Unlocking Pandora’s Box

Arun Sarin announced today that Vodafone will never lock a handset again… okay, I made that up. But Vodafone is playing a dangerous game at the moment, which may lead to unpredictable and undesirable consequences for Vodafone and others. Vodafone Germany is using the law to mess with rivals T-Mobile and prevent them from selling iPhones locked exclusively to their network. The laws on locking handsets vary from country to country. In some, it is common practice. In others, there are legal obstacles. Using German law and precedent may dent T-Mobile’s immediate attempts to steal Vodafone’s customers with the seemingly irresistible iPhone, but at what ultimate cost?

Pandora’s box held “burdensome toil and sickness that brings death to men”. The contents were scattered, spreading a myriad of pains. Vodafone Germany may benefit if iPhones are unlocked, but adopting the moral high ground in one country only begs the question of whether they want to adopt the same policy everywhere. For a start, the European Commissioner for Information Society and Media, Viviane Reding, has demonstrated she is a forceful politician with a strong populist streak. She may well be able to turn legal spats in Germany and France into a Pan-European consumer right that no handsets are sold locked, and that contracts do not tie-in customers for excessive periods or with significant penalties for early termination. There have also been moves to introduce a cellphone “bill of rights” in the USA. However, it is Europe usually takes the lead in opening up telecoms markets and protecting consumer interests. The rest of the world may not follow immediately, but it often does follow. Number portability is a good example. Indian GSM customers are set to benefit from the similar portability to that enjoyed in Europe for several years, but this has also opened up debate about unlocking of handsets. If the world does follow a European trend away from unlocking, Vodafone may regret losing the option to lock customers to their network. As Vodafone has greater influence over the handset manufacturers than its rivals, by virtue of its size and global reach, that means they are giving up a bigger advantage than most.

Perhaps I am wrong to suggest that Vodafone is thinking just in the short term. They may also be thinking in the long term too. Locking handsets may be an advantage, but not if somebody comes along with a very very desirable handset. A handset manufacturer could start using their market dominance to call the shots with operators desperate to appease them. Does that remind you of anyone? Which brings us nicely back to Apple and the iPhone. Previously I blogged that Apple may well use the iPhone and the iTunes portal as a springboard to become a virtual service provider. This would cement the power of Apple’s brand, with control over the relationship with their customers, and leaving most customers blissfully unaware of who runs the network they are using. Turning networks into a brandless commodity would further undermine their power to earn margins, and hand it over to the companies like Apple that do have brand recognition. But if there is no handset locking anywhere, then there would be little reason to buy an iPhone on the Apple Virtual Network, as opposed to any other. So legally challenging handset locking may help liberate markets just at the right time to undermine the attempts of manufacturers to enter them. We shall have to see who suffers most if Pandora’s box – or handset – is unlocked.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.