subscribers who want to use non-Verizon approved devices on their network.

"Consumers want their wireless carriers to offer a secure, high-quality experience and to ensure reliable voice and data service free from viruses and other threats," he said. "But the experience is built on the carriers' ability to manage their networks for the benefit of all their customers. Spectrum is a finite resource that must be managed efficiently for the benefit of all network users."

It's still unclear whether Congress intends to doing anything to force operators to allow any device to connect to their networks or to permit people to add third-party software to their handsets. While Congress was responsible for forcing wireless operators in 2003 to allow people to take their phone numbers with them when they switched providers, no legislation has been proposed that would ask operators to do the same for handsets.

Still, many advocacy groups are pushing Congress to apply rules established as part of the 1968 Carterfone decision, which allowed non-AT&T telephones to be connected to the regular phone network. Skype has already petitioned the FCC to loosen its rules on what devices and applications can be used on a carrier network citing the Carterfone decision.

Right now, the best bet for moving the issue forward is getting the FCC to include special provisions in rules for the upcoming spectrum auction that could require some form of "open access."

The chairman of the FCC, Kevin Martin, is already advocating for open access when it comes to devices. Earlier this week, he circulated a proposal of rules for the auction that would require winners of some 700MHz spectrum licenses to let any device connect to their networks so long as they are safe and do no harm to the network.

Consumer advocates and technology groups, such as the Wireless Founders Coalition for Innovation, applauded Martin for moving in this direction. But they say his proposal, which few people have actually seen so far, falls short of guaranteeing true open access. For one, critics say Martin has said little about requiring winners of these special spectrum licenses to offer open networks for wholesale use.

"What Chairman Martin proposes is a protection for consumers, and we think that's great," said Art Brodsky, communications director for the advocacy group Public Knowledge. "But the bigger issue is ensuring that we create an environment where there is more competition through an open-access network, which could eventually pressure cell phone operators to open up the rest of their networks."

Offering an open, wholesale network allows companies that may not be able to afford to build their own network or may not want to invest the capital on a new network the opportunity to sell service or develop new wireless applications.

On Monday, Google's telecom lawyer, Richard Whitt, said in a blog post that Google hasn't ruled out bidding on spectrum. But sources close to the company say Google's primary interest in the 700MHz auction rules isn't necessarily laying the groundwork for its own bid, but encouraging other companies to bid on the licenses, so that after the network is built Google can eventually rent capacity on a wholesale basis.

Why? The reason is simple. Google is not a communications service provider. It's an Internet company. Under its current business model, Google doesn't need to own the underlying pipes it uses to deliver search, Internet voice, e-mail or mapping services to broadband consumers, just like HBO doesn't need to own the cable infrastructure to offer viewers Entourage. Theoretically, Google shouldn't have to own the wireless infrastructure to deliver any of these services to mobile users either.

In a letter sent to the FCC last week, Google said the FCC should consider including four "open access" provisions in its rules, including one that would require licensees of the spectrum to also offer access to their networks on a wholesale basis at "reasonably nondiscriminatory commercial terms."

Without the wholesaling provision, consumer advocates and technology entrepreneurs say simply requiring operators to allow devices onto this new sliver of spectrum won't have much impact. For one, if an existing wireless carrier wins these spectrum licenses, the company would only be required to allow open access for that sliver of spectrum. The rest of the service, which uses other spectrum, wouldn't have to adhere to the requirement.

Instead, critics say the only way to force change in the market is to make sure that any company can access an open nationwide broadband network to deliver competitive services.

"If we establish an open network that allows new competitors to play around with offering unrestricted handsets, then the market will decide whether or not that is something consumers really want," Txtbl's Sarva said. "If we create this playground of innovation, we won't have to legislate new regulations, because the phone companies will be forced to change due to competition."