evil corporations: apparently, part of a continuing series
I was heartened to see this story being carrier by the AP this morning. Some consumers are filing a lawsuit against cellphone carriers opposing the practice of "locking" phones -- preventing phones bought from carrier A from working with carrier B's network. It's true that there are two incompatible, competing cell technologies in the US -- CDMA and the international standard GSM -- but there's no technical reason why your CDMA phone can't work with any other CDMA carrier, and likewise with GSM (in most cases, anyway -- the actual details of GSM can occasionally make this complicated).
Why do companies lock phones? Simple: they subsidize the purchase of your handset, and they don't want to have to eat the cost when you go to a different carrier. At least, that's the conventional wisdom. But it's not true.
Or at least, it's coming at the problem backward. You won't ever find a subsidized phone that doesn't require that you sign up for a cell contract, and you won't ever find a cell contract that doesn't have an early cancellation fee that will more than cover the cost of the phone. Clearly T-Mobile does not lock phones just to make sure that there's enough money to continue their tradition of generous gifts to consumers.
So why do they do it? Mostly, to screw their competitors, in an oddly circular and unproductive manner. If phones weren't locked we could wander freely from carrier to carrier, like naked savages in a cellular Garden of Eden. With locked phones, you need a new handset whenever you change companies. Customers have a disincentive to leave, because they know that a new carrier will require the purchase of a new phone. In order to attract new customers, the carriers must therefore lower the barrier to signing up, and are forced to subsidize the phones.
Adam Smith couldn't have foreseen a digital watch on his Invisible Hand's wrist. Technology now allows companies to game capitalism in ways that ought to be legislated out of existence. Instead of lowering the cost of their own services or improving those services' quality, companies now have the option of raising the price of their competitors' services. This is exactly how ATM fees work: by setting the price of access to their ATMs, banks get to raise the price paid by their competitors' customers. All it takes is a little willingness to fuck over the consumer.
But since everybody does it, no competitive advantage is conferred -- except perhaps to the largest players, the guys with the most ATMs/cell phone coverage. They'll naturally attract and retain customers because of the barriers that the industry has erected to competition. So what's the remaining advantage? Well, mostly there isn't one. The phone companies have painted themselves into a corner at the expense of the consumer, and there's no way out except for government intervention.
If there is a lingering silver lining for the cell phone industry, it's this: by locking and subsidizing handsets the companies' revenue stream is shifted from goods to services. In the process, consumers' property rights are subtly eroded as we inch toward techo-serfdom. I've complained about this previously: corporate America is doing its damnedest to convert us from individual citizens who own assets and can make decisions that drive the market to immobile revenue streams, technologically indentured to whatever business entity had the best ads during our childhood.
But hey, if you don't believe the business world's pitch-black heart is straining to oppress you, I probably can't convince you otherwise. But I invite you to have a look at what Samsung is distributing to this year's Olympic Torchbearers:
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