Vinton Cerf may be called one of the ‘fathers of the internet’, but he hardly ever uses Twitter. However, a little tweet from the 69 year old co-designer of TCP/IP may have tipped the balance and created a big headache for US President Barack Obama and some US mobile phone companies. With only a few days left to go, it looked like that petitioners demanding a change in the law for unlocking US mobile phones were likely to fall short of their target. Petitioners at whitehouse.gov needed a minimum of 100,000 digital signatures to force an official reply, after the government recently raised the minimum threshold from 25,000 signatures. It seems that Cerf’s call to support unlocking of mobile phones generated a late surge of support, pushing the petition over the limit. Now Obama’s administration will need to explain why US mobile contract customers who unlock their handsets face a first-time punishment of 5 years in prison, a USD50k fine, or both.
Yup, you read that correctly. 5 years in prison. A fine of 50,000 US dollars. Or both. That is the penalty that potentially faces any US customer that unlocks their mobile phone. It could be argued that no actual customer will be treated this harshly in practice. But such harsh penalties make it easy to force plea bargains, where customers accept lesser punishment rather than engage in a legal fight and risk a disproportionate penalty. And this kind of threat – the over-leveraging of excessive punishment – was a key factor in the recent prosecution, and suicide, of internet entrepreneur and activist Aaron Swartz. So when Obama’s administration issues its response, emotions might run high, especially if Obama is perceived to be engaging in ‘crony capitalism’.
Does this have anything to do with you? Well, yes, I think it does. Telcos are big private enterprises that have complicated relationships with governments. Some telcos are state-owned, whilst most others are heavily regulated. These relationships between telcos and government sometimes leads to control of, or distortion of, prices and free markets. When this occurs, the usual rhetoric of free markets and pleasing customers needs to be put into context. Success, and risk, can become more dependent on pleasing government than on normal competitive factors, as I mentioned in a recent post discussing which risks are core to telcos. So if government is effectively changing the business objectives, that alters the role of everybody who supports the business’ objectives, whether they are checking compliance to a government-determined price, or relying on government to enforce laws aimed at the telco’s customers.
The particular situation in the USA is further complicated by the fact that people are complaining about a law which, on the face of it, has nothing to do with locking or unlocking mobile phones. The Digital Millenium Copyright Act (DMCA) is aimed at stopping piracy of copyrighted material (the clue is in the name). It includes provisions that make it illegal to circumvent the kinds of technologies used to protect copyright. The DMCA also gives a very special power to the Librarian of Congress (who is not an actual Librarian) to make rulings about exemptions to the DMCA. This is important, because without the exemptions, there might be rioting. Without the exemptions, so many ‘normal’ kinds of behaviour become punishable that people might stop shrugging their shoulders and start getting seriously angry at their government. For example, blind people would be considered to be breaking DMCA rules when using technology to turn written content into spoken content; see here. The new fuss about unlocking mobile phones was caused because the Librarian of Congress previously made an exception for the locking of mobile phones, but will not make an exception any longer. So a law designed to make it difficult to infringe copyright has, in effect, been extended to make it difficult to unlock mobile phones.
It is reasonable to point out that customers sign a contract and that operators may choose to provide subsidized handsets with the aim of locking the customer in for the duration of their contract. But this change in US law does not alter the nature of any contract between customer and provider. What has changed is that the violation of a contract, which is a matter of civil law, is being transformed into a crime. In other words, instead of resolving a contract violation by one party (the telco) suing the other party (the customer), government is getting involved by giving itself the power to punish the customer. And before anyone jumps in to applaud the US government for ‘helping’ telcos, let me point out that smaller telcos like the idea of customers being able to change supplier, as shown by the campaigns of T-Mobile USA, which encouraged people to unlock their phones. T-Mobile USA issued a statement in response to the change in DMCA enforcement.
Do telcos want governments, like the US government, intervening in the market this way? It is fair to say that many people working for telcos love love love love government intervention when it suits them. They love it. But as far as I am concerned, those people can go to hell. They might as well sell their soul to the Devil whilst they are at it, because when government decides which private businesses are ‘winners’, then governments are likely to create far more losers than winners, because they kill real competition. A level-playing field gives a chance to new, small, innovative providers, and is not designed to favour those few companies that already dominate their markets. And a level-playing field is in the interests of consumers, as ably demonstrated by the intelligent and informed consumers who signed the petition at whitehouse.gov (and also by the many business, legal and political writers who support it, such as those found here, here and here). In fact, the petition has been extraordinary in comparison to most other petitions on whitehouse.gov. Most petitions appeal to support from the political left or right, but this petition has appealed not only to lefties worried about consumer protection and government interference with digital freedoms, but also to righties who are keen on small government and free enterprise. With that in mind, what telco really wants to have a Big Brother government supervising their customers, threatening them with prison and huge fines because they tried to change supplier?
A simpler approach would be to do what happens in so many markets: price handsets based on what they are really worth, without tie-ins and subsidies. Better still, offer both options, with subsidized tied handsets, and unsubsidized, untied handsets. Then you can make it clear to customers if they opt to take the subsidy, the telco will enforce the terms of the contract. Of course, I am suffering from idealism. The real problem here is that too few customers care about their network, and so operators want tie-ins between popular handsets and networks. They are afraid of offering untied handsets. But that brings us back to the very essence of the matter: what it means to have competition and a level-playing field. There is no obvious intrinsic reason why a consumer should be denied some channels if they watch a particular make of television set, or be restricted from driving on certain roads depending on the manufacturer of their car, or be only allowed to use one mobile network with their mobile handset. An inter-operable world is a better world. For all the talk of competition, many operators do not really compete, because customers do not care about who supplies them with the undifferentiated commodity of bandwidth. They care about their handset, much more than they care about their network. And unless telcos deal with that issue effectively, they will always be engaged in the risky business of courting governments and lawmakers at least as much as they compete for customers.